Supply Chain Risk Management in Financial Crises

I am still abroad right now, but nonetheless I still want to keep the German share within the articles high. So I present to you the second article from German authors in just one week. On monday I already talked about Supply Chain Risk Management in the German Automotive Industry and so the second is today on how supply chain risk management is performed during a financial crisis.

The authors Constantin Blome and Tobias Schoenherr are both from the European Business School (EBS), one of only few privately owned German business schools. Their 2011 paper is on supply chain risk management during times of a financial crisis.

Methodology

The authors employ a case study design for two reasons:

• Only little is known of the consequences of a economic crisis on supply chain risk management (and there are no other studies concerned with this topic).
• Case study research is furthermore a good method to study complex phenomena.

The authors decided to focus on the procurement departments of eight participating companies, overall conducting 25 interviewees.

Results

From the interviews the authors inferred propositions in four categories:

Impact on SCRM

The effect of the financial crisis on SCRM process (risk identification, analysis, mitigation and monitoring) has been analyzed. The interviews indicate that the tasks within SCRM process are shifting towards a more comprehensive approach concerning all aspects.

A typical statement concerning the risk analysis is:

Before the financial crisis we didn’t have a very professional assessment of our suppliers’ financials; now we have a very good system working

Risk mitigation vs. acceptance

The authors differentiate two major strategic orientations: Risk acceptance and risk mitigation. They were able to identify two company classes: direct spend (most purchases are raw materials and input products; especially in manufacturing companies) and indirect spend (mostly service companies).
Based on this classification the authors found:

The current financial crisis fosters especially a risk acceptance (as opposed to mitigation) approach in direct spend firms. Indirect spend firms are already more focused on risk acceptance approaches and have not changed their behavior.

Service vs. manufacturing

Next the authors analyze the findings concerning the relationship between manufacturing and servicing companies and conclude:

Overall, we found that the emphasis on the four risk management processes was greater among firms procur- ing predominantly direct materials (manufacturing firms) than for firms producing primarily indirect items (service firms).

Enterprise risk management and SCRM

Finally the author analyzed the relationship between supply chain risk management and enterprise risk management and find that:

• “The financial crisis has not influenced the relationship between ERM and SCRM.”
• “The existence of an ERM system is a major antecedent for the implementation of a SCRM process.”

Conclusion

Case study research is meant to be the qualitative foundation for further in depth analysis using other methods like surveys, simulation or similar. Blome and Schoenherr deliver exactly this basis, by stating their results in the form of four propositions.