Recovering Global Supply Chains from Sourcing Interruptions: The Role of Sourcing Strategy

Jain, N, Girotra, K and Netessine, S (2020) Recovering Global Supply Chains from Sourcing Interruptions: The Role of Sourcing Strategy. Working Paper. Social Science Research Network.

Abstract

Problem definition: Fast recovery from sourcing interruptions is a key objective for global supply chains and for business continuity professionals. In this paper, we study the impact of different supply chain strategies—supplier diversification and the use of long-term relationships—on the ability of a supply chain to recover from sourcing interruptions.

Academic/Practical relevance: Improving supply chains' recovery ability has been an important focus area for both practitioners and academics. Collectively, available anecdotal evidence and theoretical analyses provide ambiguous recommendations driven by competing effects of different sourcing strategies. Our paper provides the first rigorous and large-scale empirical evidence relating the use of different supply chain strategies to the ability of a supply chain to recover from supply-interruptions.

Methodology: We develop a compound estimator of a supply-chain's recovery rate that can be constructed using limited available data (only the time series of firms' actual sourcing behavior). Using more than two and half million import manifests, we extract firms' maritime sourcing transactions and we use this data to estimate recovery rates of different firm-category supply chains of publicly traded US firms.

Results: We find that supplier diversification is associated with slower recovery from sourcing interruptions, while the use of long-term relationships is associated with faster recovery. A one standard deviation decrease in the former is associated with a 16% faster recovery, and a like increase in the latter is associated with a 20% faster recovery.

Managerial implications: Our paper brings important empirical evidence to the hitherto theoretical debate on the impact of sourcing strategies on faster recovery in supply chains. We therefore provide actionable advice on supply chain design for faster recovery.