Using Country Sustainability Risk to Inform Sustainable Supply Chain Management: A Design Science Study

• Date: 01 September 2019
• DOI: http://doi.org/10.1111/jbl.12190
• Published date: 01 September 2019

Using Country Sustainability Risk to Inform Sustainable Supply

Chain Management: A Design Science Study

Dagmar Reinerth

1

, Christian Busse

2

, and Stephan M. Wagner

1

1

Swiss Federal Institute of Technology Zurich

2

Carl von Ossietzky University of Oldenburg

The sustainability of our global supply chains is an essential concern in strategic supply chain management research. Modern information

and communication technologies enable stakeholders to punish buying firms for any sustainability-related grievances at their suppliers,

even in remote locations. This study investigates how the notion of country sustainability risk can inform sustainable supply chain management,

in particular with respect to sustainability risk assessment at the individual supplier level. Drawing on institutional theory, we provide insights

surrounding the emergence of environmental, social, and governance-related country-level sustainability risks and show their implications for

and application in sustainable supply chain management. The study employs a design science methodology, based on cooperation with a multi-

divisional German technology firm, to develop a supply chain sustainability risk (SCSR) map as technological solution design. This article con-

tributes to the study of SCSR by reconciling the scholarly SCSR discourse with the buying firms’pursuit of efficiency. Moreover, it elucidates

the augmentation of a research agenda through a design science approach. In practical terms, the technological solution design can directly

inform managers about SCSR at the country level and serves as a decision basis for the management of individual suppliers.

Keywords: supply chain risk; sustainability; design science; institutional theory; stakeholder

INTRODUCTION

Today, buying firms assess their global suppliers not only in

terms of economic criteria such as quality and price, but also

with respect to environmental criteria such as emissions and

waste and social criteria such as pay and workplace security

(Klassen and Vereecke 2012; Lee et al. 2014; Sanders and Wood

2015). They do so because stakeholders observe buying firms

closely and may punish them if they regard their suppliers’sus-

tainability-related conditions as illegitimate (Carter and Rogers

2008; Reuter et al. 2010).

On the one hand, the resulting supply chain sustainability risk

(SCSR) has gained importance in recent years due to the

advances in information and communication technology offered

by the Internet and its associated technologies and services (Isen-

mann et al. 2007; Autry et al. 2013). Through media such as

online newspapers or Facebook, stakeholders can easily obtain

and share information about negative sustainability-related inci-

dents in supply chains (Bansal 2005). Apple, for instance, was

recently criticized for purchasing from cobalt mines in the Congo

where adults and even children were found to be working in haz-

ardous conditions (Fortune 2017).

On the other hand, supply chain complexity keeps buying

firms from assessing the sustainability of all of their suppliers

(Rossiter Hofer and Knemeyer 2009; Bode and Wagner 2015).

Buying firms therefore often face information-processing chal-

lenges surrounding the sustainability-related conditions in their

upstream supply chains (Busse et al. 2017b; Foerstl et al. 2018).

Consequently, they are rethinking the SCSR assessment

strategies for their complex supply chains (Flint and Golicic

2009; Golicic and Smith 2013). New technologies and software

tools can support this effort, responding to the increased need for

efficient SCSR assessment (Shevchenko et al. 2016; Wieland

et al. 2016). Nevertheless, no comprehensive framework for an

efficient SCSR assessment is available (Gimenez and Sierra

2013).

SCSR research has shown that country-level risk is an estab-

lished criterion for selecting a supplier (Canzaniello et al. 2017)

and represents the foundation for sustainability-related supplier

development (Reuter et al. 2010). However, in the context of

sustainability it is not yet clear how country-level risk can be

measured nor why it is important for supplier assessment. Against

this background, the purpose of this study was to explore whether

publicly available proxy variables at the country level can facilitate

supplier-level sustainability risk assessment. Under the premise

that sustainability-related country-level data are available and that

sustainability-related supplier-level data are not, this article posits

the following research question: How can the assessment of

sustainability risks at the supplier level be informed by measures

of country-level sustainability risk? By answering this research

question, our study provides a theoretical understanding of sustain-

ability risk at the country level. The country-level sustainability

risk measure can be used for managing supply chain complexity in

the context of SCSR assessment, thereby reducing the associated

costs.

We employ a design science methodology, based on coopera-

tion with a multidivisional German technology firm to facilitate

the assessment of SCSR (Van Aken 2004; Tanskanen et al.

2015). In doing so, we strive for “finding balance in strategies

that mitigate risks while not wastefully deploying resources,”

which is one of the “greatest hits”for practitioners (Zinn and

Goldsby 2017, 4). The theoretical foundation of our study is

institutional theory (Campbell 2007). The remainder of this

article is structured into four sections. The next section describes

the conceptual background, expressing the need for an efficient

Corresponding author:

Christian Busse, Department of Business Administration, Economics

and Law, Carl von Ossietzky University of Oldenburg, Ammerl€

ander

Heerstr. 114-118, 26129 Oldenburg, Germany; E-mail: christian.

busse@uni-oldenburg.de

Journal of Business Logistics, 2019, 40(3): 241–264 doi: 10.1111/jbl.12190

© 2018 Council of Supply Chain Management Professionals

solution design to assess SCSR. In the second section, we pre-

sent the design science methodology along with the empirical

context and the solution design development process. The third

section offers the results, which include the solution design, three

use cases on applying it, and a methodological contribution that

elucidates how the design science methodology can augment a

research agenda, in this case for the efficient assessment of

SCSR. We conclude with a summary of the study, its contribu-

tions and limitations, and possibilities for future research.

CONCEPTUAL BACKGROUND

Sustainability risk in supply chains

Risk in supply chains can be considered the likelihood of a nega-

tive deviation from the expected value of one or more perfor-

mance goals (e.g., profit or customer satisfaction), leading to

negative outcomes for a buying firm (Manuj and Mentzer 2008;

Wagner and Bode 2008). Numerous researchers have developed

conceptual frameworks on supply chain risk management (e.g.,

Ritchie and Brindley 2007; Rao and Goldsby 2009; Foerstl et al.

2010). Although the terminology differs among the studies, a

supply chain risk management procedure typically consists of

four steps: risk identification, risk assessment with regard to like-

lihood and influence, risk handling, and risk monitoring (Hallikas

et al. 2004; Kaufmann et al. 2016). Our study focuses on risk

assessment. Without a structured risk assessment, an effective

management of supplier sustainability can only be achieved by

chance, resulting in potentially harmful financial losses (Foerstl

et al. 2010; Wagner et al. 2017).

In the supply chain risk management discourse, SCSR has

recently attracted increased research attention (e.g., Foerstl et al.

2010; Hajmohammad and Vachon 2016). SCSR is “a condition

or a potentially occurring event [...] within a focal firm’s supply

chain [...] that may provoke harmful stakeholder reactions”

(Hofmann et al. 2014, 168). It manifests only when stakeholders

become aware of one or more negative sustainability-related inci-

dents in the upstream supply chain, assign responsibility to the

buying firm, and then punish the buying firm accordingly (Hof-

mann et al. 2014). For example, customers as stakeholders can

exert pressure on buying firms when they stop purchasing their

products due to the unsustainable behavior of the buying firms’

suppliers (Bregman et al. 2015; Wood 2015). Overall, SCSR can

be subcategorized into environmental-, social-, and governance-

related (jointly: sustainability-related) issues (Schleper and Busse

2013).

The largest share of a company’s sustainability risks falls out-

side of its direct operational control in manufacturing, packaging,

and transportation (Giannakis and Papadopoulos 2016). There-

fore, companies should develop an early warning instrument with

regard to sustainability risks by building detailed knowledge

about sustainability issues within their supply chains (Koplin

et al. 2007). Information technologies facilitate the development

of suitable instruments as they already have proven in the past

(Boone et al. 2012). However, the development of an early

warning instrument with the help of information technology is

difficult, since buying firms are never fully informed about the

sustainability conditions at all supplier sites because of

knowledge deficits, in addition to time and cost constraints

(Christopher and Lee 2004; Sanders and Wood 2015).

Almost all buying firms purchase products or services from a

large and globally distributed network of suppliers (Choi and

Hong 2002; Sanders et al. 2016). Consequently, supply chain

complexity is a key managerial issue for buying firms (Rossiter

Hofer and Knemeyer 2009; Bode and Wagner 2015). Research-

ers make a distinction among horizontal (number of suppliers),

vertical (number of tiers), and spatial supply chain complexity

(physical distance between the buying firm and its suppliers)

(Choi et al. 2001; Choi and Hong 2002). Jointly, the three

dimensions of supply chain complexity obstruct the task of sup-

plier-level sustainability risk assessment severely. This study

reduces the associated task complexity through integrating coun-

try-level sustainability measures in the supplier-level assessment

process.

There are several ways for buying firms to manage SCSR at

the supplier level. The most important ones are supplier codes of

conduct (Emmelhainz and Adams 1999), supplier self-disclosures

(Reimsbach and Hahn 2015), and supplier audits (Joyce 2006).

However, supplier codes of conduct are often insufficient assess-

ment instruments, because suppliers may sign them despite

behaving unsustainably. Supplier self-disclosures require a con-

sistent supply base without alteration of suppliers over time and

the suppliers’activities can be decoupled from their self-disclo-

sures, meaning for instance that suppliers behave unsustainable

despite claiming to be sustainable in their self-disclosure (Meyer

and Rowan 1977; Jiang 2009). Supplier audits are very costly,

making it prohibitive for them to be performed for each and

every supplier (Spekman and Davis 2004). The same rationale

applies to supplier development activities like trainings or

improvement projects which can enhance the sustainability stan-

dard of suppliers (Sancha et al. 2015; Busse et al. 2016b), but

are inherently costly as well. Against this background, an effi-

cient assessment of SCSR at the country level can alleviate the

concerns of the supplier-level sustainability risk assessment men-

tioned above.

An institutional explanation of sustainability risks in supply

chains

Our research focus on the differences in SCSR explained by

country-level differences suggests the use of institutional theory

(Campbell 2007). Institutional theory is an established theoretical

perspective within sustainable supply chain management research

(Zhu and Sarkis 2007; Tate et al. 2011; Touboulic and Walker

2015) and has also been applied to SCSR (Busse et al. 2016a).

The theory is concerned with the impact of institutions on the

conduct of social actors like firms (Scott 1987; Zucker 1987;

Powell and DiMaggio 1990). Institutions in this sense consist of

“multifaceted, durable social structures, made up of symbolic ele-

ments, social activities, and material resources”(Scott 2014, 57).

Due to institutional imprinting (Mezias 1990), the country level

is a reasonable level of analysis.

Institutions lead to different expectations with regard to the

conduct of firms (Meyer and Rowan 1977). Importantly, these

expectations vary among countries (e.g., Dobbin 1994; Kostova

and Roth 2002). There are three institutional pillars (Scott 2014).

First, the regulative pillar is based on differences in rules,

242 D. Reinerth et al.