Fits and misfits of supply chain flexibility to environmental uncertainty. Two types of asymmetric effects on performance

• Date: 14 November 2016
• Published date: 14 November 2016
• DOI: https://doi.org/10.1108/IJLM-01-2015-0004
• Pages: 862-885
• Author: Ben Nanfeng Luo,Kangkang Yu
• Subject Matter: Management science & operations,Logistics

Fits and misfits of supply

chain flexibility to

environmental uncertainty

Two types of asymmetric effects

on performance

Ben Nanfeng Luo

School of Labor and Human Resources,

Renmin University of China, Beijing, China, and

Kangkang Yu

School of Agricultural Economics and Rural Development,

Renmin University of China, Beijing, China

Abstract

Purpose –The purpose of this paper is to compare the effects on performance of two types of misfits

(overfit vs underfit) as well as two types of fits (high-high fit vs low-low fit) between environmental

uncertainty and supply chain flexibility.

Design/methodology/approach –The two asymmetry hypotheses have been tested with survey

data from 212 Chinese manufacturing firms.

Findings –The results in general provided empirical evidences for the asymmetric effects in the fits

and misfits between environmental uncertainty and supply chain flexibility. For the same degree of

misfit, underfit deteriorates performance more than overfit. In addition, high supply chain flexibility

fitting high environmental uncertainty (i.e. high-high fit) results in a higher performance than low

supply chain flexibility fitting low environmental uncertainty (i.e. low-low fit).

Practical implications –It suggests that managers should strive to avoid the underfit

of supply chain flexibility rather than the overfit, if the perfect fit is impossible to achieve.

In addition, as it is ben eficial to realize th e fit of supply chain fle xibility to high level s of

environmental uncertainty, managers should probably embrace the highly uncertain environment

and enhance the supply chain flexibility of their organizations to meet the increasing uncertainty

of environment.

Originality/value –Fit and misfit are the core concepts to understand the relationships among

environmental uncertainty, supply chain flexibility strategy, and performance. While the existing

literature highlights the differential performance consequences of fit vs misfit between environmental

uncertainty and supply chain flexibility strategy, the effects on performance are assumed to be the

same for the two types of misfits, and two types of fits. The authors challenge these symmetry

assumptions by arguing that overfit has a less negative effect on performance than underfit, and

high-high fit has a stronger positive effect than low-low fit. The authors found empirical evidence in a

large sample of Chinese manufacturing firms.

Keywords Uncertainty management, Supply chain management, Fit, Supply chain flexibility,

Asymmetrical effect, Misfit

Paper type Research paper

The International Journal of

Logistics Management

Vol. 27 No. 3, 2016

pp. 862-885

©Emerald Group Publishing Limited

0957-4093

DOI 10.1108/IJLM-01-2015-0004

Received 9 January 2015

Revised 6 July 2015

Accepted 19 October 2015

The current issue and full text archive of this journal is available on Emerald Insight at:

www.emeraldinsight.com/0957-4093.htm

The research underlying this paper was supported by the Fundamental Research Funds for the

Central Universities, and the Research Funds of Renmin University of China (No. 14XNF023) and

in part by the National Natural Science Foundation of China (No. 71302159; No. 71672189). The

authors would like to acknowledge the constructive comments and suggestions on earlier

versions of the manuscript from Lex Donaldson and Steven Lui.

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IJLM

27,3

Introduction

The concepts of fit and misfit are central in the field of supply chain management

(Fisher, 1997; Patel, 2011; Qi et al., 2009; Selldin and Olhager, 2007; Wagner et al., 2012;

Wong et al., 2011; Wu and Closs, 2009). This line of the literature has been labeled as

contingency theory in general (Boyd et al., 2012; Donaldson, 2001; Sousa and

Voss, 2008), which serves as a major theoretical lens in supply chain management

(Carter et al., 2014). The existing literature has highlighted the contrast between fit and

misfit between environment and supply chain strategy in terms of implications to

organizational performance and survival (Lee, 2002; Vivek and Richey, 2013;

Wagner et al., 2012). A supply chain strategy that fits its environmental conditions

gains high performance, whereas a supply chain strategy that misfits the

environmental situations suffers performance loss, and any prolonged misfit may

threaten the viability of the firm.

Many intellectual efforts focus on identifying the fitting supply chain strategies

(e.g. supply chain integration, manufacturing flexibility, and supply chain

responsiveness) for a particular environment (e.g. environmental uncertainty or

supply and demand uncertainty) and testing the performance consequences of fits vs

misfits. While understanding the strategy fitting the environment takes on theoretical

and practical importance, the theoretical richness of environment-strategy fits and

misfits largely left unexplored. Particularly, the current literature has yet to make

significant theoretical progress on two critical issues regarding the misfits and fits.

First, misfits have been considered to be identical, and thus, limited studies have been

concerned with the relative performance effects of two types of misfits: overfit vs

underfit. By far, most literature has treated overfit and underfit as having equally

negative performance implications (see an exception in Wagner et al., 2012).

For instance, for a given level of environmental uncertainty, too much supply chain

flexibility and too little supply chain flexibility are implicitly treated to be equally

harmful to the organizational performance.

The assumption of the symmetry of misfit effects needs to be scrutinized. A choice

between overfit and underfit is common for managers, as perfect fit is hard to achieve,

and managers often face the choice between making firms to be in overfit or underfit

state. Constrained by managers’bounded rationality (Simon, 1945), personal bias

(March and Shapira, 1987; Weinstein, 1980), and organizational inertia (Hannan and

Freeman, 1984), firms often cannot adjust their supply chain strategy to perfectly fit

their environment, and thus, have to accept a certain degree of misfit, i.e., quasi-fit

(Donaldson, 2001). Hence, firms are more likely to be in misfits than in fits. If a choice

between overfit and underfit is almost inevitable, it is important to understand the

relative higher performance of one type of misfits over the other. The finding shall

inform the managers of the identification of the less harmful misfit.

Second, the fits are also considered to be of the same performance implications, and

there is a lack of theoretical examination on the performance consequences of supply

chain strategies that fit to different levels of environmental dimensions. Environme nt is

critical to the organization, and firms at different stages of organizational and

industrial life cycle (Millerand Friesen, 1984) face different types of environmental

conditions that the strategy shall adapt to, for instance, a defensive strategy fitting a

stable environment vs a proactive strategy fitting an unpredictable environment (when,

for instance, a new advanced tracing technology like radio-frequency identification

(RFID) has been introduced into an once stable mature food production industry to

control food chain safety). From this point of view, the comparison between the

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Fits and

misfits of

supply chain

flexibility