Propagation of risks and their impact on performance in fresh food retail

• Date: 09 November 2015
• Published date: 09 November 2015
• Pages: 568-602
• DOI: https://doi.org/10.1108/IJLM-02-2014-0032
• Author: Samir K Srivastava,Atanu Chaudhuri,Rajiv K. Srivastava
• Subject Matter: Management science & operations,Logistics

Propagation of risks and their

impact on performance in fresh

food retail

Samir K. Srivastava

Operations Management Group,

Indian Institute of Management Lucknow, Lucknow, India

Atanu Chaudhuri

Center for Industrial Production, Aalborg University,

Copenhagen, Denmark, and

Rajiv K. Srivastava

Operations Management Group,

Indian Institute of Management Lucknow, Lucknow, India

Abstract

Purpose –The purpose of this paperis to carry out structural analysis of potentialsupply chain risks

and performance measures in fresh food retailby applying interpretive structural modeling (ISM).

Design/methodology/approach –Inputs were taken from industry experts in identifying and

understanding interdependencies among food retail supply chain risks on different levels (sourcing

and logistics outside the retail stores; storage and customer interface at the stores). Interdependencies

among risks and their impact on performance measures are structured into a hierarchy in order to

derive subsystems of interdependent elements to derive useful insights for theory and practice.

Findings –Using the ISM approach the risks and performance measures were clustered according to

their driving power and dependence power. Change in/inadequate government regulations’are at the

bottom level of the hierarchy implying highest driving power an d require higher attention and focussed

mitigation strategies. Risks like lack of traceability, transport d elays/breakdowns and temperature abuse,

cross-contamination in transport and storage have mediumdriver and dependence powers.

Research limitations/implications –The approach is focussed on food retail supply chains in the

Indian context and thereby limits the ability to generalize the findings. The academics and experts

were selected on convenience and availability.

Practical implications –It gives managers a better understanding of the risks and performance

measures that have most influence on others (driving performance measures) and those measures

which are most influenced by others (dependent performance measures) in fresh food retail and also a

tool to prioritize them. This kind of information is strategic for managers who can use it to identify

which performance measures they should concentrate on managing the trade-offs between measures.

The findings and the applicability for practical use have been validated by both experts and practicing

managers in food retail supply chains.

Originality/value –The work is perhaps the first to link supply chain risks with performance and

explains the propagation of risks in food retail supply chains. It contributes to theory by addressing a

few research gaps and provides relevant managerial insights for practitioners.

Keywords India, MICMAC analysis, Food retail supply chain, Interpretive structural modelling,

Prioritization of risks, Propagation of risks

Paper type Research paper

Introduction

Generally, each business activity is connected with risks and so is the case with fresh

food retail supply chains. Supply chain risks are events that adversely affect supply

chain operations and its desired performance measures, such as chain-wide servi ce

The International Journal of

Logistics Management

Vol. 26 No. 3, 2015

pp. 568-602

©Emerald Group Publishing Limited

0957-4093

DOI 10.1108/IJLM-02-2014-0032

Received 21 February 2014

Revised 4 August 2014

Accepted 27 October 2014

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

www.emeraldinsight.com/0957-4093.htm

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IJLM

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levels, responsiveness and cost (Tummala and Schoenherr, 2011). A key feature of

supply chain risks is that, by definition, they extend beyond the boundaries of a single

firm and, moreover, the boundary spanning flows can themselves become a source of

supply chain risk ( Juttner, 2005). A manager’s perspectives of risk are associated

mainly with the associated economic losses (Chiles and McMackin, 1996). To avoid

adverse impacts of risks on supply chain performance, organizations often

consider risk management as an integral part of a holistic supply chain design

(Christopher and Lee, 2004). Managing risks requires understanding of the different

types of risks, their interdependence and how they propagate and impact the

performance outcomes of the organizations and their supply chains. As, a supply chain

decision makers’final objective is to increase the overall performance of the supply

chain by choosing and implementing the most appropriate set of strategies,

understanding these, suitable risk mitigation strategies and tactics can be developed

and deployed.

Today’s food retail supply chains are very complex inter-dependable structures, due

to the multitude of participating suppliers, service providers and customers. Fresh food

retail industry is particularly vulnerable to supply chain risks. Some risks result in

recalls while others have a significant impact on the performance in terms of revenue

growth, profit margin and inventory turnover. In food retail supply chain literature,

there has been a range of research into risks in purchasing and supply, storage and

customer interface, but little research in integrated fresh food retail supply chains

or networks per se. The reason could be the huge number of risk variables and their

direct and indirect interrelations that may impact performance of all supply chain

partners. Therefore, for better risk management process, the risk prioritizatio n step is

very important.

The food industry has a long supply chain and large uncertainty of the supply and

demand. Managing the food supply chain risks has received significant attention in

recent years especially in global emerging markets such as India and China. There has

been little research related to the impact of risks assessment in models of performance

of supply chains, especially in fresh food retail supply chains. We have not come across

any research about the interconnectedness of food retail or fresh food retail supply

chain risks linking them to supply chain performance. Hence, the research of the food

supply chain risk management (SCRM) and risk assessment is quite urgent and

important to uncover relationships between supply chain activities and risks and their

impact on performance variables. The growing adoption of organized fresh food

retail in India has motivated the present work. Based on the gaps in the literature, and

taking into account appropriateness of various available potential methodologies, an

interpretive structural modeling (ISM)-based approach is used in this paper to analyze

the relationships among risks and performance measures in fresh food retail supply

chains and to understand how these risks propagate an d impact important

supply chain performance measures. Interdependencies among various risks and

performance measures have been derived and structured into a hierarchy in order to

derive subsystems of interdependent elements with corresponding driving power

and dependency.

This paper’s objective is to carry out structural analysis of potential supply chain

risks and performance measures in fresh food retail by applying ISM. It demonstrates

how ISM supports practicing managers in identifying and understanding

interdependencies among supply chain risks at different levels and their impact on

performance. Thepaper also identifies a few risks not reported inearlier studies. It helps

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retail

in understandingthe relationships between variousrisks and performance measuresand

provides directions to practicing managers as to where therisk mitigation efforts should

be directed. We carry out a detailed literature review on risks as well as performance

measures in food retail and fresh food retail supply chains along with an overview

of potential methodologies to understand propagation of risks and their impact on

performance. Thereafter, we describe the ISM methodology in detail. Inputs from five

industry experts about risks and performance measures in the food retail supply chains

and particularly fresh food supply chains were solicited and subsequently refined and

moderated by an academician. These were subsequently validated by four practicing

managers in fresh foodretail business. The paper makes two unique contributions to the

theory: establishing interrelationships between risks and performance measures and

explaining the propagation of risks in fresh foodretail. Besides providing useful insights

it also provides practicing managers relevant guidelines for mitigation of these risks on

short-term as well as long-term basis. Finally conclusions are derived and directions for

future research are suggested.

Literature review

Based on the objectives of the paper, extensive relevant literature review has

been carried out. The same is presented under various focussed themes/topics. We

first describe briefly important works and concepts related to concept of risk and

SCRM. Next, we focus on risks in food retail in general and fresh food retail in

particular. We drill deeper into various domains of fresh food retail risk literature.

Thereafter, we move on to literature on performance measures in food and fresh food

retail supply chain. As we seek to understand the propagation of risks and their

propagation in fresh food retail, we also review literature about a few potential

methodologies which may help us understand propagation of risks and their impact

on performance.

Risk and SCRM

Bernstein (1996) maintains that risk isall about choices available and the choices made.

Kleindorfer and Saad (2005) describe two types of risks –first type arising from supply

chain coordination and the second type arising from supply chain disruptions. They

discuss in detail aboutspecifying sources of risk and vulnerability, their assessment and

mitigation. Dickson (1989) defines risk management as “the identification, analysis and

control of those riskswhich can threaten the assets or earning capacity of an enterprise”;

the same may be extended to supply chains. Lewis (2003) discusses various causes,

consequences and control mechanisms while developing a theoretical and practical

model of operational risks. He considers capacity/facilities strategy and supply chain

management controlsystems as important causes for operational risks. Rao and Goldsby

(2009) find that the attention given to assessing supply chain risks in literature is fairly

limited. The field of SCRM has originated from the idea of enterprise risk management

(ERM), the paradigm for managing the portfolio of risks that threaten organizations

(Gordon et al., 2009). However, the aligning link between ERM and SCRM processes has

received very limited attention in the existing research so far (Blome and Schoenherr,

2011). Further, although supply chain risks are discussed significantly within SCRM

literature, Ghadge et al. (2013a) examine SCRM from a holistic systems thinking

perspective by considering different typologies that have evolved as a result of earlier

research through a systematic literature review. They identify important strategic

changes in the field and to outline future requirements and research opportunities in

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