Uncertainty and supply chain risk: The moderating role of supply chain flexibility in risk mitigation

Abstract

In order to remain competitive in the market, firms are forced to expand their product offerings and offer high levels of customization, bringing about high uncertainty in their supply chain. Firms that face high environmental uncertainty are increasingly facing higher risks in terms of supply disruptions, production and delivery delays that ultimately result in poor operational performance. This study aims at understanding the antecedents of supply chain operational risk faced by firms and the conditions under which such risks can be mitigated. Using Indian data from the sixth edition of International Manufacturing Strategy Survey (IMSS) and structural equation modeling, we investigate the relationships between environmental uncertainty and supply chain risk and the moderating effect of supply chain flexibility. We identify appropriate types of flexibility to mitigate the three major aspects of supply chain risk: supply risk, manufacturing process risk and delivery risk. Our empirical investigation reveals that uncertainty in the supply chain leads to high supply chain risk; and in uncertain environments, supply and manufacturing flexibility help in reducing the supply and manufacturing process risks respectively. However, our results also indicate that, in emerging markets such as India where logistic infrastructure is less developed, internal capabilities alone may not be sufficient in reducing supply chain delivery risk. Our findings not only contribute towards filling certain gaps in the supply chain risk management literature, but also provide practicing managers and researchers a better understanding of the types of flexibility that can mitigate supply chain risk in different business environments.