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Understanding the impact of Supply-side

decisions and
supply-side decisions and practices supply risk
management
on supply risk management
Sehrish Huma 1769
Karachi University Business School, University of Karachi, Karachi, Pakistan
Received 27 April 2019
Waqar Ahmed Revised 27 January 2020
Department of Management Sciences, Iqra University, Karachi, Pakistan, and Accepted 14 March 2020

Arsalan Najmi
Department of Management Sciences, Iqra University, Karachi, Pakistan and
Faculty of Business and Accountancy, University of Malaya, Kuala Lumpur, Malaysia

Abstract
Purpose – In the era of market turbulence, sourcing specialists consistently face challenges to keep the
availability of the material efficiently and effectively without any disruption. Sourcing strategies and planning
have a huge impact on procurement performance. The purpose of this paper is to examine the relationships
among different sourcing strategies and supply risk management and performance and additionally, the role of
procurement practices in different strategic settings.
Design/methodology/approach – This is empirical research that collected data gathered from 223
procurement specialists working in various manufacturing firms through a structured questionnaire. Valid
data is then analyzed through the structure equation modeling technique for hypotheses testing.
Findings – The findings of this study reveal that supplier development is a partial complementary mediator
between multiple supplier strategy and supply-side risk management. While in a volatile business
environment, strategic supplier strategy has a significant negative impact on supply-side risk management,
and in this case supplier development acts as a competing partial mediator between the two. Contract
management has resulted in an important mechanism to be deployed in a strategic sourcing strategy. It is also
shown that supplier risk management is also associated with improved supply management performance.
Practical implications – This paper establishes an explanation of theoretical and practical understanding of
sourcing strategies and empirically shows that supplier development is the appropriate mechanism to deal
with supply-side risk management, which in turn positively impacts on supplier management performance.
Originality/value – This study contributes to supply chain risk management literature, especially in the
context of strategic risk management and explains how a strategic decision can impact supply risk
management. This provides a piece of empirical evidence regarding the use of well-established procurement
practices to improve supply performance.
Keywords Supplier development, Strategic sourcing strategy, Supplier risk management, Multiple sourcing
strategy, Supply management performance
Paper type Research paper

1. Introduction
Currently in the dynamic market situation, organizations are continuously searching to
enhance or stabilize their market share. Various studies have concluded that firms build
competitive strategies by focusing on competencies such as cost, quality, reliability,
responsiveness and time to market, risk management (Singh and Singh, 2019; Ahmed et al.,
2020; Singh and Hong, 2017). Usually, organizations seek different competences to meet their
objectives. Few firms embed agility in their supply chain networks, which plays an integral
role in developing a few competitive advantages over their rivals (Ahmed et al., 2019; Altay
et al., 2018). On the other hand, some organizations focus to become an efficient supply chain Benchmarking: An International
Journal
Vol. 27 No. 5, 2020
pp. 1769-1792
© Emerald Publishing Limited
1463-5771
Disclosure statement: The authors declare that they have no conflicts of interest. DOI 10.1108/BIJ-06-2019-0272
BIJ by incorporating lean strategies to generate competitive ability (Rosenzweig and Easton,
27,5 2010; Ahmed and Huma, 2018; Koufteros et al., 2012). Based on these strategic decisions, a
company develops its supply chain from upstream, that is, the supply side to downstream,
which is a demand side.
Supply management and sourcing activities are highly acknowledged as strategic
functions for any organization because they assist in organization’s sustainability and
competitive advantage (Ellram and Carr, 1994; Ellram et al., 2002; Mol, 2003; Hsu et al., 2006).
1770 In the current business environment, uncertainties and complexities are increasing due to
numerous reasons such as an uncertain economic cycle, ever-demanding customers,
globalization trend, the rapid development of technology, logistics improvement and shorter
life cycles of products. These challenging environments compel manufacturing firms to focus
on their core business and outsource noncore activities (Van Weele and Rozemeijer, 1996;
Lankford and Parsa, 1999; Zeng, 2003; Krause et al., 2007; Sillanp€a€a, 2014). Through this
outsourcing and bundling out strategy has reduced internal risk but increases the risk
associated with external partners. Moreover, despite having highly integrated supply chains,
manufacturing firms find themselves vulnerable to disruption because of two reasons:
manmade disasters and more importantly natural catastrophes, which are often
uncontrollable (Kurniawan et al., 2017). In other words, disruptions could occur due to
some controllable factors or often by uncontrollable events. It has been observed that due to
unpredictable catastrophic events or natural disasters, namely floods, terrorist attacks and
earthquake constrain, manufacturing firms have to be aware of disruption in the entire
supply chain (Knemeyer et al., 2009), primarily dealing with upstream suppliers (Juettner,
2005). Many real-life examples disrupted the supply chain due to unpredictable catastrophic
events. For example, Thailand flood occurred in 2011, an intensive earthquake and Tsunami
also occurred in 2011 and a highly renowned fire accident disruption happened with Ericsson
(Chopra and Sodhi, 2014). All these events come as an alarming situation for manufacturing
organizations who have globally expanded their business and seek for survival in
unpredictable environment moved toward outsourcing trend, and on the other grey side,
dependency of manufacturing industries was also increased on their supplier’s knowledge
and skills (De Boer et al., 2001; Westphal and Sohal, 2013; Pradhan and Routroy, 2016; Ebert,
2017). It has been observed that the trend of outsourcing noncore activities and bundling out
is increasing and organizations are eager to shaping toward lean production system. With the
increasing amount of outsourcing trends or procure resources from an external supplier, it
becomes necessary for industries to execute professional supplier management (Ebert, 2017).
Sourcing specialists have to take various decisions such as single strategic sourcing or
multiple sourcing strategies (MSS), local supplier (onshore) or global supplier (offshore),
insourcing or outsourcing and so on to achieve their company’s objectives. Each decision has
its dynamics and reflections on advantages and disadvantages. Sourcing strategist opts
these options by considering strategic risks in mind (Ahmed and Huma, 2018; Mishra et al.,
2016). That means risk is associated with strategies any organization executes. There are
benefits of having a single supplier for any strategic goods as it helps in reducing cost,
increasing reliability and quality consistency. But at the same time, the company fears any
disruption due to lack of an alternative. For this reason, industries may prefer to have
multiple supplier strategies.
Furthermore, Matook et al. (2009) contended that for achieving success in long-term
business, making strategic alliances with loyal and reliable suppliers is a highly important
factor. With consistent and reliable suppliers, manufacturing firms are able to respond to
unpredictable variability through supply risk management (SRM), which is inherent in the
supplier. Therefore, now approximately 90% of organizations are giving high importance to
supplier risk management (Kearney, 2005). Hartley and Choi (1996) to prevent the
organization from supplier risk in a competitive environment; it is necessary to develop
close and long-term relations with low-risk suppliers. The topic of supplier development (SD) Supply-side
has achieved tremendous importance concerning supply management during the past few decisions and
decades (Hahn et al., 1990; Krause et al., 1998; Krause et al., 2007; Humphreys et al., 2011;
Sancha et al., 2015). Manager of Samsung electronics manufacturer stated in one of his
supply risk
interviews that to achieve outsourcing goals, it is essential to monitor and enhance supplier’s management
capability to meet changing requirement, and this can only be done by developing supplier
and having proper contract management (CM), which is our practice with our Chinese
suppliers to meet our supply needs (Li et al., 2017). Furthermore, in recent years, it is reported 1771
that supply-side risk is one of the major concerns in supply chain continuity, and SD can
highly be effective for managing risk that is associated with the supplier. Even recently, Tse
et al. (2019) highlight the significance of proactive mitigation of risk from the upstream
supplier. The specific role of SD and how it works to manage supply risk and improve supply
management performance (SMP) in the context of a developing country is yet another gap
that has not got much attention.
More recently, Kamalahmadi and Mellat-Parast (2016) pinpoint that to mitigate supplier-
side risk, organizations should critically consider supplier selection whether it could be dual or
multiple sourcing. Many past studies highlighted that to reduce and manage a set of supplier-
side risk, multiple approaches assess in helping and managing supplier risk characteristically
by SD, supplier selection and alternate sourcing (Morali and Searcy, 2013; Qazi et al., 2015).
More current actions for reducing supplier risk are the creation of close, long-term partnerships
with strategic suppliers and SD (Zsidisin et al., 2000). Thereby, supply processes can be
improved and uncertainty reduced in cooperation with the supplier (Brindley, 2004).
Empirically it has been proved that improved strategy of multiple sourcing and supplier
selection with the help of SD enriches the supplier that will synchronize the work between buyer
and supplier (Pradhan and Routroy, 2016). Over the last decade, in the literature, many
researchers have empirically analyzed the importance of SD, strategic sourcing strategy (SSS),
alternative sourcing and supplier risk management separately and little linkage established
among them, an integrated research model has not been offered empirically (Micheli et al., 2009
and Matook et al., 2009). Thus it can be supposed that SSS, MSS and supplier selection, SD and
SRM are highly effective elements for managing suppliers. Therefore, this study fills the gap by
providing an integrated framework of a different phase of supplier management in considering
SRM literature by responding to the following research questions.
RQ1. What is the relationship between strategic sourcing strategy and multiple sourcing
strategies on supply risk management?
RQ2. How supplier development plays role in different sourcing strategies?
Through extensive literature, it can be observed that due to globally dispersion and more
focusing on core competency, supplier dependency and outsourcing tendency have increased
(Li et al., 2017), Therefore, there is a strong prerequisite to monitor, identify and quickly
mitigate potential supplier risk (Greene, 2016). Thus this is the first effort to the author’s
knowledge that examines how these strategies SSS and MSS and supplier selection are two
key elements for SD and supplier risk management and in turn improve SMP.

2. Theoretical background and hypotheses development

2.1 Agency theory
Agency theory is a highly appropriate perspective to analyze SRM (Zsidisin and Ellram,
2003). Moreover, the author in the study argued that the buyer can be considered as a
principal and the supplier can be represented as an agent, which means the buyer has
delegate authority about decision-making and also assign work to a supplier that becomes
the agent to complete the task. This means agency theory is highly related to the problems of
BIJ supply chain relationships (Ketchen Jr and Hult, 2007). To date, very little research has been
27,5 done related to agency theory while defining the relationship between buying firms within
the supply chain, in spite of naturally fit (Fayezi et al., 2012). Agency theory recommended
that buying firms should start considering management effort, which may reduce or mitigate
the likelihood of negative impact when supply chain uncertainty has become significant
(Zsidisin and Ellram, 2003). Moreover, it is further highlighted in literature that two strategies
can mitigate supply risk, namely buffer-oriented techniques or behavior-based techniques,
1772 which may provide a shield to buying firms from the disrupted event. As per agency theory,
MSS are categorized as buffer-orientated practices (Anupindi and Akella, 1993; Mitchell,
1995) because Zsidisin and Ellram (2003) already emphasized on the notion when more than
one active possible alternate source is available, supplier-side risk may reduce. Furthermore,
the conflict of goals between buyers and suppliers is one of the main reasons for agency
problems. For this purpose, SD may be relevant because, from an agency theory perspective,
SD is regarded as behavior-based practices (Tse et al., 2019). SD includes developing the
supplier, certifying them, which may provide buying firms information regarding supplier
capabilities and processes, and these practices lead to mitigate risk (Harland et al., 2003). The
literature provides adequate evidence that SD and MSS can solve agency problems and
effectively reduce supplier risk. Therefore, in this study we framework the buyer and supplier
as a principal–agent relationship and contend that the buyer’s implementation of strategic
and MSS and their development toward the supplier would mitigate the supply risk and move
the direction of the supplier toward the accomplishment of superior supply performance.
More to that, an agency path between strategic sourcing and SRM is identified to stimulate
better supply performance, relying on the mediation effect of SD and CM.

2.2 Supply risk management (SRM)

Supplier risk can be defined as the likelihood of disruption associated with upstream supply
(Zsidisin, 2003). Christopher and Peck (2004) provide insight about supply risk and argued
that all risk is included in supply risk such as upstream capital, the flow of material or
information is disrupted. Even supply risk can be categorized as an internal and external risk.
Internal risks reassociated with operations, and external risks are associated with
procurement risk (Eberle, 2005). Furthermore, Siakas and Balstrup (2006) clarified that
comparatively external procurement risk that arises from the upstream supplier is an intense
risk for industries. SRM is grabbing attention in recent years, as it has examined to reduce
risk that is associated with supply chain, it is highly recommended to consider both supply
management and SRM strategy together (Micheli et al., 2008). Previous literature has focused
on groupings and sources of supply risk (Zsidisin et al., 2000; Zsidisin, 2003; Zsidisin and
Ellram, 2003; Giunipero and Eltantawy, 2004). Furthermore, how to manage supply risk is
analyzed by (Harland et al., 2003; Sinha et al., 2004; Cagno and Micheli, 2007), and different
methods such as qualitative and quantitative techniques have investigated to evaluate and
assess suppliers. (Zsidisin et al., 2004). In recent studies, (Schaltegger and Buttitt, 2014;
Ahmed et al., 2019) said that a relationship with a supplier is a prominent concern in the
research field of supply chain risk management. Thun and Hoeing (2011) even argued that
firms that concentrate on managing supplier risk have better performance in terms of
resilience, flexibility and cost.

2.3 Strategic sourcing strategy (SSS)

For sourcing, the success of supply chains is greatly dependent on the selection of the best
supply base in global marketplaces. Supplier selection is one of the most effective and
important activities of purchasing function (De Boer et al., 2001). Supplier selection activities
help in selecting the supplier according to predefined criteria (Goebel et al., 2012). Many
researchers have examined many criteria considered in the decision-making process for
supplier selection. Mainly cost, quality, flexibility and responsiveness toward demand Supply-side
changes are considered to be the most important criteria when selecting a supplier earlier decisions and
(Dickson, 1996; Kwong et al., 2002). Considering all of these parameters into a single
framework can lead to the ranking and selection of suppliers with flexible competences
supply risk
(Parkouhi et al., 2019). Moreover, Hsu et al. (2006) also argued that several criteria have been management
examined, but the importance of every criterion depends on the type of product or services
sourced. To build a relationship between buyers and suppliers, supplier selection is one of the
first steps (Koufteros et al., 2012; Huma et al., 2019). In supply chain literature, the selection of 1773
suppliers can be regarded as a key managerial decision. Even success or failure of sourcing
activities is highly dependent on selecting the right and best supplier (Okuogume, 2011).
According to Beil (2009), strategic supplier selection assists firms in identifying, evaluating
and contract with suppliers for a strategic partnership. He further argues that the firm, to
achieve its sourcing objectives, requires the right suppliers capable of delivering results to the
company. The literature on supplier selection is both perspective and descriptive in nature.
Perspective research investigated a model that describes how supplier should be selected
(Jayaraman et al., 1999; Sarkis and Talluri, 2002; Narasimhan et al., 2006; Hasan et al., 2008),
and descriptive ones analyze the model that is already in use (e.g. Ellram, 1990; Degraeve
et al., 2000). Recently, Yadlapalli et al. (2018) proposed that the main objective of the supplier
selection process is to reduce the risk that is involved in a relationship and helps in developing
the capability of the selected supplier.
2.4 Multiple sourcing strategies (MSS)
Searching for alternatives sources depends upon changes that are external and internal.
Internal changes might include new inventions in technology and offer new products or
materials (Wagner and Johnson, 2004). However, (Wagner and Friedl, 2007) suggested there
is always a potential advantage when considering possible alternatives, which include
reducing purchasing price and opportunities for considering new product development.
Considering the possible alternative source in terms of purchasing and supply any items from
the more capable and suitable supplier (Li et al., 2006). As sourcing depends on within the firm
with the status of the purchasing function, within the firm then the status of the internal
collaboration of purchasing with other functions, development and information sharing of
the potential supplier (Kocabasoglu and Suresh, 2006). The importance of multiple souring is
increasing with time and in the future, it will keep increasing (Krause et al., 2001; Benton,
2007). Sourcing is widely acknowledged as a vital process for manufacturing supply chain
and for achieving the required level of responsiveness and efficiency concerning strategic fit
while deciding sourcing in the current world manufacturing organizations have to consider
all possible alternatives and choose the very best alternative (Routroy and Pradhan, 2013).

2.5 Supplier development (SD)

SD can be regarded as an endeavor by a buyer for its supplier with intention to enhance
capabilities and performance and also to fulfill the supply needs of a buying firm (Krause and
Ellram, 1997b). SD has numerous practices that should be executed in the development of
suppliers such as evaluation and assessment, education and training, feedback
communication, creating a competitive environment, certification, current and future
benefit and site visiting (Yadlapalli et al., 2018). To achieve the company’s objective, buying
firms focused on the development of supplier (Krause and Ellram, 1997a). Over the years,
researchers have investigated there is always positive relationship among SD, buyer and
supplier performance (Monczka et al., 1993; Humphreys et al., 2004; Modi and Mabert, 2007).
The buyer’s main objective is to enhance the performance of the supplier to significantly
enhance on-time delivery, diminish order cycle time, increment incomplete order, reduce
incoming defects. Even Krause et al. (2000) argued that by identifying the performance of the
BIJ supplier and providing feedback, buying a firm can provide awareness and train them to
27,5 overcome the problem that is hurting the performance of the supplier. Moreover, recently Tse
et al. (2019) examined that SD can not only improve buyer and supplier performance but also
widely acknowledge as an essential factor to foster quality performance.

2.6 Contract management

1774 CM is the process of evaluating and monitoring whether supplier and buyer (contract parties)
are executing and performing as per the contract or not. CM also assists in handling and
resolving conflicts that include execution of policy, error specification, changes and payment-
related mechanism. Moreover, it is the process that entails a systematic and efficient process
of contract creation, implementation and analysis to increase the level of operational
performance and financial stability as well as minimize risk (Elsey, 2007; Cropper, 2008).
Common CM practices comprise contract administration, managing the contractor
relationship, contractor monitoring and acceptance management, dispute resolution and
contract closure (Joyce, 2014).

2.7 Supply management performance (SMP)

The supply chain management provides the information, finance and material oversights
because they shift in the procedure from the supplier then to manufacturer then to wholesaler
of the company then to the retailer and finally to customers (Tatoglu, et al., 2016). The
organization should be concerned with the competition in the market. The marketplace of the
current world is moving from the performance of a company to the performance of supply
chain: the ability of the entire supply chain to fulfill the needs and demands of end customers
via the availability of the product and on-time delivery and responsiveness (Zimmermann
and Foerstl, 2014). SMP crosses the boundaries of the organizations and functional lines. The
functional groups of the organization, which are manufacturing, marketing, sales, R&D and
engineering, are all involved in the planning, establishing and selling the products effectively
for supply chain, and conventional organization boundaries are varying as firms explore new
approaches of working all together to attain the final goal of supply chain, which is the
capability to fill the orders of customers in more effective and faster way than the competitor
(Ishtiaque et al., 2020). To attain that objective, the firm required performance gauges, for
improvements in the performance of the international supply chain. The performance
measures of the organization need to demonstrate not just how well the firms are proffering
their products to their customers and how well they are managing their business operations
including management of inventory and assets, speed and also financial metrics. Given the
nature of enhancements in the supply chain, which is cross-functional, the metrics should
secure the behavior of organization silo, which can obstruct the performance of the supply
chain (Gualandris et al., 2014).

2.7 Research hypotheses development

Supplier sourcing is a strategic process because it has investigated that it can reduce
upstream supply chain risk fully or partially (Sener et al., 2017). There are many risks
associated with supplier sourcing criteria such as long-term cooperation risk, product quality
risk, supplier profile risk and service risk (Xiao et al., 2012). They also discussed additional
criteria of supplier risk, namely capacity and production facility, ease of communication,
rapid response to changes, rejection rate, R&D and technological support, on-time delivery,
history of performance and financial status (Lee, 2009). However, Giunipero and Eltantawy
(2004) stated that despite the variety of mathematical programming, criteria and methods,
risk is one of the novel criteria concerning supplier sourcing even though it has been
examined that overall supply chain risk reduced by the help of SSS because when buying,
firms adopt close relationship with their potential supplier and in turn supplier provides Supply-side
insight and solutions to buying firm and increase core competency, which reduces risk decisions and
effectively. Recently, Mukherjee (2017) emphasized the point that when there is a better
liaison between buyer and supplier, supply chain capability and visibility increase, which
supply risk
overcome variability in high demand. Selecting the right supplier also allows one to cope with management
and minimize external risk. Yadlapalli et al. (2018) in fact in a recent study suggested that the
process of supplier selection’s objective is to mitigate the risk that can be involved in a
potential relationship. 1775
Previous studies also highlighted that supplier sourcing and SD are two mechanisms that
should be executed together to assess performance of firms (Kwong et al., 2002; Park et al.,
2010; Gualandris et al., 2015), and also to deal with the risk of social responsibility for a
manufacturing firm, both mechanisms are highly effective (Yadlapalli et al., 2018). Moreover,
many pieces of research have also emphasized the notion that selecting the right supplier also
has an impact on SD of capabilities. Recently, it has been seen that supplier sourcing
enhances the development of supplier activities (Pradhan and Routroy, 2016; Yadlapalli et al.,
2018). Therefore, these pieces of literature lead us to hypothesize that SD mediates with
strategic sourcing to stimulate management of supply-side risk:
H1a. Strategic sourcing strategy has a positive direct effect on risk management.
H1b. Supplier development has a significant mediating role between strategic sourcing
strategy and risk management.
The supplier side always is highly important while researching on the topic of risk
management of supply (Zsidisin and Ritchie, 2009; Ahmed et al., 2019). In a globalized market,
the decision about outsourcing is highly dependent on the best selection of the supply base
(Namdar et al., 2018). Even Spekman and Davis (2004) have proposed that increment of
dependency on supply base may lead to uncertainties related to the supply side, but these
risks can be managed. Zsidisin et al. (2000) and Zsidisin (2003) suggested multiple approaches
to mitigate supplier risk management and most importantly emphasized using alternative
sources of supply. This notion is also supported by Kleindorfer and Saad (2005); Tohamy
(2009). For example, risk can be reduced by effective relationships with supplier and
involvement of alternative or multiple suppliers (Choi, 2007; Choi and Krause, 2006; Chopra
and Sodhi, 2004; Cook, 2007; Mentzer et al., 2006; Swaminathan and Tomlin, 2007). Even for
improvement in supply chain operations, organizations are required to add new suppliers
when necessary (Gary Teng and Jaramillo, 2005). Walmart, for example, always strives for
using an alternative supplier for achieving better service with cheaper rates (Cleeland et al.,
2003). This point is also supported by Kasemset et al. (2014) considering multiple sourcing can
provide better bargaining power of opportunity for products due to market and material
fluctuation. In fact, after the incident of the earthquake in 2011, numerous organizations are
now considering multiple sourcing to cope with the risk of running out of supply. More to
that, multiple sourcing can assist in reducing a firm’s exposure to numerous sorts of risks, for
example, strikes, technological uncertainty, natural disasters and shortages (Treleven and
Bergman Schweikhart, 1988). Therefore, it can be supposed that buyers can avoid pitfalls by
considering possible alternatives sourcing, whenever the process of supply is about to fail
(Silbermayr and Minner, 2014).
Furthermore, it has been observed that MSS also have an impact on SD. Even recently,
Pradhan and Routroy (2016) empirically proved that when an organization integrates MSS
with SD, then supplier status increases, and this enhancement leads to work in
synchronization. Moreover, this collaboration will increase the flow of innovation between
supplier and buyer; this means when SD mediates the relationship with MSS to help in
reducing risk and increase transparency, which leads to less risk in the supply base.
BIJ Therefore, we can hypothesize that improved SD along with multiple sourcing can lead to
27,5 managing risk effectively.
H2a. Multiple source strategy has a significant impact on risk management.
H2b. Supplier development has a significant mediating role between multiple source
strategy and risk management.
1776 SD mechanism has become essential for firms because firms build a relationship with that
supplier who knows SD relationship, as it can help to reduce the likelihood of supply source of
risk (Ritchie and Brindley, 2007). They also argued that organizations have to take some right
activities to tackle the supplier, and this can be done by the strategy of SD because it can
mitigate some supplier risk, which hurts the performance of supply. SD is considered a
behavior-based practice from an agency theory perspective (Tse et al., 2019). Buyer firms use
behavior-based risk management technique to mitigate supplier-side risk or at least reduce
the probability of supply losses, and this technique includes certification of supplier, quality
management program implementation, SD and target costing (Spekman and Davis, 2004;
Zsidisin and Ellram, 2003). SD mechanism is viewed as a risk assessment and monitoring tool
because it not only increases capability of supplier but also trains and certifies them
(Ellegaard, 2008) and even provides insight into processes of supplier such as capability to
make and mix volume changes, supplier capacity and technical expertise (Zsidisin et al.,
2004). In a recent study, supply development is presented as a risk preventive management
approach because it mitigates quality risk and proactively stops the defective material before
entering the production process (Tse et al., 2019). Moreover, recently Pradhan and Routroy
(2016) empirically provide insight that SD has a positive impact on SRM. Therefore, we are led
to the following hypothesis:
H3. Supplier development has a positive direct effect on risk management.
Supply chain risk management is highly essential as multiple key suppliers have become part
of globalized sourcing and also due to multiple supplier evaluation criteria (Wagner and
Bode, 2006). Therefore, supply chain risk and in particular supplier risk management are
receiving greater attention in practice and literature. (Herrmann and Hodgson, 2001;
Spekman and Davis, 2004; Ritchie and Brindley, 2007; Blackhurst et al., 2011). Manufacturing
organization manages its supplier to achieve a short lead time of production, reliability in
delivery, reduce cost and increase quality Shin et al. (2000); this means to develop a
sustainable environment in a risk effective manner. Pradhan and Routroy (2016) provides
empirical evidence that supplier risk management has a positive relationship with the
performance of the supplier and suggested that there should be effective risk criteria that are
mutually beneficial for both buyer and supplier. Therefore, we can hypothesize that:
H4. Risk management has a positive direct effect on supplier management performance.
When buying firms outsource their noncore activities with suppliers to manage their services
than buying the firm’s overall performance is highly dependent on how performance is
delivered by the concerned supplier (Broekhuis and Scholten, 2018). Thus, it is indispensable
for buyers to make sound contract design, which must have essential parameters such as
quantity, price, responsiveness, quality and so on. Better controlling and distinct conflict
resolution mechanism is also required for initiating the liaison with suppliers, as these are the
major pillars for managing contract (Pradhan and Routroy, 2016). Between a buyer and a
supplier, the contract needs to be done to form the basis for relationship management and
well-defined communication (Dubey et al., 2018). Without efficient and effective CM, buying
the firm’s procurement process is incomplete and endangers for the fulfillment of the contract.
 In the previous study, evidence was found that to mitigate risk and handle issues, Supply-side
suppliers and buyers frequently construct formal contracts (Tate et al., 2009). If the contract decisions and
has no clear scope and no proper terms and responsibility defined and executed between
buyer and supplier, then it may create problems that may also affect the performance of
supply risk
supplier and manufacturer. Consequently, recently this notion is supported by the researcher management
that when the contract between contractual parties does not clearly define the deliverables in
any sustainable exchange relationship, then there always exists the risk in the supplier–
buyer transactions (Dubey et al., 2017, 2018). These phenomena showed the importance of 1777
supply CM as in the current outsourcing era, risk management is an extremely critical
activity for the purchaser to manage the value of obtained services by suppliers; otherwise
risk may imperil the completion of the contract. To develop and manage contracts effectively,
risk management considered an integral part of all elements of procurement procedures.
Amount of risk needs to be recognized in the contract, and its risk management should be
placed on those who are possibly able to manage that risk and with the help of active
management of the contract, effective treatments can be done. Therefore, it can be
hypothesized that:
H5a. Contract management moderates the relationship between strategic sourcing
strategy and risk management.
H5b. Contract management moderates the relationship between multiple sourcing
strategies and risk management.
Therefore, our proposed research framework is shown in Figure 1

3. Research methodology
3.1 Research design
The current study employed a survey instrument consisting of two parts: first part
constitutes a respondent demographic profile, whereas the second part included research
model measurement constructs. The survey scales were adapted from previous studies to
ensure content validity. The measures for the variables (Krause and Ellram, 1997; Krause
et al., 2001; Koufteros et al., 2012; Pradhan and Routroy, 2016) were adapted as reference for
the development of the survey instrument. To measure indicators of these constructs, a five-
point Likert scale ranging from strongly disagree 5 1 to strongly agree 5 5 was used. The
empirical required data is collected through mail survey, and Pakistani manufacturing
companies were the unit of analysis. The questionnaire was distributed to 350 supply chain
professionals for the lower, middle and upper levels of management. In total, 223 filled
questionnaires returned with a response rate of 63%. To detect outliers, received data were
further filtered. However, data has no outlier that needs to be rectified. The demographic
profile is shown in Table 1.
3.2 Statistical techniques
This study employed an advanced statistical technique of structural equation modeling (SEM)–
partial least square (PLS) with the core ambition of data analysis. The nature of the current
study is explanatory; that is why this technique was chosen to test the research model (Hair
et al., 2012). PLS technique is the most preferable technique for this study because it has been
recommended in handling complex models including moderating effects and is considered as
the most appropriate and superior technique (Hazen et al., 2015).

3.3 Common method variance (CMV)

To reduce the significance of common method variance (CMV), several techniques were
implemented in this study. Items of the questionnaire were transformed into simple words to
BIJ reduce vagueness, even guaranteed to respondents about their anonymity and motivated
27,5 them to respond honestly (Podsakoff et al., 2003). Concerning statistical technique, CMV can
be detected by examining the Harman single-factor approach. Unrotated factor analysis was
performed on all of the variables studied, and the result shows that all independent and
dependent variables explain 67.3% variance. Moreover, the variance of the first factor is
estimated to be only 20.5%; this concludes that CMV biasness is not a major concern.
Another method to check CMV biasness is correlations of interconstructs, which means if
1778 interconstruct correlation is greater than 0.9, CMV is significant. However, 0.528 is the
highest interconstruct correlation found and shown in Table 3. The result indicates that there
is lack of a significant presence of CMV.

4. Data analysis and result

4.1 Construct validity
Hair et al., (2012) suggested that cross-loadings accepted value is 0.7, and this is used to
measure the reliability of the individual item. In Table 2, it can be seen that all loading items
values are greater than 0.70, with the exemption of SMP of 0.648 for item Q4, Even though
loading of this item is not up to the threshold value of 0.70, but to ensure content validity, this
item was retained because it was significant at the level of 0.000.

4.2 Convergent validity

Convergent validity refers to the degree of relationship between the measures of a particular
construct. It based on the concept that theoretical underpinning for interrelated measures is
related statistically or not (Campbell and Fiske, 1959). Table 3 provides the result of

Firm size (in terms of employees) Frequency %

Less than 100 44 15.2

101–200 45 15.6
200–300 92 31.9
300–400 59 20.4
400þ 48 16.6
Firm type
Automotive sector 58 20.1
Textile sector 88 30.5
Pharmaceutical 37 12.8
Food sector 68 23.6
Petro chemical sector 14 4.86
Other 23 7.98
Respondent designation
Top management 71 24.6
Middle management 153 53.1
Lower management 64 22.2
Respondent experience
Less than 3 years 34 11.8
3–6 91 31.5
Table 1. 6–9 104 36.1
Respondents’ profile 9þ 59 20.4
summary Total 288 100
 CM RM MSS SD SMP SSS
Supply-side
decisions and
CM2 0.843 0.360 0.237 0.403 0.150 0.022 supply risk
CM3 0.881 0.476 0.173 0.442 0.161 0.078
RM2 0.512 0.902 0.194 0.480 0.305 0.173 management
RM3 0.473 0.927 0.164 0.391 0.305 0.151
RM4 0.448 0.914 0.205 0.429 0.337 0.121
RM5 0.438 0.865 0.132 0.407 0.257 0.070 1779
MSS3 0.243 0.188 0.843 0.161 0.120 0.019
MSS4 0.224 0.174 0.870 0.101 0.103 0.113
MSS5 0.146 0.116 0.789 0.156 0.144 0.047
SD2 0.440 0.483 0.116 0.894 0.102 0.121
SD3 0.382 0.348 0.153 0.868 0.001 0.243
SD4 0.412 0.417 0.179 0.884 0.134 0.127
SMP1 0.296 0.241 0.085 0.081 0.845 0.097
SMP2 0.313 0.285 0.117 0.028 0.857 0.146
SMP3 0.390 0.347 0.159 0.134 0.853 0.078
SMP5 0.280 0.140 0.092 0.016 0.648 0.003
SSS2 0.057 0.126 0.014 0.202 0.098 0.882
SSS3 0.054 0.096 0.018 0.172 0.058 0.838 Table 2.
SSS4 0.038 0.117 0.081 0.119 0.157 0.778 Construct validity and
Note(s): Italic values shows the item loadings on corresponding constructs convergent validity

composite reliability and average variance extracted (AVE) as parameters to assess

convergent validity.
The results of convergent validity showed that all the constructs have met threshold value
of 0.70 for composite reliability and 0.50 for AVE as suggested by Hair et al. (2014); Refer
Table 3).

4.3 Discriminant validity

The discriminant validity refers to the discrimination or differences among study constructs
that are underpinned by unrelated theoretical foundations. In this context, discriminant
validity assesses the existence of variance among study constructs to ensure their
individuality and separate functionality is underpinned by the theory, Bagozzi (1981);
Campbell and Fiske (1959); Fornell and Larcker (1981). Two different types of discriminant
validities have been assessed to provide a comprehensive justification of discriminant
validity including Fornell and Larcker (1981) criterion and heterotrait–monotrait ratio
(HTMT) in Tables 3 and 4.

Average
Convergent variance
Constructs validity extracted CM RM MSS SD SMP SSS

CM 0.729 0.741 0.859

RM 0.945 0.813 0.520 0.902
MSS 0.867 0.687 0.249 0.194 0.835
SD 0.912 0.777 0.468 0.475 0.168 0.882
SMP 0.877 0.645 0.402 0.335 0.146 0.092 0.805 Table 3.
SSS 0.873 0.636 0.074 0.145 0.050 0.183 0.111 0.799 Convergent and
Note(s): Square root of the (AVE) embodied in diagonal elements (in italic) discriminant validity
BIJ All the constructs fulfill Fornell and Larcker (1981) criterion as the square roots of AVEs
27,5 for particular constructs have higher values than the respective other constructs. Therefore,
the study constructs have validated Fornell and Larcker criterion for discriminant validity.
The threshold to fulfill HTMT criterion for discriminant validity, as suggested by
Voorhees et al., (2016), Ringle and Sarstedt (2015), should be below 0.85. All the HTMT ratio
values of constructs were found below 0.85. Therefore, all the constructs have met the HTMT
ratio criterion for discriminant validity.
1780
4.4 Path analysis
Path analysis is the advance method of multiple regression analysis. Its implications differ from
the ordinary least square. In multiple regression analysis, the number of dependent variables
restricted to one only, whereas, in SEM path analysis, the number of dependents, moderator,
mediator and independent constructs are not restricted. Therefore, it can clearly be understood
that SEM path analysis has more sophistication and advanced methodological rigor (Fornell
and Bookstein, 1982; Wetzels et al., 2009; Wong, 2013) (see Table 5).
From the direct effect of path analysis, it can be observed that risk management (0.335,
p < 0.10) has a significantly positive relationship with SMP. MSS (0.178, p < 0.10) has a
positive and statistically significant relationship with SD. SD (0.501, p < 0.10) has a
statistically significant and positive influence on risk management, and SSS (0.191, p < 0.10)
has a statistically significant and positive relationship with SD. However, MSS (0.099,
p > 0.10) have a positive but directly insignificant relationship with risk management, and
SSS (0.232, p < 0.10) has a significant but negative relationship with risk management.
About indirect effects, MSS and supplier selection’s effect on risk management was
mediated by SD. Hence it has (0.089, p < 0.10) indirectly positive and statistically significant
relationship with risk management. However, a comparatively SSS has a major effect on risk
management by mediating SD comparatively (0.096, p < 0.10). Additionally, it can be seen
clearly from Table 6 that SD has the greatest effect on SMP, which mediated by risk
management (0.168, p < 0.10). Whereas MSS have (0.063, p < 0.10) indirectly positive and
significant relationship with SMP. Lastly, SSS has a negative indirect effect on SMP
(0.046, p < 0.10).
Moreover while examining the moderating effect of CM between single sourcing strategy
and risk management as per Hypothesis 5a, it was found that CM significantly moderates the
relationship between single sourcing strategy and risk management (0.194, p < 0.10). On the
other hand, the moderating effect of CM between MSS and risk management was found
insignificant (0.031, p > 0.10) (Figure 2).

5. Conclusion and recommendation

5.1 Conclusion
Strategic risk is something inherent to the system through the strategies the policymakers
develop (Ahmed and Huma, 2018). Strategist tries to achieve organizational objectives

CM RM MSS SD SMP SSS

CM
RM 0.698
MSS 0.370 0.222
Table 4. SD 0.640 0.528 0.204
Heterotrait–monotrait SMP 0.643 0.358 0.175 0.121
(HTMT) ratio SSS 0.115 0.169 0.107 0.209 0.136
through the decisions that at the same time overcome various risks associated. But we Supply-side
understand that not all the risks can be addressed or resolved or maybe some risk is the by- decisions and
product of the decision we take. This study provides some in-depth insights for the supply
chain risk managers dealing with the upstream supply chain area as careful attention is
supply risk
needed to reduce the risk coming from upstream. Most of the risks arise due to ill-alignment of management
focal company and the upstream partners’ goals, objectives, lack of clarity of what is expected
to create the right set of values in the supply chain. In this study, we have primarily focused
on the two different strategies that are SSS and MSS intending to understand the implication 1781
on supply-side risk. In the analysis, it is vividly explained that SSS is significantly and
negatively impacting risk management initiatives. Similarly, an SSS is suggested to be
practicing to mitigate innovation capability risk for the organization (Blome and Henke,
2009). Single or dual sourcing permits the organizations to develop a relationship with one
key supplier and involve them in activities such as product development and cost
minimization (Foerstl et al., 2010). On the other hand, MSS has shown a positive but
insignificant direct impact on risk management from the supplier side while it is positively
significant mediated by SD. It is evident from past literature reviews that supplier selection,
SD and CM are the major practices that are usually deployed by the focal firms where
visibility and sustainability in the supply chain are built to improve the procurement
performance and reduce supply-side risk (Zsidisin and Henke, 2019). After analysis of the
mediating effect of SD, it is clearly explained in our study that SD plays a vital role in
improving SRM. Organizations that deploy SSS for leveraging economies of scale usually
struggle to deal with uncertainties and are more prone to disruption, but if organizations have
a proper structure of supplier training and development, it significantly mitigates the
disruptions. SD is a tool to assess the potential weaknesses among the partners and envisages
the right cultural development through developing the right sets of training, and an effective

Relationship Estimates T statistics Decision

SSS → SD 0.195 2.795*** Supported

MSS → SD 0.186 3.141*** Supported
SSS → RM 0.177 4.042*** Supported
MSS → RM 0.065 0.972ns Not supported
SD → RM 0.362 4.936*** Supported
RM → SMP 0.342 5.297*** Supported
AS 3 CM → RM 0.031 0.579ns Not supported Table 5.
SS 3 CM → RM 0.194 4.017*** Supported Path analysis and
Note(s): ***p < 0.01, (Two-tailed), ns: nonsignificant hypotheses testing

Mediating
hypotheses Values a b ab c0 c Decision

SSS > SD > RM β 0.191 0.360 0.069 0.177 0.108 Partial mediation
p-value 0.005 0.000 0.014 0.000 0.023 (Competing) Table 6.
MSS > SD > RM β 0.178 0.360 0.064 0.068 0.132 Partial mediation Path analysis and
p-value 0.002 0.000 0.012 0.331 0.047 (Complementary) hypotheses testing
Source(s): Author’s estimate indirect effects
BIJ
27,5

1782

Figure 1.
Hypothesized model

Figure 2.
Hypotheses testing

SD can be secured through collaborations with suppliers (Dou et al., 2018) that are contingent
upon trustful and transparency in relationships (Ahmed and Omar, 2019). Moreover, SD fully
mediates between MSS and RM, which reflects that it also reduces risk and improves the
smooth flow of material and information from the multiple suppliers. On the other hand, CM
plays a moderating role in maintaining checks and balances on suppliers. Analysis of this
study reveals that CM is an important tool to deploy on SSS than on MSS. Single supplier
strategy is usually having strategic importance for the focal company and thus requires a
proper contractual agreement to communicate associated performance targets and safeguard
the very interest of businesses of both stakeholders. Well-crafted CM contains service-level Supply-side
agreement, which is monitored closely to both incentivize and penalize based on the supplier’s decisions and
performance. On the contrary, in MSS cases, buyers usually don’t have the power to exert
stringent legal bindings over different suppliers. This research also endorses the significance
supply risk
of SRM on supply-side performance. Thus this study explains the importance of SD and CM management
on SRM to improve supplier performance. It can be concluded that better SRM leads to
improved supply performance when SD and CM are developed and implemented in the right
direction, whereas other drivers should be mediated through SD and CM. Supply chain 1783
practitioners should put efforts to design, develop and implement these two drivers (i.e. SSS
and MSS) at the beginning to mitigate the supplier-side risk. Once these drivers are
established, the focus and effort should be made on the other two drivers (i.e. SD and CM) to
further enhance the SM performance.

5.2 Practical implications

This model provides managers a comprehensive relationship of supplier selection strategies
and supplier risk management and practices such as SD and CM to manage supply-side risks
and shows the direction for designing and implementing appropriate policies in order to
enhance the supply-side performance in a manufacturing environment. This study is
providing insight to the professionals of supply management in reforming their policies and
investments in different strategic decisions, for instance: creating a suitable kind of
relationship with suppliers, selecting and evaluating the correct suppliers, reducing the
system-wide risks of supply management. Such an integrated mechanism acknowledges the
effective practices and decisions of supply management, which proffer a value in the cost
management domains, short cycle time, fast delivery, high quality, allow all members of
channels to develop close connections and links, when required, among suppliers and buyers.
In the era of product globalization, this study has overcome the gap in the decision-making
of selecting a supplier for firms in an effective supplier risk management approach by
providing an operational framework. Furthermore, the outcomes of this research are the first
evidence that is showing a great understanding of how supplier selection strategies help in
the development of suppliers in order to mitigate supplier risk that eventually helps in
increasing supplier performance. This integrated model of supplier selection strategies with
the help of SD that leads to manage upstream stakeholders risk and enhance SMP can be
envisioned in the following way:
(1) It is recommended to the sourcing policymakers to opt alternative supplier strategies
to deal with any adverse situation, which may trigger due to demand uncertainties,
due to unforeseen disruptions in the supply market or any environmental changes.
This strategy adds flexibility at the upstream to help to react to any fluctuation in the
supply chains.
(2) This study recommends the procurement strategist to deploy a risk management
mechanism to identify risks at the supply side. This will improve the overall
performance of its procurement department.
(3) It is advised to the supply chain risk managers to put much effort into collaborative
practices, that is, supplier training and education, redesigning the procurement
process or re-evaluating efficiency that eventually guides purchase professionals to
analyze, evaluate and treat the risk faced from their upstream, which will enhance
supplier responsibility and commitment.
(4) Companies having strategic supplier strategy need to focus more on devising a
proper contract because proper contracting leads to protect from supply chain
BIJ disruptions implications by providing proper insights into contractual and legal
27,5 allegations and in return creates win-win situation for both the contractual parties,
and it is highly recommended to supplier management policymakers to make long-
term contract with the recognized responsible supplier that is already sustainable and
eco-friendly labeled.
(5) According to the analysis of this study, it is suggested that suppliers are required to
1784 cooperate with the buyers in sharing risk among the upstream players that enable
collaboration between supply chain members and make it possible to focus on long-
term decisions.
(6) In uncertain economic situations, a single supplier is a bigger risk. It is suggested to
manage risks in terms of purchasing and supply, sourcing specialist is required to opt
MSS and engage in SD programs to monitor and govern supplier’s behavior to better
mitigate risk in ongoing relationships, as well as SD can be considered as a preventive
risk management practice to safeguard against quality risk from the upstream
network, by reducing the possibility of defective materials entering the firm.

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About the authors

Sehrish Huma is a research candidate and has recently completed her MBA/MS in the field of Supply
Chain Management at Department of Karachi University Business School from University of Karachi,
Pakistan. Her interest in research lies in the areas of supply chain strategies and logistics industrial
engineering and management, risk management, operations management and optimization.
BIJ Waqar Ahmed is a lecturer in Department of Management Sciences at Iqra University since 2015. He
is a graduate in Industrial and Manufacturing Engineering from NED UET and holds postgraduation in
27,5 Management Sciences from University of Karachi. He is pursuing his PhD from Iqra University. He has
experience of more than 15 years in various national and multinational organizations including textile,
automobile and logistics distribution sector. He served organizations such as DHL Express, General
Tyres, ICI Pakistan and Feroze Textile Industries. His interest in research lies in the areas of supply
chain and logistics, industrial engineering and management, operations management and optimization.
1792 Waqar Ahmed is the corresponding author and can be contacted at: waqar120@gmail.com
Arsalan Najmi is associated with Iqra University as a lecturer in the Department of Management
Sciences. He holds Master’s in Business Administration from Iqra University and is pursuing his PhD
from Faculty of Business and Accountancy of University of Malaya, Malaysia. His current research is
focused on issues related to contemporary supply chain settings, reverse logistics and management.

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