A Conceptual Model of Supply Chain Risk Mitigation: The Role of Supply Chain

Integration and Organizational Risk Propensity

Author(s): Yubing Yu, Wei Xiong, and Yanhong Cao
Source: Journal of Coastal Research, 73(sp1):95-98.
Published By: Coastal Education and Research Foundation
DOI: http://dx.doi.org/10.2112/SI73-017.1
URL: http://www.bioone.org/doi/full/10.2112/SI73-017.1

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Journal of Coastal Research

SI

73

95-98

Coconut Creek, Florida

Winter 2015

A Conceptual Model of Supply Chain Risk Mitigation: The

Role of Supply Chain Integration and Organizational Risk
Propensity
Yubing Yu, Wei Xiong, and Yanhong Cao*

School of Management
Zhejiang University
Hangzhou 310000, China

Department of Economics and Trade

Anqing Vocational & Technical College
Anqing 246000, China

www.cerf-jcr.org

ABSTRACT
Yu, Y.; Xiong, W., and Cao, Y., 2015. A conceptual model of supply chain risk mitigation: The role of supply chain
integration and organizational risk propensity. In: Mi, W.; Lee, L.H.; Hirasawa, K., and Li, W. (eds.), Recent
Developments on Port and Ocean Engineering. Journal of Coastal Research. Special Issue, No. 73, pp. 95-98. Coconut
Creek (Florida), ISSN 0749-0208.
www.JCRonline.org

Supply chain risk management has drawn great attention from both researchers and practitioners in recent years.
Economic globalization and the resultant complexity of the supply chain network plus the uncertainty of the
environment makes risk and vulnerability a major challenge to related firms. This paper aims to establish a conceptual
model for mitigating supply chain risk by introducing two variables named supply chain integration and organizational
risk propensity. Based on extensive literature review, some major propositions are proposed including the following
four aspects: supply chain risk is negatively related to supply chain integration; supply chain integration is positively
related to company performance; organizational risk propensity moderates the relationship between supply chain risk
and supply chain integration; the integrative model is moderated-mediation. The integrative model is theoretically
valuable in further exploring the internal path and mechanism of the impact of supply chain risk on a firms
performance. The model is also practically useful in providing suggestions and references for supply chain risk
management and supply chain integration. Finally, the future directions for empirical research are also presented.
ADDITIONAL INDEX WORDS: Supply chain risk, organizational risk propensity, supply chain integration, firm
performance.

________________________________________________________________________________
INTRODUCTION
Nowadays, as economic globalization develops, customers
demands are diversifying, information technology is becoming
more popular, and competition among firms is becoming fiercer.
Competition plus unexpected market changes make it necessary
for firms to resort to supply chain to obtain complementary
resources, capabilities and technology. Therefore, supply chain
is becoming a main element to forge core competence for firms,
thus making supply chain management a powerful weapon to
tackle competitive challenges. When we take a close look at the
supply chain, we can see that it has undergone substantial
changes for many reasons, such as the increasing globalization,
the increasing trend of outsourcing business, the significant
shortening of products life span (Christopher et al., 2011) and
the decreasing number of suppliers, etc. Moreover, as the
structure of the supply chain network is getting more
complicated, the environment is becoming more changeable.
This leads to an increase in risk and vulnerability in the supply
chain which is a common challenge to related firms. Empirical
studies also indicate that supply chain risk has a negative effect
on company income (Hendricks and Singhal, 2005). Therefore,
risk management is becoming the key issue in supply chain
____________________
DOI: 10.2112/SI73-017.1 received 23 August 2014; accepted in
revision 10 November 2014.
*Corresponding author: yyb0426@gmail.com
Coastal Education & Research Foundation, Inc. 2015

management.
In the global market, firms tend to cooperate with major
suppliers and key customers in order to survive and expand
(Flynn, Huo, and Zhao, 2010; Frohlich and Westbrook, 2001;
Zhao et al., 2008). As described in the vertical integration
theory, vertical integration can reduce uncertainty, and bring in
benefits like information communication, inner control synergy,
transaction cost reduction, and relationship stabilization.
Empirical studies have showed that supply chain collaboration
and integration, as the extension of vertical integration
(Stonebraker and Liao, 2006), is the key management strategy
to reduce and deal with environmental uncertainty (including
risk), which plays a mediating role between supply chain risk
and supply chain performance (Simangunsong, Hendry, and
Stevenson, 2012). Supply chain integration is also considered to
be an effective strategy in mitigating the risk of supply chain
interruption, and has a direct positive influence on the formation
of warning and recovery capability of firms (Shao, 2013). In
addition, from the perspective of organizational ability, supply
chain integration, as a key capability of firms for inner and outer
coordination, has direct and indirect influence on a companys
performance (Huo, 2012). Therefore, as a mediator, supply
chain integration is expected to affect the relationship between
supply chain risk and company performance. Although existing
studies have discussed this to some degree, they were not
thorough enough and largely focused on discussing the
relationship between concepts such as supply chain risk and

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Yu, Xiong, and Cao

performance and supply chain integration and performance.

Supply chain risk, supply chain integration and performance as
well as their relationship have not been included in a systematic
framework. Therefore, there is a need for further discussion,
which is the main purpose of this study.
SUPPLY CHAIN RISK
Under the current uncertain environment, firms should
improve their flexibility to overcome supply chain risk
(Braunscheidel and Suresh, 2009). The management of supply
chain risk is especially important in view of the increase in
outsourcing business, global competition, stricter requirements
for timely delivery, quick technological changes and short
product life span (Trkman and McCormack, 2009). The study
on supply chain risk is attracting more and more attention (Ellis,
Henry, and Shockley, 2010; Zsidisin, 2003). However, most
studies are conceptual or descriptive whereas empirical study
has only just begun (Christopher et al., 2011; Zsidisin, 2003).
Research on the relationship between supply chain risk and a
firms performance is rare. Most scholars believed that supply
chain risk would weaken the performance of firms and the
supply chain (Chen, Sohal, and Prajogo, 2013; Ellis, Henry, and
Shockley, 2010; Hendricks and Singhal, 2005). However,
(Chang and Thomas, 1989; Fiegenbaum and Thomas, 1988;
Jegers, 1991) argued that the relationship between risk and
return was likened to a U-shape and according to (Miller and
Leiblein, 1996), the downside risk would bring the subsequent
improvement of performance. However, the theory set in the
context of supply chain has rarely been discussed. According to
the Yerkes Dodson Law, if the supply chain is regarded as a
super firm organization, the existing of supply chain risk can
bring incentive or pressure to firms within a certain range,
which could motivate firms to take action, thus improving the
performance instead of hurting it. However, the firms
performance will be lower if the risk is beyond the endurance
capacity of the firm. Therefore, there is a critical point at which
the influence of risk negatively affects company performance.
However, study is yet to be made to find that critical point.
From the view of organizational ability, this study tried to
explain that supply chain integration also can be viewed as an
advantage which could help firms deal with risk and further
improve their performance. Moreover, existing studies shows
that the coordination and collaboration among members of the
supply chain can effectively ease the risk (Cheng, Yip, and
Yeung, 2011; Tang, 2006). This collaboration has also been
included in the framework of risk management by many
scholars (Christopher and Peck, 2004). However, most studies
were conceptual or descriptive. Only (Chen, Sohal, and Prajogo,
2013) established and testified the conceptual model of supply
chain collaboration supply chain risk supply chain
performance. The study showed that supply chain
collaboration can effectively reduce supply chain risk.
Therefore, supply chain integration is thought to be an effective
strategy in risk management, but it is yet to be uncovered how it
will influence the performance of firms.
SUPPLY CHAIN INTEGRATION
Increasing global competition encourages companies to
establish cooperative and reciprocal relationships with their

partners to obtain a competitive advantage (Wisner and Tan,

2000). A single firm should face new challenges using supply
chain integration (Frohlich and Westbrook, 2001; Zhao et al.,
2008), which is pivotal in improving performance and creating
value (Frohlich and Westbrook, 2001) and has an important
influence on the success of firms and the supply chain (Huo,
2012; Power, 2005; Zhao et al., 2013). In general, the existing
studies followed the path of antecedents supply chain
integrationperformance. In the first part of the path, many
scholars pointed out that trust, commitment, information sharing,
power, organizational structure and firm culture were important
positive factors for supply chain integration (Pagell, 2004;
Vickery et al., 2003; Zhao et al., 2008; Zhao et al., 2011).
However, restraining factors were rarely discussed as the
antecedents (Zhao et al., 2013), which will be emphasized in
this study. Only (Frohlich, 2002) studied the restraining factors
of supply, demand and internal dimensions among the
implementation process of web-based supply chain integration.
Reference (Richey et al., 2009) regarded the failure of internal
planning and external supervision as restraining factors. In the
latter part of the path, although many studies showed that
supply chain integration was beneficial to the improvement of
firm and supply chain performance (Braunscheidel and Suresh,
2009; Flynn, Huo, and Zhao, 2010; Koufteros, Cheng, and Lai,
2007; Swink, Narasimhan, and Wang, 2007; Zhao et al., 2011;),
the results of these studies were quite different (Flynn, Huo, and
Zhao, 2010; Swink, Narasimhan, and Wang, 2007). There are
many problems to be solved in relation to the mechanism of
supply chain integration (Flynn, Huo, and Zhao, 2010; Frohlich,
2002; Power, 2005; Zhao et al., 2011; Zhao et al., 2013).
Reference (Zhao et al., 2013) put forward a framework of
supply chain risk supply chain integration company
performance, and found that supply delivery risk was
negatively related to supply chain integration while demand
variability risk was not significantly related. The study
neglected internal risk which is one of the three focal
dimensions, and the measurement of performance was also
relatively simple and not comprehensive.
ORGANIZATIONAL RISK PROPENSITY
Risk propensity is a pivotal concept in the field of risk
management. It is closely related to risk decision and its
behavioral consequences. Risk propensity study on the
individual level is mainly referred to as the existance of risk and
consequence that an individual is willing to bear (Sitkin and
Pablo, 1992), which includes a scope of range, from risk
aversion (strong tendency to avoid uncertainty) to risk taking
(strong tendency to explore uncertainty) (Weber, Blais, and
Betz, 2002). Existing studies mainly focus on testing the
decision model of risk perception risk propensity risk
behavior (Sitkin and Pablo, 1992; Weber, Blais, and Betz,
2002). Meanwhile, some scholars proposed that study on risk
decision could be extended to the organizational level based on
the firms perception of uncertainty and decision tendency
towards rewards or punishment (Sitkin and Pablo, 1992; Weber,
Blais, and Betz, 2002). So far, risk decision models on the
organizational level have not attracted much attention apart
from the field of new product development (Forlani, Mullins,
and Walker, 2002). In addition, studies on the application of the

Journal of Coastal Research, Special Issue No. 73, 2015

A Conceptual Model of Supply Chain Risk Mitigation

risk decision model in supply chains were also difficult to find.
Typically, (Kocabasoglu, Prahinski, and Klassen, 2007)
proposed the concept of an organizations risk propensity and
defined it as the likelihood of a firms acceptance of less or
more risky behavior over time. He also pointed out three key
factors on risk decision, namely, decision input (risk perception),
a willingness to bear risk (risk taking) and the result of the
decision (risk behavior), which could also be applied to
organizations. Reference (Ellis, Henry, and Shockley, 2010)
used risk management theory for reference to empirically test
the impact path of supply environmentsupply interruption
risk decision behavior in the purchasing field. Moreover,
(Das and Joshi, 2007) found that risk propensity could moderate
the relationship between differential strategy and process
innovation when the operation had strong autonomy. And
(Kocabasoglu et al., 2007) figured out that organization risk
propensity played a mediating role between external
environment uncertainty and supply chain investment. To
conclude, organization risk propensity had an important
influence on organizational risk decision. Although supply
chain integration can help firms to deal with risk, whether firms
decide to facilitate the integration or not and its effectiveness
are related to the risk propensity of firms. However, the studies
obviously have not paid enough attention to it.
CONCEPTUAL MODEL AND RESEARCH
PROPOSITIONS
Based on reviews of the literature above, we propose an
integrative conceptual model as shown in figure 1 and give
research propositions from the following four aspects.

97

organizational risk propensity. Thus, a conceptual model is

established among supply chain risk, supply chain integration
and firm performance, which is theoretically valuable in
exploring the internal path and mechanism of the impact of
supply chain risk on company performance. The mechanism of
supply chain risk on company performance through supply
chain integration and organizational risk propensity can also
help firms solve the problem of strategy choice under such a
risk. Therefore, the study provides practical suggestions and
references for supply chain risk management and supply chain
integration practice.
What the study proposes is just a conceptual model based on
which, follow-up studies can focus on the following aspects:
Firstly, empirically test how supply chain risk influences supply
chain integration, and explore the internal mechanism of supply
chain risk on supply chain integration. Secondly, empirically
test the relationship among different dimensions of supply chain
integration and firm performance, as well as between supply
chain integration and firm performance, clarifying how supply
chain integration affect firm performance. Meanwhile,
according to the configuration approach, try to find the best
pattern of supply chain integration through studying the
differences of influence that different integration patterns have
on firm performance. Thirdly, examine the moderating effect of
organizational risk propensity on the relationship between
supply chain risk and supply chain integration as well as further
clarify the relationship mechanism between supply chain risk
and supply chain integration. Lastly, verify the mediating role
of supply chain integration and whether the integrative model is
moderated mediation.
ACKNOWLEDGMENTS
This work was supported by the Major Project of the
National Social Science Foundation of China under Grant No.
12&ZD206.The authors are also grateful to Prof. Baofeng Huo
for his continual guidance and encouragement towards the
research direction in supply chain management, and thanks for
the contribution of Jing Zhao in polishing.

Figure 1. Conceptual model of supply chain risk mitigation.

First, supply chain risk is negatively related to supply chain

integration. Second, supply chain integration is positively
related to company performance. Third, organizational risk
propensity moderates the relationship between supply chain risk
and supply chain integration so that the negative relationship is
weaker when organizational risk propensity is high rather than
low. Fourth, the integrative model is moderated-mediation. And
the mediating effect of supply chain integration on the
relationship between supply chain risk and firm performance is
stronger when organizational risk propensity is stronger than
weaker.
CONCLUSIONS
This study introduces the intermediate variable supply chain
integration to open the black-box of the impact mechanism of
supply chain risk on company performance, and discusses the
contingency relationship between supply chain risk and supply
chain integration considering the moderating effect of

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