Making Sense of Supply Disruption Risk Research: A Conceptual Framework Grounded in Enactment Theory

Article excerpt

INTRODUCTION

In 2000, a Philips NV semiconductor fabrication plant in Albuquerque, New Mexico was severely damaged by fire caused by a lightning strike (Lee 2004; Sheffi and Rice 2005). At the same time, the two major customers of this plant--Nokia Corp. and Ericsson LM--were launching a new generation of cell phones (Sheffi and Rice 2005). Nokia developed alternate sources of supply and worked with Philips to develop production capability in other chip fabrication centers around the world. Ericsson adopted a different strategy of buffering with inventory to "ride out" the perceived short-term loss in capacity (Schmitt 2008). During the period of the disruption, which extended far longer than Ericsson originally thought, Nokia increased market share while Ericsson suffered significant losses and was ultimately forced to exit select cell phone markets.

Supply disruptions can significantly reduce operational performance, profitability and shareholder value over the long term (Hendricks and Singhal 2003, 2005a, b; PricewaterhouseCoopers 2008). Moreover, supply chain managers expect that their vulnerability to supply disruptions will only increase in coming years (Juttner 2005). The operational and strategic implications of effective supply disruption risk (SDR) management have motivated scholars to explore a range of issues including the types of supply disruptions, assessment models and risk mitigation strategies. However, consistent with the views of Blackhurst, Craighead, Elkins and Handheld (2005), our review of 79 scholarly publications suggests that extant supply risk management research is highly fragmented. In particular, our findings indicate that the SDR stream of research incorporates several theories and constructs across disparate studies, but lacks a unifying framework. Further, the psychological and social theoretical underpinnings of SDR are in their incipient stages of development. As such, per the vignette above, it remains unclear why firms that are seemingly faced with the same nominal SDRs act in such different ways.

We address this gap in extant literature by applying Karl Weick's (1969, 1995, 2001) enactment theory to the study of the SDR decision-making process. Central to enactment theory is sense-making--a closed-loop, socio-psychoiogical process that describes how individuals resolve equivocality. As conceived by Weick (1969), the sense-making process is predicated on the notion that an individual's actions enable enhanced understanding of the environment, which in turn, influences future actions. Guided by enactment theory, we develop an integrative framework in which SDR decision-making is conceptualized as a specialized case of the sense-making process. Accordingly, we suggest that organizational buyers use the sense-making process to cope with equivocality that stems from the supply environment. Through our framework and related propositions, we advance substantive theory that explains how attributes of the (supply) environment, organization (i.e., firm) and individual (i.e., buyer) affect SDR decision-making and its efficacy.

Our research contributes to the body of SDR research in three important ways. First, our application of enactment theory facilitates the integration of disparate studies of SDR into a cohesive conceptual framework. Accordingly, we offer a comprehensive view of SDR decision-making that is grounded in phenomenological studies of SDR and supported by rationale culled from enactment theory. Second, our conceptual framework supports the notion that the perception of risk, rather than actual risk, influences the SDR decision-making process. As such, we advance a theoretical rationale that accounts for differences in objective versus perceptual views and explains why perceptions and mitigation actions vary across individuals faced with the same nominal risk. Third, our study builds on seminal models of risky decision-making (e.g., Sitkin and Pablo 1992; Yates and Stone 1992) by suggesting that equivocality affects how individuals process SDR decisions. …