Recovering from Supply Interruptions: The Role of Sourcing Strategy
37 Pages Posted: 28 Oct 2015 Last revised: 19 Aug 2016
Date Written: August 17, 2016
Fast recovery from supply interruptions is a key objective of supply chain and business continuity professionals. This paper provides the first rigorous and large-scale empirical evidence that relates the use of different supply chain strategies — supplier diversification and the use of long-term relationships — with the ability of a supply chain to recover from supply interruptions. We develop an estimator of a supply-chain’s recovery rate that can be constructed using the limited available data — only the time series of firms’ actual sourcing behavior. Using more than two million import manifests, we extract firms’ sourcing transactions and use these data to estimate recovery rates of different firm-category supply chains of publicly traded US firms. We find that supplier diversification is associated with slower recovery from supply 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.
Keywords: Supply Interruption, Supply Chain Management, Supplier Diversification, Longterm Relationships, Empirical Analysis, Time to Recovery
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