Supply risk mitigation and its impact on operational performance of small- and medium-sized enterprises: A social capital approach
Creators: name: Chowdhury, Priyabrata
Publisher: name: RMIT University
Year: 2024
Subjects: classificationCode: 350903
subject: Logistics

description: Supply risk has become a key concern for manufacturing small- and medium-sized enterprises (SMEs) because of its frequent occurrence and profound impact on SME performance. As such, it is imperative to understand how SMEs can alleviate this hazard. While previous studies have identified various supply risk mitigation measures for big firms, little corresponding research has been done for SMEs especially from an empirical perspective. Underpinned by the Social Capital Theory and the Theory of Swift, Even Flow, this study investigates how SMEs can leverage social capital gained via networking with their key suppliers and with peers located within a geographical cluster to mitigate supply risk, thereby improving operational performance. Through a literature review, a framework that posits the direct and indirect effects of buyer-supplier social capital, cluster social capital, supplier integration, and cluster cooperation on supply risk of SMEs and consequently their operational performance is developed. To test the framework and the hypotheses, a questionnaire survey is used to gather data from apparel-manufacturing SMEs in Bangladesh. The psychometric properties of the questionnaire are developed based on a rigorous process of content validity. In total, 487 complete responses are collected from the respondents for analysis using structural equation modelling. Analysis of the collected data reveals that supply risk, in the form of variations in upstream supply characteristics such as quality, quantity, lead time or overall requirements, can considerably weaken the ability of SMEs to meet customer needs and substantially undermine their operational performance. Buyer-supplier social capital plays a crucial role in enabling SMEs to mitigate their supply risk directly and indirectly through enhancing supplier integrative practices, such as exchange of information and resources, joint actions and flexible arrangements. It also transmits the impact of cluster social capital and assists in mitigating supply risk. Similarly, cluster social capital can mitigate supply risk of SMEs indirectly through promoting cooperative practices among peers and improving social capital with key suppliers. The results also confirm that both supplier integration and cluster cooperation can mitigate supply risk directly. Apart from the direct impacts, their mediating roles in the relationships between social capital and supply risk are also confirmed. This study contributes to both knowledge and practices. For academic contribution, it establishes and validates a risk mitigation model focusing on SMEs, which are less studied in the current supply risk literature. The findings affirm the feasibility and importance of leveraging social capital resources to mitigate supply risk in the case of SMEs. The observations that cluster social capital serves as a bridge to connect with key suppliers, and different types of social capital of SMEs have different levels of reliance on network integration or cooperation to impact on supply risk, are some unique contributions. The study also extends the scope of supply risk literature by considering the factors impacting on supply risk and its effect on operational performance in a single framework. The study uses the theoretical lens of the Social Capital Theory and the Theory of Swift, Even Flow to conceptualise the relationships among network resources, supply risk and operational performance. It is the first attempt to apply these two theories in a survey-based risk mitigation model focusing on SMEs, thereby extending the applications of the theories. For practical contribution, the findings of the study also provide insight for SME practitioners and policy makers to effectively exploit this risk mitigation approach. They can assist practitioners and policy makers in identifying practices for the development and implementation of supply risk mitigation strategies to enhance operational performance.