A Multi-Theoretical Model of Supply Risk and an Empirical Analysis

The management of supply disruption risk has become an important issue for supply chain managers. This paper develops new measures of supply risk and investigates how attributes of purchased direct materials and their associated supply markets affect purchasing managers' perceptions of the supply disruption risk their firms face. While supply chain research has advocated the increased use of behavioral approaches to supply risk mitigation, these types of strategies, such as supplier development, cost management and supplier relationship management activities, lack broad empirical testing because of a lack of measures, definitions, and empirically testable theory in the area of supply risk. We draw from behavioral risk theory and operationalize two dimensions of supply risk: probability and magnitude of supply disruption. We then develop a nomological network of supply risk based in transaction cost economic and resource dependence theories, and examine a three-stage model in which the probability and magnitude of supply disruption mediate the relationships between supply market and product attributes and perceptions of overall supply risk. We then test our theoretical model by applying structural equation modeling techniques on survey response data obtained from a sample of ISM buyers and purchasing managers. Ultimately, we find strong empirical support for our operationalization of supply risk. Furthermore, by contrasting our mediated behavioral model with a direct effects model, we find that our theoretical model explains twice the variance in overall supply risk versus alternative models that ignore behavioral effects. Finally, our findings highlight the complementary nature of transaction cost and resource dependence theories and indicate the importance of studying supply disruption risk from a multi-theoretical perspective.