Does supply chain visibility affect operating performance? Evidence from conflict minerals disclosures

Abstract

Firms are increasingly held accountable for their suppliers' transgressions. Consequently, firms need to develop upstream visibility to exercise control over their supply chains. An emerging body of work has recognized the importance of supply chain visibility and has examined it using analytical models, behavioral methods, and case studies. Still, large-sample empirical evidence on the benefits of supply chain visibility remains elusive. We seek to bridge this gap by examining conflict minerals disclosures (mandated by the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act) and financial reports to evaluate whether firms with greater visibility into their conflict minerals supply chains achieve improved operating and market performance. We use the data from conflict minerals disclosures (Form SD) to distinguish between firms that have high or low visibility into their conflict minerals sources. Then, we use event study methods to analyze differences in operating and market performance between firms with high visibility and firms with low visibility. We find that firms with high visibility into their conflict minerals supply chains achieve higher profitability than comparable firms with less visibility. In addition, we find that firms with high visibility into their conflict minerals supply chains realize improved sales performance and stock market valuations. Our results are relevant to managers because they show that firms can attain operational and market benefits by improving visibility in their supply chains. K E Y W O R D Sconflict minerals, event study, operating performance, supply chain visibility

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“…The existing literature enlists plenty of studies claiming benefits of supply chain ecosystems (Blackhurst et al 2005;Caridi et al 2014;Kim and Lee 2010;Swift et al 2019). Sharing information within a supply chain improves performance, for instance, by minimizing the bullwhip effect as well as inventory costs (Yu et al 2001;Lee and Wang 2005;Lee and Whang 2000;Kim et al 2016).…”

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“…For instance, firms with high visibility into their conflict minerals supply chains achieve higher profitability than firms with less visibility. Moreover, firms with high visibility into their conflict minerals supply chains realize improved sales performance and stock market valuations (Swift, Guide, & Muthulingam, 2019). As these relationships reflect a buying firm's upstream supply chain, we regard this as the vertical perspective of the supply network (T. Y.…”

“…The outsourcing of manufacturing can even cause a lack of control (Y. H. Kim & Davis, 2016;Serdarasan, 2013). Therefore, firms need to develop upstream visibility to exercise control over their supply chains (Swift et al, 2019). The need for supply chain transparency is high (Kashmanian, 2017).…”