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M. Essig et al. (Eds.): Supply Chain Safety Management, LNL, pp. 109–122.
springerlink.com
© Springer-Verlag Berlin Heidelberg 2013
Internal versus External Supply Chain Risks:
A Risk Disclosure Analysis
Christoph Bode
1
, René Kemmerling
2
, and Stephan M. Wagner
3
1
Swiss Federal Institute of Technology Zurich, Senior Researcher and Lecturer, Chair of
Logistics Management, Department of Management, Technology, and Economics,
Weinbergstrasse 56/58, 8092 Zurich, Switzerland
cbode@ethz.ch
2
Deutsche Bahn Management Consulting, Supply Chain Management Consultant,
DB Mobility Logistics AG, Stephensonstrasse 1, 60326 Frankfurt, Germany
rene.kemmerling@deutschebahn.com
3
Swiss Federal Institute of Technology Zurich, Professor and Director Executive MBA,
Chair of Logistics Management, Department of Management, Technology,
and Economics, Weinbergstrasse 56/58, 8092 Zurich, Switzerland
stwagner@ethz.ch
1 Introduction
The globalization of factor and logistics markets, developments in modern
information and communications technologies, and increasingly demanding
customers are just a few mega trends in the last decade. In order to cope with these
challenges many firms first reengineered their internal operational and
organizational processes to cut costs, increase product and service quality, and
remain agile in fast changing environments. But to stay innovative and
competitive many firms recognized that internal improvements are too myopic.
Therefore the management of supply chains (SCM) has become very prominent
since the 1980s and is now widely regarded as one of the main critical success
factors and considered as a key enabler of strategic change and source of strategic
advantage for organizations.
As a consequence, compared with the situation a few decades ago, modern
firms collaborate differently, especially more closely, with their customers and
suppliers. For example in the automotive industry, original equipment
manufacturers (OEMs) increased the involvement of their suppliers in the
development of new products and processes by setting up strategic alliances and
joint ventures with key upstream partners. Furthermore, concepts such as just-in-
time (JIT) or just-in-sequence (JIS) require very close collaboration among all
players of the supply chain to prevent it from being disrupted (Wagner & Silveira-
Camargos, 2012).
But as advantageous and necessary e.g., outsourcing/offshoring of
manufacturing activities, low-cost country sourcing, and collaboration with
international suppliers in modern supply chains are, the way of working together
has exposed networked firms both qualitatively and quantitatively on a higher risk
110 C. Bode, R. Kemmerling, and S.M. Wagner
level. In this context the management of risks influencing the supply chain and its
members, i.e., the discipline of supply chain risk management (SCRM), gained
much importance in the last years among practitioners and management scholars.
However, due to the little consensus on a definition of SCM (Mentzer et al., 2001;
Rossetti & Dooley, 2010), the high degree of heterogeneity among firms and the
increasingly changing environment regarding legal requirements, technology,
global climate, political situation, etc., ongoing research is constantly necessary to
support firms achieving supply chain preparedness.
In the first step on achieving supply chain preparedness, possible causes for
supply chain disruptions need to be identified and evaluated with respect to their
potential damage and likelihood of occurrence. In addition it is essential for
companies to create a risk classification system to group the single risks into risk
categories in order to (1) decrease the complexity related to the myriad of possible
risks, (2) facilitate the assignment of responsibilities, and (3) create customized
risk mitigation measures for each risk class.
This contribution addresses exactly this process of risk classification in the
context of supply chain risk management by following two objectives. First, we
propose a simple classification system based on the work of Wagner and Bode
(2008). This two-level system distinguishes on the top level between (a) internal-
driven and (b) external-driven supply chain risks and on the second level between
the five risk categories (1) demand-side risks, (2) supply-side risks, (3)
infrastructure and operational/production risks, (4) regulatory, legal, and
bureaucratic risks, and (5) catastrophic risks. Second, we offer first results of a
current empirical panel study based on secondary data. These results not only
confirm the results of Wagner and Bode (2008) by a different methodological
approach but also show that the importance of internal-driven supply chain risks
has increased in the last years.
This part of the book is organized as follows. In the second chapter we describe the
basic terminology and introduce the supply chain classification system proposed by
Wagner and Bode (2008) before adopting it to the two-level supply chain risk
classification system in chapter 3. Chapter 4 describes the methodology and
framework of our empirical study and selected results are presented in the fifth
chapter. The last chapter summarizes our contribution and gives concluding remarks.
2 Supply Chain Disruptions, Risks and Vulnerability
Supply chain disruptions can materialize from inside or outside of a supply chain
and can vary greatly in their magnitude, attributes, and effects. Consequently, their
nature can be highly divergent. For instance, a delayed shipment of non-critical
material is potentially a much less serious impact on the supply chain than is an
eight-week labor strike at a single-sourced key supplier. In attempting to
differentiate supply chain disruptions from other adverse events in business (e.g.,
shocks on the financial markets), many scholars have proposed classifications of
Internal versus External Supply Chain Risks: A Risk Disclosure Analysis 111
supply chain disruption in the form of typologies and/or taxonomies
1
(e.g., Cavinato, 2004; Chopra & Sodhi, 2004; Christopher & Peck, 2004; Hallikas,
Karvonen, Pulkkinen, Virolainen, & Tuominen, 2004; Manuj & Mentzer, 2008;
Norrman & Lindroth, 2004; Spekman & Davis, 2004; Svensson, 2000). The
derived categories of supply chain disruptions are usually labeled supply chain
risk sources, in the sense of being a known source from which supply chain
disruptions emerge with a certain probability.
Jüttner (2005), for instance, defined supply chain risk sources as “any variables
which cannot be predicted with certainty and from which disruptions can emerge”
(p. 122). In this regard, operating a production plant constitutes a risk source,
because it is associated with various known risks (e.g., fire). Furthermore, the
classifications cover a broad spectrum with respect to the amount of risk sources.
For example, Svensson (2000) named two supply chain risk sources (quantitative
and qualitative), Jüttner (2005) delineated three (supply, demand, and
environmental), and Manuj and Mentzer (2008) proposed eight (supply,
operational, demand, security, macro, policy, competitive, and resource).
In addition, a few taxonomies of supply chain risk sources do exist. They are, in
contrast to these existing typologies empirically substantiated classifications
(Bailey, 1994). Zsidisin and Wagner (2010) examined supply-side risk sources
and identified supplier, supply market, and the extended supply chains as sources
of risk. Wagner and Bode (2008) proposed a classification in five distinct supply
chain risk sources: (1) demand-side, (2) supply-side, (3) regulatory, legal, and
bureaucratic, (4) infrastructure and operational, and (5) catastrophic.
Furthermore, while the risk sources demand-side, supply-side, and infrastructure
and operational risk are internal-driven with respect to the supply chain
perspective, the other two risk sources focus on issues that are rather external-
driven to the supply chain. The next sections describe these five risk sources in
more detail.
2.1 Internal-Driven Supply Chain Risks
2.1.1 Demand-Side Risk
Supply chain disruptions can emerge from downstream supply chain operations.
These include, on the one hand, disruptions in the physical distribution of products
to the end-customer which are usually associated with transportation operations,
such as a truck drivers’ strike (McKinnon, 2006), and the distribution network. On
the other hand, demand-side supply chain disruptions can originate from the
uncertainty caused by customers’ unforeseeable demands (Nagurney, Cruz, Dong,
& Zhang, 2005). Here, disruptions may be the results of a mismatch between a
company’s projections and actual demand, as well as of poor coordination of the
1
Typologies and taxonomies are classifications, i.e., groupings of entities by similarity. A
typology is theoretically constructed, while a taxonomy is derived from empirical data
(Bailey, 1994).
112 C. Bode, R. Kemmerling, and S.M. Wagner
supply chain. The consequences of such demand-side disruptions are costly
shortages, obsolescence of stocks, poor customer service due to unavailable
products or backlogs, or inefficient capacity utilization.
2.1.2 Supply-Side Risk
Firms are exposed to numerous potential supply chain disruptions stemming from
the upstream side of their supply chains. Risks reside in purchasing activities,
suppliers, supplier relationships, and supply networks. These risks encompass, in
particular, supplier business risks, production capacity constraints on the supply
market, quality problems, and changes in technology and product design (Zsidisin
& Wagner, 2010).
Supplier business risks relate to disruptions that affect the continuity of the
supplier and result in the interruption or the termination of the buyer-supplier
relationship. This is closely linked with the threat of financial instability of
suppliers, and possible consequences of supplier default, insolvency, or
bankruptcy (Wagner, Bode, & Koziol, 2009). The financial default of a supplier
(e.g., a supplier going out of business) is a common supply chain disruption that
can have severe consequences for the buying firm. Another type of disruption can
occur when a supplier is vertically integrated by a direct competitor of the
customer firm, forcing the termination of the relationship (Chopra & Sodhi, 2004).
In buyer-supplier relationships that involve high switching costs for the buying
firm, opportunistic behavior from suppliers has also been reported to be a source
of supply-side risk (Spekman & Davis, 2004; Stump & Heide, 1996).
2.1.3 Infrastructure Risk
The infrastructure risk source includes potential disruptions that evolve from the
infrastructure that a firm maintains for its supply chain operations. This includes
socio-technical accidents such as equipment malfunctions, machine breakdowns,
disruptions in the supply of electricity or water, IT failures or breakdowns, as well
as local human-centered issues (e.g., vandalism, sabotage, labor strikes, industrial
accidents) that are addressed within the area of supply chain security (Lee &
Wolfe, 2003; Skorna, Bode, & Wagner, 2009; Spekman & Davis, 2004).
2.2 External-Driven Supply Chain Risks
2.2.1 Regulatory, Legal, and Bureaucratic Risk
With the exception of government initiatives for security facilitation such as
the Customs-Trade Partnership Against Terrorism (C-TPAT) or Authorized
Economic Operators (AEO) certifications (Sarathy, 2006; Zsidisin, Melnyk, &
Ragatz, 2005), little attention has been paid to supply chain risks stemming from
Internal versus External Supply Chain Risks: A Risk Disclosure Analysis 113
regulatory and legal conditions. However, in many countries, authorities
(administrative, legislative, and regulatory agencies) are a significant factor of
uncertainty in the setup and operation of supply chains. Regulatory, legal,
and bureaucratic risks refer to the legal enforceability and execution of supply
chain-relevant laws, regulations, stipulations, or policies (e.g., trade and
transportation laws) as well as the degree and frequency of changes in these rules.
Such changes may suddenly lead to violations of (or nonconformance with) laws,
rules, regulations, or ethical standards.
2.2.2 Catastrophic Risk
This class encompasses pervasive events which, when they occur, have a severe
impact on the area of their occurrence. Such events can be epidemics or natural
disasters, socio-political instability, civil unrest, and terrorist attacks (Kleindorfer
& Saad, 2005; Martha & Subbakrishna, 2002; Swaminathan, 2003). In many
regions of the world, tsunamis, droughts, earthquakes, hurricanes, and floods are a
constant threat to the societies and firms located there (Munich Re, 2011). The
negative consequences on supply chains are obvious, since production facilities
and transportation systems are highly vulnerable to natural disasters. Due to the
globalization of markets and a surge in globe-spanning supply chain operations,
local catastrophes have increasingly indirect global repercussions.
3 Methodology and Data
In the following we will describe briefly our methodology, data gathering
procedure, and content analysis techniques which we used to conduct our panel
study.
3.1 Sampling and Time Frame
The sample selection process started with identifying all US companies listed in
the Dow Jones STOXX® Americas 600 Index
2
at the midterm of 2007, 2008 and
2009 respectively. This resulted in a total of 675 companies. Next, two filter steps
were applied. First, all firms that were not listed in the index at all three
considered midterm dates were excluded which reduced the data set to 422
companies. Second, we excluded all companies belonging to sectors such as
media, banking, insurances, real estate, and financial services, because supply
2
This index contains the 600 largest companies in North America and represents a market
capitalization of approximately 11.9 trillion USD as of December 2009. Since its first
compilation in July 2003 the index composition is reviewed on a quarterly basis and
companies are replaced e.g., due to mergers & acquisitions or failing to permanently
meeting the index requirements.
114 C. Bode, R. Kemmerling, and S.M. Wagner
chain management is not a core activity in these industries. As a result, our sample
for the empirical analyses contains 219 companies. Table 1 indicates that the
sample covers a wide range of industry sectors and company sizes (measured by
number of employees).
Table 1 Sample composition
Count %
Sector and industry
Automobiles and Parts 8 1.8
Basic Resources 22 5.0
Chemicals 14 3.2
Food and Beverage 36 8.2
Healthcare 32 7.3
Industrial Goods & Services 92 21.0
Oil and Gas 64 14.6
Personal and Household Goods 38 8.7
Retail 62 14.2
Technology 70 16.0
Number of employees
Less than 1,000 1 0.4
1,000 – 4,999 20 8.7
5,000 – 9,999 56 24.5
10,000 – 49,999 84 36.7
50,000 – 99,999 33 14.4
100,000 and more 35 15.3
Note. All values are based on data of the year 2009.
The time frame of our study covers the fiscal year 2007 and 2009 of all 219
sampled companies, i.e., in total we analyzed 438 firm–year observations.
3.2 Content Analysis
A content analysis approach was chosen, because the risks are disclosed in a
qualitative fashion in item 1A of the 10-K reports; only content analysis is able to
handle the quality of such information (Lajili & Zéghal, 2005). Different counting
measures can be used, which include ‘word’, ‘sentence’, ‘page’, and ‘the number
of lines’ (Rajab & Handley-Schachler, 2009). In this study, ‘paragraph’ was
considered as basis as it is the reliable and meaningful coding unit in this type of
data source.
Internal versus External Supply Chain Risks: A Risk Disclosure Analysis 115
A single coder performed the content analysis manually for this study to avoid
iteration and repetition. Coding training was provided prior to the commencement
of the study by one of the authors who is experienced in applying content analysis
techniques. The training consisted of discussing the research objectives and the
scope of supply chain risks in item 1A of Form 10-K, defining the coding scheme,
and familiarizing the coder with relevant literature regarding risk disclosure,
content analysis, and supply chain risk management. To support the coding
process, a dedicated software tool was developed.
3.3 Data Source
In order to identify internal- and external-driven supply chain risks and as
discussed in the above sections, we focus on “Item 1A: Risk Factors” of the
annual 10-K report which each company in our sample has to file to the U.S.
Securities and Exchange Commission (SEC) 60 days after fiscal year end closing.
These filings are freely available to the public and published on the SEC website
via the EDGAR database (http://www.sec.gov/edgar.shtml).
In item 1A of the Form 10-K statement, a company is required to lay out “(...) a
discussion of the most significant factors that make the offering speculative or
risky” (SEC, 2010, p. 443). Furthermore, “[t]he risk factors may include, among
other things, the following: (1) (...) lack of an operating history; (2) (...) lack of
profitable operations in recent periods; (3) (...) financial position; (4) (...) business
or proposed business” (SEC, 2010, p. 443). As item 1A is the section where the
complete list of relevant risks is disclosed, we refrained from looking at other
sections within the 10-K report.
3.4 Examples of Disclosed Supply Chain Risk Sources
The proposed risk classification system is depicted in Table 2. In the first column,
the top-level risk sources consisting of internal-driven and external-driven supply
chain risks are shown. Next, the second column assigns the above described
ground level risk sources. Due to the importance of demand-side and supply-side
risks, we decided to create sub-categories in order to increase the level of detail in
our analyses. The demand-side risk source consists of three categories: (D01)
customer default / credit risk, (D02) customer dependence, and (D03) other
demand-side risks. This fine-grained classification allows us to disaggregate the
rather broad category of demand-side risks. Likewise, the supply-side risks
consists of four sub-categories: (S01) supplier default, (S02) supplier dependence,
(S03) supplier quality problem, and (S04) other supply-side risks.
116 C. Bode, R. Kemmerling, and S.M. Wagner
Top-level Ground-level Reported risks as quoted in annual SEC filings of sampled companies Firm
Internal-driven supply chain risks
D01
Customer default /
credit risks
Any difficulties in collecting accounts receivable, including from foreign customers, could harm our
operating results and financial condition.
Nvidia
In the event that a significant pub chain were to go bankrupt, or experience similar financial
difficulties, our business could be adversely impacted.
Molson Coors
Brewing
D02
Customer
dependence
The company may be adversely impacted by the increased significance of some of its customers. Campbell Soup
A limited number of our customers comprise a significant portion of our revenues and any decrease in
revenues from these customers could have an adverse effect on our net revenues and operating
results.
Juniper Networks
D03
Other demand-side
risks
Changes in the level of demand for our products could adversely affect our product sales. Southern Copper
The long sales and implementation cycles for our products, as well as our expectation that some
customers will sporadically place large orders with short lead times, may cause our revenues and
operating results to vary significantly from quarter-to-quarter.
Juniper Networks
S01 Supplier default
We rely on business partners in many areas of our business and our business may be harmed if they
are unable to honor their obligations to us.
Electronic Arts
S02 Supplier dependence
We are dependent on sole source and limited source suppliers for several key components, which
makes us susceptible to shortages or price fluctuations in our supply chain, and we may face
increased challenges in supply chain management in the future.
Juniper Networks
S03
Supplier quality
problem
We outsource some of our manufacturing. If there are significant changes in the quality control or
financial or business condition of these outsourced manufacturers, our business could be negatively
impacted.
Avery Dennison
S04
Other supply-side
risks
Fluctuations in commodity prices and in the availability of raw materials, especially feed grains, live
cattle, live swine and other inputs could negatively impact our earnings.
Tyson Foods
We depend on contract growers and independent producers to supply us with livestock. Tyson Foods
I0
Infrastructure and
operational/
production risks
The company may be adversely impacted by inadequacies in, or failure of, its information technology
system.
Campbell Soup
Product liability claims could adversely impact our financial condition and our earnings and impair
our reputation.
Medtronic
External-driven
supply chain
risks
R0
Regulatory, legal,
and bureaucratic
risks
The company’s results may be impacted negatively by political conditions in the nations where the
company does business.
Campbell Soup
Our industry is experiencing greater scrutiny and regulation by governmental authorities, which may
lead to greater governmental regulation in the future.
Medtronic
C0 Catastrophic risks
Global or regional catastrophic events could impact our operations and financial results. Coca Cola
Military action, other armed conflicts, or terrorist attacks. Halliburton
Table 2 Risk classification schedule
Internal versus External Supply Chain Risks: A Risk Disclosure Analysis 117
Finally, for each risk source, Table 2 provides some text examples as they
appeared in the reports. These examples clarify the notion of the classification
system and the content of each risk source more clearly.
4 Analysis and Results
In the following we present selected results based on the analysis of the risk
disclosure in the 2007 and 2009 fiscal year-end filings (Form 10-K) of 219 U.S.
companies.
In total, we identified 2.473 distinct risks disclosed in the 2007 annual risk
reporting and 3.001 risks in 2009 which reflects an increase of 21.4%. Thus, on
average, the firms in our sample reported 11.29 risks in 2007 and 13.70 risks in
2009. This corresponds to an increase of 2.41 risks per firm (p < 0.001; two-tailed
paired-sample t-test). This development comes along with the negative influence
of the financial crisis in 2009. Based on the ground level of our classification
system, Figure 1.A shows the frequencies for each of the five risk sources.
Fig. 1 Frequencies and distribution per ground-level risk source in 2007 and 2009
The amount of disclosed risks in all five categories increased within the two
year time-window. However, in relative terms, the changes differ highly among
the various risk sources. While the increase for catastrophic risks (+8.8%, p <
0.05), regulatory, legal, and bureaucratic risks (+14.5%, p < 0.001), and supply-
side risks (+13.8%, p < 0.01) is rather small and below average (+21.4%), the
other two risk sources raised at a higher degree. Demand-side risks (+38.4%, p <
0.001) and infrastructure and operational/production risks (+ 23.6%, p < 0.001)
were reported significantly more often in 2009 than in 2007. This trend might
reflect the greater emphasis companies put on the downstream part of their supply
chain while at the same time knowing that risks coming from this source can have
severe negative impacts for the entire enterprise.
Further, we examined the relative importance of each ground-level risk source.
Figure 1.B unveils that the exposure to demand-side risks is not only of highest
concern to companies. The weight of this risk source has even increased from 25%
in 2007 to 29% in 2009. At the same time, catastrophic risks remained on the
Figure 1.A: Frequencies of ground-level risk sources
in 2007 and 2009
Figure 1.B: Relative distribution of ground-level
risk sources in 2007 and 2009
a
a
2007: 2.473=100%; 2009: 3.001=100%
353
519
484
492
625
384
594
598
560
865
Catastrophic risks
Regulatory, legal, and
bureaucratic risks
Infrastructure and
operational/
production risks
Supply-side risks
Demand-side risks
2009
2007
14%
21%
20%
20%
25%
13%
20%
20%
19%
29%
Catastrophic risks
Regulatory, legal, and
bureaucratic risks
Infrastructure and
operational/
production risks
Supply-side risks
Demand-side risks
2009
2007
118 C. Bode, R. Kemmerling, and S.M. Wagner
lowest awareness level. This confirms the survey-based study of Wagner and
Bode (2008) in which companies assigned the least importance to the latter risk
source and the highest to demand-side risk sources. The other three sources, i.e.,
supply-side risks, infrastructure and operational risks and regulatory, legal, and
bureaucratic risks share the remaining weights equally and stay constant within
the analyzed time window.
Aggregating the empirical data to the top level of our classification system
indicates that the number of internal-driven supply chain risks increased by 26.4%
(p < 0.001) from 2007 to 2009 whereas external-driven supply chain risks
increased only by 12.2% (p < 0.001) (Figure 2.A). Figure 2.B shows the relative
distribution of the two top-level categories and illustrates that internal-driven
supply chain risks have slightly increased their weight within the companies’ risk
portfolio.
Fig. 2 Frequencies and distribution per top-level risk source in 2007
As described above, we set up our coding schedule in order to unveil more
details for the demand and supply-side risk sources. The more detailed view on the
data is visualized in Figure 3 and 4 respectively.
Fig. 3 Demand-side risk sources in 2007 and 2009
Figure 2.A: Frequencies of top-level risk source in
2007 and 2009
Figure 2.B: Relative distribution of top-level risk
source in 2007 and 2009
a
a
2007: 2.473=100%; 2009: 3.001=100%
872
1601
978
2023
External-driven
supply chain
risks
Internal-driven
supply chain
risks
2009
2007
67%
65%
33%
35%
2009
2007
Internal-driven
External-driven
Figure 3.A: Breakdown of demand-side risk
sources in 2007 and 2009
Figure 3.B: Development of relative distribution of
demand-side risks from 2007 to 2009
a
a
2007: 625=100%; 2009: 865=100%
477
80
68
559
91
215
Other demand-side
risks
Customer
dependence
Customer default /
credit risk
2009
2007
76%
13%
11%
65%
11%
25%
Other demand-side
risks
Customer
dependence
Customer default /
credit risk
2009
2007
Internal versus External Supply Chain Risks: A Risk Disclosure Analysis 119
Disaggregating the demand-side risks into the categories (1) customer default
and credit risks, (2) customer dependence, and (3) other demand-side risks shows
that in all three categories the number of reported risks increased from 2007 to
2009 (Figure 3.A). Especially the risks related to the default of customers and
customers’ inability to pay their obligations experienced an enormous increase by
216% (p < 0.001). This trend reflects that companies, even large multinational
firms, became more sensitive toward the default of single customers. In fact, 148
of the 219 analyzed companies (i.e., 67.6%) mentioned customer default risk in
their 2009 risk reporting whereas in 2007 only 58 companies (26.5%) reported this
specific risk. Figure 3.B highlights that, within the demand-side risk sources, more
emphasis is put on the risk of customer default in 2009 than in 2007. In 2009
every fourth disclosed demand-side risk is related to the default of customers and
the related credit risk whereas in 2007 only 1 out of 9 risks were reported in this
category. Additionally the number of risks rooted in the dependence on customers
increased slightly in absolute terms but lost share by two percentage points.
Fig. 4 Supply-side risk sources in 2007 and 2009
Looking on the upstream part of the supply chain shows that the absolute
increase is caused by an increase in the categories (1) supplier quality problem, (2)
supplier dependence, and (3) supplier default whereas the (4) other supply-side
risks decreased slightly at the same time (Figure 4.A). Within this risk source
default risks show as well the highest intensification by 365%. Furthermore, only
17 companies reported the risk of supplier default in their 2007 reporting while 80
companies do so in 2009. Although this trend reflects a greater awareness by
companies for the negative consequences of supplier defaults, this empirical
insight also indicates, that 63% of the companies still not report supplier default in
their annual reporting. Analogue to Figure 3.B, Figure 4.B illustrates the mix of
reported upstream risks. It is evident that supplier quality problems and the
dependence on suppliers remain constant in their significance whereas the supplier
default gained weight from the other supply-side risks category.
Figure 4.A: Breakdown of supply-side risk sources
in 2007 and 2009
Figure 4.B: Development of relative distribution of
supply-side risks from 2007 to 2009
a
a
2007: 492=100%; 2009: 560=100%
322
20
114
36
298
93
125
44
Other supply-side
risks
Supplier default
Supplier dependence
Supplier quality
problem
2009
2007
65%
4%
23%
7%
53%
17%
22%
8%
Other supply-side
risks
Supplier default
Supplier dependence
Supplier quality
problem
2009
2007
120 C. Bode, R. Kemmerling, and S.M. Wagner
5 Discussion and Conclusion
The objective of this research was to empirically investigate the supply chain risk
disclosures in 10-K reports of U.S firms. Following a content analysis, this study
describes and analyzes supply chain risk disclosures of 219 U.S companies over 2
years by summarizing and classifying disclosed supply chain risk related
information. Besides legally required, information on the risk situation is mainly
demanded by shareholders, potential investors, and other stakeholders such as
employees to access and appraise the future performance of the company.
Therefore the risk disclosure in annual reports became the main risk
communication between firms and outsiders. Referring to our empirical evidence
which shows an increased quantity of supply chain risk disclosures from 2007 to
2009 in all five risk sources, i.e., supply-side and demand-side risks, infrastructure
and operational/production risks, regulatory, legal, and bureaucratic risks, and
finally catastrophic risk, companies increase the amount of information disclosed
with regard to the risks faced and their expected impact on future profits in order
to more effectively fulfill these demands (Beretta & Bozzolan, 2004). The
increasing trends for risk disclosures are consistent with previous researches, e.g.,
Kajüter and Winkler (2003) and Fischer and Vielmeyer (2004).
In 2008, a series of banks’ and insurance companies’ failures triggered a
financial crisis that effectively halted the global credit market. These failures
caused a crisis of confidence that made banks reluctant to lend money amongst
themselves, or for that matter, to anyone leading to many corporations filing for
bankruptcy in the U.S. Therefore, the financial crisis of 2008 and the global
economy recession as a consequence drove a lower demand and more exposures
to supplier and customer default and credit risks. Based on these developments,
we inferred that the significant increase in the disclosure quantity of supplier
default, customer default and demand-side risks were mainly due to the financial
crises of 2008.
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