Linking forward and reverse supply chain investments: The role of business uncertainty

Linking Forward and Reverse Supply Chain Investments:The Role of Business Uncertainty

Canan Kocabasoglu at Univ. of Kansas,Carol Prahinski at Univ. of Western Ontario

and Robert Klassen at Univ. of Western Ontario

9/20/2005 Kocabasoglu, Prahinski and Klassen at McGill University Symposium on Closed Loop

Supply Chains

2

Forward Supply Chains (FSCs)

The series of activities that convert raw materials into finished goods to be consumed by end users.

Raw Material

Supplier

Retailer

Distributor

Mfg

Consumer


Supply Chains

3

Reverse Supply Chains (RSCs)

The series of activities required to retrieve a product from a customer and either dispose of it or recover value

Supplier

Retailer

Distributor

Mfg

ConsumerRecycler

Landfill

Europe

Remanufacturer Scavengers


Supply Chains

4

Trends in RSCs:High amount of product returns (Trebilcock, 2002),Increased sales opportunities in secondary and global markets (Meyer, 1999),Proliferation of end-of-life take-back laws (Fishbein, 1994; Toffel, 2003),Increasing consumers pressure (Wall Street Journal, 2003), and,Limits to landfill capacity (Thierry et al., 1995; Thorn and Rogerson, 2002).

Reverse Supply Chains (RSC)


Supply Chains

5

Research MotivationWith limited resources, managers make investment allocation decision between the FSC and RSC initiatives.The decision of FSC and RSC investments may be influenced by the business climate uncertainty and organizational factors.


Supply Chains

6

Research Questions

Are managers’ perceptions of uncertainty in the business climate related to their organization’s investments in FSC and RSC?Is the relationship of the manager’s perceptions of the business uncertainty and the organization’s investments in the FSC and RSC mediated by managers’ perceptions of their organization’s risk propensity?


Supply Chains

7

Munificence: the extent to which an organization’s business climate can support its growth (Dess and Beard, 1984).Dynamism: the rate of change in product design, technology and customer preferences (Achrol and Stern, 1988). Hostility: the intensity of competition and level of governmental control (Miller, 1987). Heterogeneity: to the degree of dissimilarity between firms (Aldrich, 1979).

Business Uncertainty


Supply Chains

8

Organizational level – The general likelihood of an organization accepting more or less risky behavior (modified from Sitkin and Pablo, 1992)Risk propensity has been characterized as dynamic (based on mood, context and experience).FSC risk propensity – Manager’s perceptions of the organization’s willingness to take risk (e.g., first-mover’s advantage)RSC risk propensity – Manager’s perceptions about the perceived benefits of RSC involvement

Risk Propensity


Supply Chains

9

Effort investment - The decision associated with resource allocation, including time, effort and money to resolve an issue (Mittal et al., 2002). In the FSC:

Direct involvement,EvaluationsIncentive Programs

In the RSC:RepackagingReconditioningRecycling Waste Management

Supply Chain Investments


Supply Chains

10

Theoretical Model


FSC Risk Propensity

RSC Risk Propensity

Investment in FSC

Investment in RSC


Supply Chains

11

Industries:332 Fabricated Metal Product Manufacturing 333 Machinery Manufacturing 335 Electrical Equipment, Appliance and Component Manufacturing 336 Transportation Equipment Manufacturing

Scott’s Directory and National Pollutant Release Inventory (NPRI)

Sample


Supply Chains

12

Pre-testing Large-scale Survey

Initial telephone call Mailed survey packageFax reminderMailed second survey packageFollow up calls

126 responses from 460 targeted plant managers, yielding a response rate of 27%.

Sampling Design


Supply Chains

13

Factor AnalysisCFA – 8 constructs - Business Uncertainty (4); Risk propensity (2); and Investments (2)EFA –Investments in RSC

Investment in reconditioning (IRC)Investment in recycling and waste management (IRWM)

Confirmed Investment constructs with objective measures of investment

Based % of total plant’s capital and operating budget

Results: Good fitInvestments in RSC became 2 factors


Supply Chains

14

Fit Statistics and Power

χ2

χ2/d.f.

TLI

CFI

RMSEA (CI)

d.f.

# of Parms

Power

Desirable Range ≤ 3.0 ≥ 0.90 ≥ 0.90 ≥ 0.80

≤ 0.08 for reasonable fit

IRC Models: Munificence 276 1.37 0.93 0.94 0.057 (0.039, 0.073) 201 52 0.94 Dynamism 292 1.32 0.94 0.95 0.052 (0.034, 0.068) 222 54 0.96 Hostility 259 1.43 0.92 0.93 0.061 (0.044, 0.078) 181 50 0.92 Heterogeneity 243 1.34 0.94 0.95 0.055 (0.035, 0.072) 181 50 0.92 IRWM Models: Munificence 241 1.33 0.94 0.95 0.054 (0.034, 0.071) 181 50 0.92 Dynamism 253 1.26 0.95 0.96 0.047 (0.025, 0.065) 201 52 0.94 Hostility 214 1.32 0.94 0.95 0.053 (0.031, 0.071) 162 48 0.89 Heterogeneity 202 1.25 0.95 0.96 0.046 (0.020, 0.066) 162 48 0.89


Supply Chains

15

Structural Model: IRC


FSC Risk Propensity

RSC Risk Propensity

Investment in FSC

Investment in Recon-ditioning

Significant for all models

Some support

Not Significant


Supply Chains

16

Structure Model: IRWM


FSC Risk Propensity

RSC Risk Propensity

Investment in FSC

Investment in Recycling

& Waste

Significant for all models

Some support

Not Significant


Supply Chains

17

Results:Business Uncertainty and Risk Propensity

Business Uncertainty, with the exception of hostility, is directly related to FSC risk propensity.

Business Uncertainty, with the exception of hostility, does not have a direct relationship with RSC risk propensity.


Supply Chains

18

Business Uncertainty is not directly related to investments in FSC.

With the exception of dynamism and hostilityin the recycling & waste model, there is no direct relationship between business uncertainty and investments in RSC.

Results:Business Uncertainty and Investments


Supply Chains

19

Managerial Implications

Manager’s perceptions of the organizations’willingness to take risks is linked to the level of perceived business uncertainty.

The relationship between business uncertainty and investments is mediated by organizational risk propensity.


Supply Chains

20

Managerial Implications

Companies with higher levels of risk propensity are investing greater amounts of time, money and effort in improving their supplier and customer relationships.

The results suggest that there is a difference in how companies view investments in reconditioning and investments in recycling & waste.


Supply Chains

21

THANK YOU!Questions?

Linking forward and reverse supply chain investments: The role of business uncertainty

Documents

Transcript of Linking forward and reverse supply chain investments: The role of business uncertainty