Self-Inflicted Supply Risk: An Empirical Investigation

Sam K. Formby
Appalachian State University, USA

Manoj K. Malhotra
University of South Carolina, USA

This study seeks to better understand how internal firm decisions and the design of procurement processes affect supply risks and supply lead times. An in-depth field study was conducted through an interview process with experienced professional buyers from an integrated procurement, logistics, and materials management organization of approximately 300 staff members who manage $350 million annually in procurement spending. This organization serves a large manufacturing complex with seven manufacturing centers. Empirical lead-time data on approximately 58,000 procurement transactions completed in a six-month period were collected and analyzed. Results of the field study interviews and mixed effects multi-level analysis of procurement data found that supply decisions made by the plant operations staff before the procurement requests ever reach the buyer organization are a major driver of supply risks and extended lead-times. In addition, the most significant supply risks may not be related to the direct production inputs, but to the procurement of infrequently purchased direct and indirect material supplies needed to maintain factory reliability.

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