The effects of tie strength and data integration with supply base on supply disruption ambiguity and its impact on inventory turnover

ABSTRACT

PurposeIn this paper, the authors introduce supply disruption ambiguity as the inability of a sourcing firm to attach probability point estimates to the occurrence of and to the magnitude of loss from supply disruptions. The authors drew on the "ambiguity in decision-making” literature to define this concept formally, connected it to relevant supply disruption information deficit, positioned it relative to supply chain risk assessment and hypothesized and tested its negative associations with both supply base ties and inventory turnover.Design/methodology/approachThe authors analysed survey data from 171 North American manufacturers and archival data for a subset (88 publicly listed) of these manufacturers via Ordinary Least Squares (OLS) estimation after ensuring that methodological concerns with survey research have been addressed. They used appropriate controls and employed the heteroskedasticity-based instrumental variable (HBIV) approach to ensure that inferences from our results are not unduly influenced by endogeneity.FindingsStrong supply base ties decrease supply disruption ambiguity, which, in turn, increases inventory turnover. Moreover, strong supply base ties and data integration with the supply base have indirect and positive effects on inventory turnover. As sourcing firms strengthen ties and integrate data exchange with their supply base, their inventory turnover improves from access to information relevant to detect and diagnose supply disruptions effectively.Originality/valueResearch on supply disruption management has paid more attention to the "disruption recovery” stage than to the "disruption discovery” stage. In this paper, the authors add novel insights regarding the recognition and diagnosis aspects of the "disruption discovery” stage. These novel insights reveal how and why sourcing firms reduce their overall ambiguity associated with detecting and assessing losses from supply disruptions through establishing strong ties with their supply base and how and why reducing such ambiguity improves inventory turnover performance.