The International Journal of Logistics Management

Supply risk management and competitive advantage: a misfit model

Jury Gualandris, Matteo Kalchschmidt,
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Supply risk management SRM and

competitive
and competitive advantage: advantage: a
misfit model
a misfit model
Jury Gualandris 459
UCD Michael Smurfit Graduate Business School, University College Dublin, Received 22 May 2013
Dublin, Ireland, and Revised 8 November 2013
20 February 2014
Matteo Kalchschmidt 15 May 2014
Department of Management, Information and Production Engineering, Accepted 10 August 2014
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Università degli Studi di Bergamo, Dalmine, Italy

Abstract
Purpose – The purpose of this paper is to develop a model of congruence for the management of
supply risk that is easy to apply, but also accurate. The authors also aim at providing empirical
evidence about the relationship between misfit – i.e. the incongruence between a firm’s preparedness in
(supply) risk management and the potential riskiness characterising the context – and competitive
advantage.
Design/methodology/approach – In line with the purpose, literature and field interviews were used
to develop a model of congruence in the context of supply risk management (SRM) and operationalise it
within a questionnaire. Then, the authors collected survey data to validate the model.
Findings – Results show that competitive advantage decreases when the firm’s preparedness in SRM
does not match to the pattern of risk conditions (i.e. environmental vulnerabilities).
Research limitations/implications – The model of congruence here developed is simple to apply
but offer effective decisions support. This study, thus, stimulates future research on the assessment
and management of supply chain risk. This study, also, fosters the attention to the non-linear
relationship between risk management and business performance.
Practical implications – This study develops a model that can be used by practitioners to configure
an optimal adoption of SRM practices. Also, the analysis allows to draw some specific recommendations
for supply chain managers aiming at improving their preparedness in SRM.
Originality/value – By relying on SRM literature, the balanced-resilience logic and the theoretical
framework of contingency theory, this study develops and test a model of congruence that shows how
companies can gain competitive advantage through the management of supply risk.
Keywords Risk, Fit, Supply chain management, Balanced-resilience
Paper type Research paper

1. Introduction
In recent decades, the unpredictability of customers’ needs and the uncertainty
surrounding technological trajectories have both steadily increased, leading to a higher
potential for supply risk (e.g. Christopher and Peck, 2004; Blackhurst et al., 2011). At the
same time, the spread of initiatives such as outsourcing and delocalisation and an
increase in product variety has led to augmented firms’ dependency on suppliers, with
significant consequences for firms’ ability to recover from supply risk (e.g. Christopher
and Peck, 2004; Blackhurst et al., 2011). Supply chain managers, however, are becoming
The International Journal of
increasingly aware of the importance of managing supply risk effectively: the potential Logistics Management
occurrence of supplier delays (e.g. as a consequence of variation in suppliers’ production Vol. 26 No. 3, 2015
pp. 459-478
lead times), supply distortions (e.g. as a consequence of opportunistic behaviours and © Emerald Group Publishing Limited
0957-4093
shortages in supply markets) or supplier failures (e.g. as a consequence of vendor DOI 10.1108/IJLM-05-2013-0062
 IJLM financial instability, because a disruptive incident interrupts the supplier’s internal
26,3 operations, or because the supplier vertically integrates and becomes a direct competitor
of the buying firm) is perceived by practitioners to be one of the most relevant forms of
risk (Zsidisin, 2003; Thun and Hoenig, 2011; Ellis et al., 2010). Yet, managers require
support from academia to develop structured and systemic approaches to assess and
manage these risks properly ( Jüttner, 2005).
460 The literature on supply risk management (SRM) has been growing over the last
decade. Specific factors, or risk conditions, have been identified that increase a system’s
susceptibility to supply risk (Kraljic, 1983; Peck, 2005; Choi and Krause, 2006; Wagner
and Bode, 2006; Wagner et al., 2009; Ellis et al., 2010, 2011; Christopher et al., 2011):
environmental turbulence (ET), difficult supply markets, critical purchases (i.e. complex
and customised) and global sourcing (GS) all greatly influence a firms’ exposure to supply
risk. In addition, the literature has studied how managers can reduce their exposure to
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supply risk. Besides practices aimed at increasing manufacturing flexibility (Gualandris

and Kalchschmidt, 2013, 2015), four primary purchasing and supply management
practices have been investigated that can counter-balance risk conditions (Harland et al.,
2003; Yu et al., 2009; Thun and Hoenig, 2011; Zsidisin and Wagner, 2011; Ellis et al., 2011;
Blackhurst et al., 2011): dual (or multiple) sourcing, vendor rating (VR) programmes,
supplier integration and development (SID) and revenue-sharing contracts (RSC).
An increased preparedness in SRM may allow firms to effectively anticipate and
overcome supply risk, while taking advantage of problems that affect peers’ supply
chains (Sheffi, 2003). Managers, however, are advised to bear in mind the acceptable
cost-benefit trade-off when adopting risk management practices. If on one hand, risk
management helps to mitigate the impact of adverse environmental conditions on
business performance, on the other hand, it absorbs many resources, with negative
implications for profit. Pettit et al. (2010, 2013), for instance, propose and empirically
implement a risk management framework that assumes that operating in conditions
of unbalanced resilience (i.e. when preparedness in risk management does not match the
pattern of a company’s vulnerabilities) is detrimental for competitive advantage.
The SRM literature presents relevant gaps. First, there is a key debate on risk in
terms of qualitative vs quantitative approaches to risk assessment and management
(Zsidisin et al., 2004). As highlighted by Gualandris and Kalchschmidt (2014), in fact,
“qualitative models can be used to evaluate many types of risks in many situations, but
they do not yield reliable results or decision support […] to the contrary, quantitative
tools are usually more accurate but tend to be more complex and thus are usually
developed for specific risks, networks or contexts; they tend to be less useful when
an overall assessment of risk is required”. Second, the application of risk theory to
supply chain management is still in its early stages (Khan and Burnes, 2007; Sodhi
et al., 2012): existing models and their underlying assumptions lack empirical
validation (e.g. Blackhurst et al., 2011; Pettit et al., 2013).
To take a step towards filling these gaps in the literature, this research applied the
balanced-resilience logic proposed by Pettit et al. (2010, 2013) to SRM theory (Kraljic,
1983; Harland et al., 2003; Zsidisin, 2003; Wagner and Bode, 2006; Wagner et al., 2009;
Ellis et al., 2010; Zsidisin and Wagner, 2011; Blackhurst et al., 2011; Christopher et al.,
2011; Gualandris and Kalchschmidt, 2014) with the aim of developing a model of
congruence for the management of supply risk that is easy to apply but also accurate.
A “misfit” index that was able to quantitatively measure a company’s resilience-gap in
SRM was also operationalised. This index reflects the theoretical framework of
contingency theory (Donaldson, 2001) and the state-of-the-art of misalignment schemes
 available in the literature (e.g. da Silveira, 2005). We lastly empirically tested the SRM and
relationship between misfit – i.e., the incongruence between a firm’s preparedness in competitive
(supply) risk management and the potential riskiness characterising the context – and
competitive advantage using survey data. On the one hand, our findings complements
advantage: a
prior SRM research, which suggests that dual sourcing (DS), VR, SID as well as RSC, if misfit model
leveraged in a coordinated fashion, allow effective mitigation of supply vulnerabilities.
On the other hand, our study applies contingency theory to supply chain management 461
and provides sound empirical evidence to an assumption that is usually taken for
granted in the literature (i.e. misfit negatively impacts competitive advantage) (e.g.
Blackhurst et al., 2011; Pettit et al., 2013, p. 57).

2. Background and hypothesis

In the context of supply chain management, risk has primarily been addressed as potential
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negative variation in the distribution of possible supply chain outcomes ( Jüttner et al.,
2003, p. 200) based on the likelihood and severity. With respect to sources of risk, several
studies consider supplier or supply risk, single entities and process risk, or customer and
demand risk (Sodhi et al., 2012). In regards to risk categories, delays, distortions and
disruptions are among the three most studied risk categories in the literature (Talluri et al.,
2013). Delays can be viewed as recurrent risks (i.e. high likelihood, low severity) and can
occur because of variations in transportations and production lead times. A distortion
occurs when one or more parameters within the supply chain system, such as order sizes,
stray from their expected value. Recurrent risks are thus disaggregated into delays and
distortions as risks related to time and quantity of orders are naturally different.
A disruption, finally, occurs when the supply chain is radically and unexpectedly
transformed through non-availability of certain production, warehousing, distribution, or
transportation options, such as equipment failures (i.e. low likelihood, high severity).
In this study, we focus on supply risk, which refers to the potential occurrence of
supply delays (e.g. as a consequence of variation in suppliers’ production lead times),
supply distortions (e.g. as a consequence of opportunistic behaviours and shortages
in supply markets) or supplier failures (e.g. as a consequence of vendor financial
instability, because a disruptive incident interrupts the supplier’s internal operations,
or because the supplier vertically integrates and becomes a direct competitor of the
buying firm) (e.g. Zsidisin, 2003; Craighead et al., 2007). The management of supply risk
is particularly worth investigating because it significantly relates to a firm’s ability to
satisfy final demand and to remain profitable (Hendricks and Singhal, 2005; Rao and
Goldsby, 2009). A firm’s susceptibility or predisposition to supply risk depends on
exogenous vulnerabilities (i.e. risk conditions) and endogenous capabilities (i.e. those
developed by adopting SRM practices).
According to SRM literature (Peck, 2005; Trkman and McCormack, 2009;
Wagner et al., 2009; Ellis et al., 2010; Pettit et al., 2010; Zsidisin and Wagner, 2011;
Blackhurst et al., 2011; Christopher et al., 2011; Gualandris and Kalchschmidt, 2014,
2015), four conditions increase a firm’s susceptibility to potential supply disruptions:
ET; difficult supply markets; purchase criticality (PC); and GS. ET, which usually
manifests itself in the form of frequent changes in technology and market needs, causes
instability throughout the supply chain, produces negative consequences in terms of
organisational dependency and results in a higher-than-necessary total cost of supply
(Paulraj and Chen, 2007, p. 32; Ellis et al., 2011). In the case of high supply market
concentration and limitations on supplier capacity, the firm’s room to manoeuvre when
disruptions occur is reduced and supplier opportunism is more likely to be an issue
 IJLM (Wagner et al., 2009; Blackhurst et al., 2011). Similarly, when a firm purchases complex and
26,3 highly customised goods, switching costs increase, bringing negative implications in
terms of supply risk severity (e.g. Kraljic, 1983; Zsidisin, 2003; Blackhurst et al., 2011).
Last but not the least, working with suppliers operating in another continent, in
comparison to local sourcing, is usually associated with increased supply chain
complexity, which directly increases a firm’s susceptibility to supply risk (Wagner and
462 Bode, 2006; Christopher et al., 2011). In their cases, however, Gualandris and Kalchschmidt
(2014) found that these risk conditions do not imply higher supply risk per se: they
represent relevant vulnerabilities if they are not adequately managed. By way of
illustration, GS may imply higher transaction costs, opportunism and higher exposure to
adverse events that result in supplier failure. Nevertheless, if approached strategically,
GS allows the acquisition of resources, knowledge and technologies that are not
available locally (Trent and Monczka, 2003). Thus, it is suggested that companies manage
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vulnerabilities to exploit opportunities in their business environment.

Pettit et al. (2010, 2013) explored antidotes to major supply chain disruptions such as
oil spills, disastrous tsunami, power blackouts and political upheavals, suggesting the
adoption of practices that develop important capabilities such as flexibility in sourcing
(i.e. the ability to quickly change inputs or the mode of receiving inputs), anticipation
(i.e. the ability to discern potential future events or situations), visibility (i.e. knowing
the status of operating assets and the environment) and recovery (i.e. the ability to
mitigate consequences). According to SRM literature (e.g. Harland et al., 2003, p. 55;
Zsidisin, 2003; Gualandris and Kalchschmidt, 2014), four specific practices are
suggested to instil such capabilities in a company: dual (or multiple) sourcing; VR
programmes; SID; and risk-sharing contracts. Flexibility in sourcing can be improved
by employing two (or more) vendors for each supply item, which is optimal when there is
asymmetric information about the supplier’s cost structure or in the case of supply
disruptions (Yu et al., 2009). VR programmes that employ both operational and
financial criteria enable anticipation: adverse selection may be avoided and weak signals
regarding suppliers’ performance deterioration may be identified early. SID, then,
produces tangible benefits such as greater visibility and more reliable deliveries
(Krause et al., 2007; Ellis et al., 2011; Blackhurst et al., 2011). Revenue-sharing contracts
complement the other practices by reducing opportunistic tendencies and the severity of
risk (i.e. recovery capability) (Cachon and Lariviere, 2005).
An extensive adoption of SRM, however, might also have drawbacks. For instance,
DS typically involves additional costs compared to both single and multiple sourcing.
On the one hand, focal firms face higher transaction costs due to the duplication of
procurement processes and the higher potential for frictions (Pilling et al., 1994, p. 239).
On the other hand, companies buy at a higher purchase price (back-up suppliers must
support specific investments that increase prices and focal firms cannot obtain
discounts due to small ordered quantities). Furthermore, as soon as managers engage
in supplier selection, it immediately translates into an opportunity cost associated with
the unselected alternatives (Luhmann, 1995). In addition, because SRM practices may
bring similar benefits, their adoption is characterised by a decreasing marginal effect
on a firm’s ability to manage risk (Wang et al., 2010). In this vein, Pettit et al. (2010,
2013) suggest that managers should pursue a state of balance between investments
and risk that the authors define as “balanced-resilience”. The authors assert that
balanced-resilience will result from a fit between the vulnerability factors (i.e. risk
conditions) and the capacity factors (i.e. SRM practices) and will have a positive
association with competitive advantage. In a situation of balanced-resilience, firms can
 exploit the opportunity offered by supply risk to impress customers and win their SRM and
loyalty while making efficient use of internal resources. competitive
In line with the balanced-resilience logic, companies that operate in risky conditions
should implement SRM practices extensively, or they will suffer from potential
advantage: a
disruptions. However, we can expect that companies operating in a rather “stable” misfit model
environment will tend to limit the application of SRM practices; if they do not, they will
suffer from high transaction costs, sub-optimal supplier performance and the inefficient 463
allocation of internal resources. Thus, we propose the following:
H1. A firm’s competitive advantage improves when misfit decreases (or when
capabilities and vulnerabilities are more balanced).
Figure 1 shows our model of congruence, which suggests that when a misfit between
risk conditions and SRM practices does exist, competitive advantage will be negatively
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impacted.

3. Methodology
In line with our objective, literature and field interviews were used to develop a model
of congruence in the context of SRM and to operationalise it within a questionnaire.
We then collected survey data to test our hypothesis. This study is part of a larger
research program to investigate factors associated with manufacturing firms’ exposure
to supply risk (Gualandris and Kalchschmidt, 2013, 2014, 2015).

3.1 A misfit model

The model of congruence developed in this study is aimed at comparing risk conditions (i.e.
vulnerabilities) with the extant SRM practices (i.e. capabilities). This follows the holistic
perspective of fit as “characteristics of environmental niches and organisational forms
[that] must be joined together in a particular configuration to achieve completeness in a
description of a complex system” (Van de Ven and Drazin, 1985, p. 323). The holistic
perspective of contingency theory (Donaldson, 2001) allows the researcher to specify a risk
profile (i.e. calculated using risk conditions and representing the necessary extent of SRM
practices) and to demonstrate that adherence to such a profile has systematic implications
for performance. Pfeffer (1982, p. 158) refers to this concept as the “consonance hypothesis”,
i.e., “those organizations that have structures that more closely match the requirements
of the context will be more effective than those that do not”. This holistic perspective

Risk
conditions

RH1- COMPETITIVE
MISFIT
ADVANTAGE

SRM practices
Figure 1.
Conceptual model
 IJLM of fit retains the systematic nature of strategy-environment congruence. Furthermore,
26,3 this scheme is flexible and incorporates the relative importance of the constituent
environmental dimensions (i.e. risk conditions) and the relative importance of the
constituent strategy dimensions (i.e. SRM practices) into the measure of congruence
(i.e. misfit index) based on theoretical and empirical reasoning.
For this study, the measure of misfit is derived from the literature (da Silveira, 2005).
464 It is based on a weighted Euclidean distance between the experimental unit and a risk
profile derived from the variables considered significant in the fit equation:
vffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffi
sffiffiffiffiffiffiffiffi uuP4
  2
t W  X  X~i
Di j¼1 j ij
M I SFI T i ¼ ¼ (1)
j1 4
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where Di is the weighted distance between the real adoption of SRM levers within
organisation i and its risk profile; Wj, the weight of practice j; Xij, the standardised degree
of adoption of lever j in organisation i; and X~ i , the risk profile score of organisation i, which
is given by the weighted sum of its k risk conditions. In this study, i varies from 1 to 54
(i.e. number of observations, see Section 3.2), j varies from 1 to 4 and k varies from 1 to 4.
The risk profile of organisation i is calculated using the weighted mean of its four
risk conditions, where Wk represents the weight of risk condition k:
P4
~ ðW k  X ik Þ
X i ¼ k¼1 P4 (2)
k¼1 W k

Intuitively, the risk profile X~ i represents both the exogenous riskiness faced by
organisation i and the ideal preparedness in SRM that i should have in order to counter-
balance such risk.
Assuming equal weights for the underlying dimensions of the model might be
inadvisable because an effective package of resource deployments (i.e. adoption of SRM
levers) should reflect differential emphasis, which depends on: first, the importance of
each particular SRM lever to a firm’s ability to manage risk; and second, the relevance
of each risk condition to the potential exposure to risk. Nevertheless, the literature does
not provide clear guidance about the relative importance of SRM levers and risk
conditions. Additionally, we are unable to estimate Wj and Wk through the procedure
applied by Venkatraman and Prescott (1990): the “real” exposure to risk of each
company cannot be quantified and used as dependent variable in a regression equation.
Thus, in the subsequent analysis, we set Wj and Wk equal to one. We discuss the
limitations of this assumption in the conclusion.

3.2 Survey development

The operationalisation of the questionnaire followed the stepwise procedure suggested
by Churchill (1979). First, content validity was established by grounding the model in
the existing literature and by identifying existing and appropriate measures (Choi and
Hartley, 1996; Krause et al., 2007; Paulraj and Chen, 2007; Wagner et al., 2009; Trkman
and McCormack, 2009; Ellis et al., 2010; Zsidisin and Wagner, 2011). Second, the
questionnaire was designed and iteratively improved to maintain a reasonable survey
length (Dillman, 2007) and minimise the biases that occur in survey-based studies with
single respondents and perceptive scales (Malhotra et al., 2006). The questions
about risk conditions and SRM levers were positioned in different sections of the
 questionnaire. Pre-testing before data collection added further validation in terms of SRM and
face, trait and content validity. Five field interviews with supply chain managers of competitive
medium-sized manufacturing firms were conducted. Experts were asked to fill out
the survey instrument in the presence of the researchers and were asked to follow a
advantage: a
“think aloud” method (Benbunan-Fich, 2001). In this method, as the respondents misfit model
undertake a task (filling out the questionnaire), they should put into words any issues
or ambiguities, thereby providing insight into problematic areas. This procedure was 465
interactively repeated and the manager of the last firm recommended no changes, thus
indicating that the questionnaire had reached a steady state. The measures are detailed
below, while the questionnaire is provided in the Appendix (see Table AI).
Difficulty of supply markets (DSM). High concentration and or restrictions on the
suppliers’ ability to produce goods (i.e. manufacturing capacity constraints) characterise
“difficult” supply markets, where the likelihood of opportunistic behaviours is high and
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significant barriers are faced by companies substituting an unreliable supplier with a

new source (Kraljic, 1983; Wagner and Bode, 2006; Ellis et al., 2010; Zsidisin and Wagner,
2011; Blackhurst et al., 2011). Thus, a construct composed of two items was built by
asking companies to evaluate the degree of concentration and the capacity constraints of
their supply markets on a five-point Likert-scale (1: low – 5: high).
ET. A turbulent environment is characterised by frequent and unpredictable market
and/or technological changes that accentuate risk. ET, thus, is measured by asking
companies to provide an evaluation on a five-point Likert-scale (1: low – 5: high) of
three items (cf. Ward and Duray, 2000): “the rate at which products become outdates”,
“the rate at which processes innovate”, “the rate at which customers change their
preferences”. Although technology and customers can be seen as two distinct sources of
ET, technological and market changes may also covary. For instance, once customers
become aware of the availability of an innovative feature (e.g. a safer or more efficient
technology), they may be unwilling to purchase any product or service not containing the
desired feature. Therefore, all players in the market are required to adapt to this new
expressed need or to the new technology, which rapidly becomes the required standard.
PC. In line with the literature (Kraljic, 1983; Wagner et al., 2009; Ellis et al., 2010;
Blackhurst et al., 2011), critical purchases are usually complex (i.e. large number of
parts and interfaces which are hard to handle) and specific goods (highly customised
goods essentially built for your company). As these two product characteristics
increase, companies increase their dependency on suppliers and find it difficult to
recover from the occurrence of supply risk. Thus, PC is measured by asking companies
to provide an evaluation on a five-point Likert-scale (1: low – 5: high) of two items:
degree of purchases complexity (e.g. large number of parts and interfaces which are hard
to handle) (Mesquita and Brush, 2008) and degree of purchases specificity (e.g. highly
customised goods essentially built for your company) (Ellis et al., 2010).
GS. GS was measured using the percentage of purchases made outside of the
continent in which the plant is based. A similar measure was used in other studies in
the field (Cagliano et al., 2008). This measure is a good proxy for geographical distance
and possible supply issues. In fact, intra-continent trades are usually easier, thanks to
trade agreements (e.g. EU, NAFTA) and overland transportation. In addition, this method
for assessing GS allows companies with multiple suppliers and mixed global-local supply
strategies to provide an average value.
DS. When this practice is leveraged, a company employs two competing suppliers
for each specific purchase to diversify order quantities and hedge against the sudden
 IJLM demise of a single supplier (Tomlin, 2006; Zsidisin and Wagner, 2011). Thus, DS is
26,3 measured by asking companies to provide an evaluation of the percentage of purchases
for which the firm maintains one back-up source.
VR. Regardless of position in the supply chain, a company’s capability to select and
monitor suppliers is as developed as the structured procedure a company applies in order
to assess supplier performance beyond price (Choi and Hartley, 1996). Specifically, criteria
466 related to technological capabilities, safety and financial issues appear to be particularly
important when selecting strategic suppliers (de Boer et al., 2001). Accordingly, a construct
composed of three items was built by asking companies to assess on a five-point
Likert-scale (1: never – 5: for each kind of good) how often they assess: the technological
characteristics of their supplier’s plants; operational safety and maintenance programmes
within their supplier’s plants; and the financial strength of each supplier.
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SID. SID has been defined as any effort by a company to integrate with suppliers
and improve their performance or capabilities (Krause et al., 2007). Investments with
the goal of integrating suppliers and improving their capabilities (e.g. sharing data
about final demand, the continuous improvement of shared-processes, sharing know-
how and competences, technical support and training) are made by firms to create a
win-win situation and accrue tangible benefits such as reduced costs, greater quality
and flexibility and more reliable deliveries. Accordingly, we used a three-items five-
point Likert-scale (1: not at all – 5: great extent) adaptation of the scales proposed by
Flynn et al. (2010) and Krause et al. (2007). This measure captures the extent to which a
firm invests in: sharing information; knowledge; and resources with its key suppliers.
RSC. Under a revenue-sharing contract, a company pays a supplier a wholesale
price for each unit purchased plus a percentage of the revenue the company generates.
This mechanism is considered an effective way to align goals between parties involved
in an exchange relationship (Harland et al., 2003; Cachon and Lariviere, 2005). While
providing this definition in the questionnaire, we asked companies to evaluate on a
five-point Likert-scale (1: not at all – 5: to a great extent) the extent to which similar
schemes are employed in their current contractual practice.
Competitive advantage. According to the literature (e.g. Powell, 1992; da Silveira,
2005), competitive advantage was assessed by considering different performance
indicators. Market share (MKTS) was measured using the question, “please indicate the
current performance for your business on a 1-5 Likert scale, where 1 represents lower
than your competitors and 5 higher than your competitors”. In addition, we obtained
companies’ return on sales (ROS) and return on total assets (ROA) from the Aida
database (i.e. a database containing information for over 700,000 companies operating
in Italy, www.aida.bvdep.com). We used the ROS and ROA for the year in which data
were collected. Environmental conditions change over time and force companies to
readjust their SRM preparedness. Thus, we believe that performance must be measured
for the year in which the firm’s misfit occurs. Past and future performance would not
reflect the ability of the firm to keep its capabilities aligned with environmental
vulnerabilities.

3.3 Sample selection and data collection

Data were collected following a survey approach (Forza, 2002). First, we obtained an
original sample of 300 manufacturing firms randomly selected from the Aida database.
To allow for high external validity, we conducted a stratified random sampling according
to the expected proportion of manufacturing companies by industry provided by the
 The National Institute for Statistics (ISTAT). In the last decades, manufacturing firms SRM and
have frequently experienced unplanned supplier events such as shortages, declining competitive
quality or in some cases even supplier bankruptcies and disruptions (Hopkins, 2003). Thus,
we argue that such firms should be further guided in augmenting their preparedness in
advantage: a
SRM. Second, we contacted companies by phone to identify a reference person (i.e. supply misfit model
chain or purchasing managers) and to describe the research (Dillman, 2007). Participants
were provided with an electronic version of the questionnaire (provided in Appendix, see 467
Table AI) and support was given to guarantee full understanding of the questionnaire.
Lastly, 54 companies provided useful and complete information for this research.
Although the response rate is close to the recommended level on surveys of this nature
(i.e. 20 per cent) (Malhotra and Grover, 1998), non-response bias poses potential
limitations. Non-response bias was assessed by comparing several variables
(i.e. number of employees, ROS and ROA) across responders and a randomly
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selected group of non-responders. Furthermore, with the notion that later respondents
would be more similar to non-respondents (Armstrong and Overton, 1977), late-
respondent bias was assessed by comparing the responses of later respondents
(nlr ¼ 16) with those of earlier respondents (ner ¼ 16). Because the survey was managed
smoothly (i.e. no waves of call phones, but rather a constant effort), these groups were
identified based on the earliest and the latest 30 per cent of collected questionnaires.
t-Test analyses show that these groups (responders vs non-responders; earlier
respondents vs later respondents) were not different from each other at the 0.01 level of
statistical significance. Different sectors of the manufacturing industry are considered
(Table I). Firms are primarily medium sized (48.2 per cent of the sample), but small
and large are also represented. Generalisability limitations concerning our final sample
are addressed in the last section of the paper.

4. Analysis and results

4.1 Factor analysis
A confirmatory factor analysis was not reasonable due to the small sample size (Gagné
and Hancock, 2010). Many criteria, however, were considered to guarantee the
reliability and validity of our measures. First, individual item reliability is confirmed
by measures loading with a respective construct greater than 0.7 (see Table II).

(a) (b)
Size n % ISIC n %

Small 22 40.7 22 10 18.5

Medium 26 48.2 26 3 5.6
Large 6 11.1 27 6 11.1
Total 54 100 28 29 53.7
29 5 9.3
31 1 1.8
Total 54 100
Notes: Size: small: less than 250 employees, medium: 251-500 employees, large: over 501 employees;
ISIC: ISIC code: 22: manufacture of rubber and plastics; 26: manufacture of computers and electronic Table I.
products, optical, medical electrical equipment, apparatus for measuring and watches; 27: manufacture Descriptive statistics
of electrical appliances and electrical equipment for non-domestic; 28: manufacture of machinery and in terms of (a) size;
equipment not classified elsewhere; 29: manufacture of motor vehicles, trailers and semi-trailers; 31: (b) industrial
furniture manufacture sector (ISIC)
 IJLM Item SID ET PC VR DSM Uniqueness
26,3
SID1. Shared human resources 0.74 0.33
SID2. Shared know-how and competences 0.80 0.31
SID3. Others improvement programmes 0.71 0.34
ET1. The rate at which products become outdate 0.70 0.35
ET2. The rate of innovation of new processes 0.82 0.28
468 ET3. The rate of change of tastes and preferences of 0.67 0.39
customers
PC1. Purchases complexity 0.90 0.15
PC2. Purchases specificity 0.86 0.18
VR1. Technological characteristic of supplier’s plant 0.73 0.25
VR2. Operational safety and maintenance programmes 0.80 0.23
VR3. Cash flows (past and expected) 0.69 0.37
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DSM1. Supply markets concentration 0.88 0.20

DSM2. Capacity constraints of supply markets 0.90 0.14
Overall KMO 0.61
Table II. Reliability scores 0.67 0.73 0.79 0.71 0.77
Factor loadings, Eigenvalues 2.01 2.00 1.92 1.74 1.70
Cronbach’s α and Explained variance (cumulative) 0.16 0.31 0.46 0.59 0.72
items’ uniqueness Notes: Bartlett’s test of sphericity: χ2 ¼ 185.091, degrees of freedom ¼ 78, p-value ¼ 0.000

The convergent validity of constructs is then assessed by the total variance explained
and a higher correlation coefficient among items belonging to the same construct
(see Table III). The reliability of three-item scales is tested by Cronbach’s α (Nunnally
et al., 1967) while the reliability of two-item scales is tested by the Spearman Brown
formula (Hulin and Cudeck, 2001). All created factors have a reliability score higher than
0.7 except for SID, which score however is closed to the threshold suggested by the
literature. Lastly, the separation of items into distinct constructs with minimal cross-
loading provides support for discriminant validity. Table II shows the results of the
principal component factor analysis with varimax rotation. To check for sample
adequacy, we evaluated items’ uniqueness, the Bartlett’s test of sphericity and the Kaiser-
Meyer-Olkin measure (see Table II). According to the literature (MacCallum et al., 1999),
our sample size can be considered adequate for a 13-item factor analysis.

4.2 Test of hypothesis

First, we performed pairwise correlations among questionnaire items (see Table III).
Consistent with Harland et al. (2003), positive correlations among DS, VR, SID and RSC
suggest that VR practices are usually implemented to identify new back-up sources and to
support the involvement of attractive suppliers with whom to share risk and build long-
term relationships. Positive correlations are also identified between PC items and ET
items, highlighting how higher complexity and specificity usually appears when
technology and customers’ needs are turbulent. Consistently with Frear et al. (1992),
correlations between ET items and GS suggest that companies facing high market and
technological turbulence usually rely on local suppliers. Consistent with the literature
(Zsidisin, 2003; Ellis et al., 2010, 2011), correlations among SID items and ET items,
between VR items and ET items, and between VR items and DSM items suggest that
companies that operate in riskier conditions usually rely more on SRM. Overall, our
analysis is consistent with the results reported in prior studies, lending confidence to the
final result concerning the relationship between MISFIT and competitive advantage.
 Downloaded by UNIVERSITY OF JORDAN At 11:57 11 February 2019 (PT)

Items ROS ROA MKTS DSM1 DSM2 ET1 ET2 ET3 PC1 PC2 GS DS VR1 VR2 VR3 SID1 SID2 SID3 RSC

ROS 1
ROA 0.81*** 1
MKTS 0.10 0.10 1
DSM1 −0.06 −0.14 0.00 1
DSM2 −0.15 −0.09 −0.00 0.63*** 1
ET1 −0.16 −0.17 −0.09 0.05 0.11 1
ET2 −0.12 0.02 −0.23 −0.13 0.05 0.52*** 1
ET3 −0.02 0.13 −0.24 0.03 0.02 0.52*** 0.36** 1
PC1 −0.17 −0.06 −0.11 0.09 −0.15 0.29** 0.23 0.39*** 1
PC2 0.06 0.08 −0.06 0.07 0.02 0.16 0.19 0.28** 0.66*** 1
GS −0.16 0.00 −0.20 0.17 0.12 −0.20 −0.06 −0.36*** −0.07 −0.10
DS 0.00 −0.09 0.11 0.00 0.03 0.07 0.18 0.16 0.19 0.19 −0.16
VR1 −0.19 −0.28 0.01 0.09 0.08 0.22 0.02 0.35** 0.33** 0.21 0.05 −0.02 1
VR2 −0.15 −0.11 0.11 0.19 0.15 0.17 0.06 0.23 0.07 0.15 0.04 −0.10 0.65*** 1
VR3 −0.19 −0.20 0.08 0.15 0.28** 0.17 0.16 0.22 0.06 0.10 0.01 0.16 0.35** 0.33** 1
SID1 −0.02 0.02 0.03 −0.06 0.03 0.23 0.32** 0.15 0.17 0.06 −0.04 0.17 0.11 0.08 0.34** 1
SID2 0.20 0.22 0.16 −0.17 −0.17 0.00 0.17 0.22 0.02 −0.01 −0.14 0.26** −0.07 0.01 0.13 0.48*** 1
SID3 −0.15 −0.25 0.03 −0.20 −0.21 0.01 0.31** 0.13 0.24* 0.04 −0.12 0.26** 0.07 0.19 0.00 0.40** 0.37** 1
RSC −0.23 −0.25 0.00 0.02 0.01 0.14 0.17 −0.06 −0.02 0.08 −0.18 −0.13 0.17 0.24* −0.03 0.18 −0.23 0.09 1
Notes: Pairwise correlation among the items considered in this research: ROS, return on sales; ROI, return on investment; MKTS, market share; DSM, difficulty of supply market; ET,
environmental turbulence; PC, purchases criticality; GS, global sourcing; DS, dual sourcing; VR, vendor rating programmes; SID, supplier integration and development; RSC, revenue-sharing
contracts. Values in italic highlight relationships among items belonging to the same construct. Values in bold highlight relationships among risk conditions and the adoption of SCRM practices.
*p o0.10; **p o 0.05; ***p o 0.01
competitive

Table III.
SRM and

misfit model

Correlation matrix
469
advantage: a
 IJLM The research hypothesis was then tested by performing three unrelated OLS regressions
26,3 using MISFIT as an independent variable and ROS, ROA and MKTS as dependent
variables (one at the time) (Table IV). When we performed regressions, we also used
standardised control variables (i.e. Size, Industry). Size was measured considering the
number of employees of the firm while Industry was captured by the ISIC code.
The analysis did not show any significant estimate for control variables; therefore, details
470 are not reported for the sake of brevity. To verify that OLS assumptions were satisfied,
we checked for the normality of our variables by means of the Doornik-Hansen test
(Doornik and Hansen, 2008), and we controlled for homoscedastic residuals in regressions
by means of the Cameron-Trivedi test (Greene and Zhang, 2003). The results confirmed
that all of the assumptions were satisfied. Finally, we used the G*Power 3 software (Faul
et al., 2007) to conduct a power analysis, as proposed by Cohen (1988) for the F-test,
pertaining to the R2 value for the independent variables. Assuming a medium effect size
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(f2 ¼ 0.25) for three predictors (i.e. size, industry, MISFIT), a significance level of 0.05 and
a desired power of 0.80, our analysis would require a sample of 48.
Notably, MISFIT relates significantly and negatively to ROS and MKTS, providing
clear evidence that operating in conditions of unbalanced resilience (i.e. high misfit)
produces detrimental effects on performance. More specifically, evidence of three different
situations is provided. First, when companies do not invest enough in SRM given the
characteristics of the specific context in which they operate, they show weaker
performance. In such cases, for instance, companies are more likely to experience extra
costs due to risk occurrence, leading to a direct reduction of ROS. Similarly, companies are
more vulnerable to supply disruptions, with negative implications for their level of service
and customer satisfaction (i.e. MKTS). Second, when companies over-invest (high
preparedness in SRM, low-risk conditions), the positive effects of SRM (e.g. stability and
high customer service) are overrun by its negative implications (e.g. increased costs and
complexity due to heavier procedures). Lastly, those firms that have invested coherently
with the context in which they operate are characterised by better performance: operating
in the condition of balanced-resilience positively contributes to competitive advantage.
Interestingly, we did not find any significant relationship between MISFIT and
ROA. SRM practices do not require hard and tangible investments but rather relational
investments and organisational efforts (Blackhurst et al., 2011, p. 380), which are not
properly evaluated by ROA. To the contrary, measures such as ROS and MKTS are
capable of also evaluating these aspects.

5. Conclusions
5.1 Theoretical contribution
By relying on SRM literature, the balanced-resilience logic proposed by Pettit et al.
(2010, 2013) and the theoretical framework of contingency theory (Donaldson, 2001),

ROS ROA MKTS

(Constant) 4.62 1.85 1.29

p-Value (0.000) (0.000) (0.001)
MISFIT −0.02 −0.21 −1.79
SE 0.008 0.141 0.272
Table IV. p-Value (0.048) (0.154) (0.002)
Regression analysis R2 0.16 0.08 0.25
 this research develops a model of congruence that applies a weighted Euclidean SRM and
distance scheme in the context of SRM. While being simple to apply, this model competitive
provides managers with effective decision support. This study should stimulate further
research, which should help practitioners to address the difficult task of assessing and
advantage: a
managing supply chain risks. misfit model
Second, this research provides evidence on the key assumption underlying existing
risk management models, demonstrating that misfit significantly hampers competitive 471
advantage. This study also supports the SRM literature, which argues that common
supply chain management practices, if managed in a balanced and coordinated fashion,
represent a useful means to improve efficiency and customer satisfaction by reducing
the likelihood and severity of supply risk (Kraljic, 1983; Harland et al., 2003; Zsidisin,
2003; Wagner and Bode, 2006; Wagner et al., 2009; Ellis et al., 2010; Zsidisin and
Wagner, 2011; Blackhurst et al., 2011). Thereby, this research highlights the importance
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of fit and fosters attention to the non-linear relationship between risk management and
business performance. Furthermore, it provides a theoretically sound and empirically
rigorous foundation to explore the processes that enhance or constrain a firm’s ability
to gain competitive advantage by managing supply chain risks.

5.2 Managerial implications

First, this research highlights that good performance is not just a matter of strengths
(i.e. adoption of SRM practices); the balance between capabilities and significant
vulnerabilities creates a firm’s true competitive advantage. This research, thus,
emphasises the introduction of robust measures of external risks so to understand
whether new investments in risk management are needed.
Second, it is noteworthy that this study develops a measurement procedure that
might be used by practitioners to configure an optimal adoption of SRM practices.
The proposed procedure can be adapted for different purposes. First of all, it can serve
as a control tool, because it enables managers to evaluate the performance of the
resources for which they are responsible. Managers can indeed evaluate whether
the adoption of practices is coherent with the external context. Second, the tool can be used
to support communication with both internal and external stakeholders. In particular, it
allows better justification for new investments by making direct comparisons with the
environmental requirements. Lastly, managers can use the tool to support continuous
improvement. The tool can provide useful information and feedback to identify productive
adjustments. Specifically, it can be used to control whether additional investments
(or disinvestments) are needed over time as the environment changes.
Lastly, our analysis allows us to draw some specific recommendations for supply
chain managers.
Holding excess inventories and safety stocks (i.e. buffer-based practices) is a
commonly used approach that aims to compensate for the negative effect of supply risk
(Blackhurst et al., 2011, p. 382). Nevertheless, it should not be seen as a panacea for
managing supply risk. Other practices, instead, can be adopted that offer efficient and
effective means to manage the adverse conditions surrounding the business
environment. Specifically, when environmental uncertainty surrounding technology
trajectories and customer needs is high and also result in high purchase complexity and
customisation, anticipation should be developed by monitoring the suppliers’ ability to
manage innovation while remaining financially robust. In addition, stronger integration
with strategic suppliers is required to enact visibility and boost their capabilities to
manage endogenous uncertainty. When the riskiness of the context further increases
 IJLM (e.g. because of a lack of alternative suppliers or an inability to influence them), benefits
26,3 may then be derived from flexible approaches to sourcing (e.g. DS) and from an increased
recovery capability (i.e. revenue-sharing contracts). As our analysis shows, a balanced
adoption of these practices can be a source of competitive advantage.

5.3 Limitations and recommendations for future research

472 While this study makes significant advances in the research and practice of SRM, it is
not without limitations. First, company selection was accurate so as to minimise the
likelihood of bias and several tests provide evidence of the adequacy of our sample size
(e.g. Bartlett’s test of sphericity, power test, etc.). Nevertheless, we suggest future
research to refer to larger and more heterogeneous data set, so to improve external
validity and compare results when different groups of companies are considered.
Our sample, for instance, is populated by Italian companies only. According to Hofstede
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(1984) and House et al. (2004), the Italian national culture is characterised by high
individualism, high masculinity and high uncertainty avoidance. When uncertainty
avoidance is high, individuals within organisations are more risk adverse and much less
willing or able to effectively leverage flexible approaches (Wacker and Sprague, 1998).
In addition, practices that enact uncertainty reduction (e.g. formal methods for collecting
and sharing information such as VR and SID) are usually adopted at the highest extent
(Wacker and Sprague, 1998). In a sample populated by companies characterised by lower
uncertainty avoidance, thus, the application of our model could lead to different results:
for such companies, an under-adoption of SRM practices might be optimal for the
mitigation of risk and the creation of competitive advantage.
Second, although the rigorous process adopted for survey development and data
validation guarantees a sufficient level of validity of the described empirical analyses,
common method bias (CMB) and reliability issues call for further empirical development.
On the one hand, future research should employ methods such as the CFA marker
technique by Williams et al. (2010) to rule out confounding effects due to CMB. On the
other hand, in order to obtain a reasonable survey length, in this study we have derived
several two- and three-item constructs which might be subject to reliability issues.
One way to interpret reliability score is as an estimate of the correlation between the scale
whose items the researcher has been studying, with a hypothetical alternative form that
contains the same number of items; for this reason, α computed over three or two items is
an unsatisfactory sampling of the much larger pool of items that are theoretically
available for capturing a given variable (Hulin and Cudeck, 2001). Future research, thus,
is recommended to employ more complex measurements. For instance, as regards to
product criticality, the three-item reflective construct of “product complexity” developed
by Mesquita and Brush (2008) and the three-item construct of “item customization”
adopted by Ellis et al. (2010) could be combined to obtain a much more reliable factor.
Concerning supply market difficulty, the five-item scale of market thinness adopted by
Ellis et al. (2010) could be employed. Finally, for what concerns VR and SID, we
recommend to combine the two-item construct of supplier assessment, the six-item
construct of supplier development and the thirteen-item reflective construct of supplier
integration developed, respectively, by Krause et al. (2000, 2007), Krause (1999) and Flynn
et al. (2010). Although the adoption of complex measurements would require much more
effort in the data collection phase (e.g. due to extensive survey length), the research could
largely benefit in terms of outcomes reliability.
Lastly, in this work, we derived a procedure that considers the specific contribution
that each SRM practice brings to a firm’s ability to manage risk, as well as the relative
 impact that each risk condition has on the overall exposure to supply risk. SRM and
Nevertheless, we were unable to specify Wj and Wk. Further research should provide competitive
support for the estimation of these coefficients to obtain a more robust measure of fit
and to gain further insights on how risk management trade-offs should be managed.
advantage: a
Different approaches could be implemented and integrated with our procedure, such as misfit model
the pairwise comparison technique based on the analytic hierarchy process proposed
by Saaty (1990). 473
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 Appendix SRM and
competitive
advantage: a
1. How would you describe the following characteristic of your purchases portfolio? misfit model
Low high
Concentration of supply markets 1 2 3 4 5
Capacity constraints of supply markets (Suppliers’ capacity utilization and 1 2 3 4 5 477
breakeven stability)
2. How would you describe the following characteristics of your industry?
Low high
The rate at which products become outdate 1 2 3 4 5
The rate of innovation of new processes 1 2 3 4 5
The rate of change of tastes and preferences of customers 1 2 3 4 5
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3. How would you describe the following characteristic of your key purchases?
Low High
Degree of purchases complexity (e.g. large number of parts and interfaces which 1 2 3 4 5
are hard to handle)
Degree of purchases specificity (e.g. highly customized goods essentially built for 1 2 3 4 5
your company)
4. Please, provide an evaluation of the percentage of goods purchased in each of the following:
Italy _______ %
Europe (but outside Italy) _______ %
Outside Europe _______ %
Total 100%
5. Please, provide an evaluation of the percentage of the percentage of purchases for which the firm
manages at least one back-up source _____________ %
6. How often do you use the following criteria when selecting and monitoring suppliers?
Never For each
kind of
good
Technological characteristics of supplier’s plants 1 2 3 4 5
Operational safety and maintenance programs within supplier’s plants 1 2 3 4 5
Cash flows (past and expected) and financial strength of each supplier 1 2 3 4 5
7. How much do you invest resources in the following practices?
Not Great
at all Extent
Shared Human Resources 1 2 3 4 5
Shared know-how, competences and information 1 2 3 4 5
Others improvement programs (i.e. technical support and training) 1 2 3 4 5
8. How much do you rely on the following supply contracts’ scheme?
Never Always
Revenue-sharing scheme 1 2 3 4 5
9. Please, indicate the current performance for your business in comparison with your direct competitors:
Much Much
worse better Table AI.
Market share 1 2 3 4 5 Survey questionnaire
 IJLM About the authors
26,3 Dr Jury Gualandris holds a PhD in Economics and Technology Management. His studies focus on
supply chain risk management (SCRM) and sustainable supply chain management (SSCM).
Dr Jury Gualandris is the corresponding author and can be contacted at: jury.gualandris@ucd.ie
Professor Matteo Kalchschmidt is an Associate Professor of Innovation and Project
Management. He has published in several international journals on Supply Chain Management
and Demand Planning.
478
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