The current issue and full text archive of this journal is available at www.emeraldinsight.com/0960-0035.

htm

IJPDLM 39,7

Supply chain security practices in the food industry

Do rms operating globally and domestically differ?
Judith M. Whipple
Eli Broad College of Business, Michigan State University, East Lansing, Michigan, USA

574

M. Douglas Voss
University of Central Arkansas, Conway, Arkansas, USA, and

David J. Closs
Eli Broad College of Business, Michigan State University, East Lansing, Michigan, USA
Abstract
Purpose This paper compares rms purchasing and/or selling food products internationally to those with domestic supply chains in order to determine if international rms: place greater managerial importance on security; and are more likely to engage supply chain partners in security-related verication and information exchange. The purpose of this paper is to explore the link between security initiatives and rm performance in terms of security outcomes, product quality, and customer service. Design/methodology/approach A series of one-way ANOVA tests are used to assess the differences between rms with international and domestic supply chains. Additionally, cluster analysis is conducted to group rms based on their performance levels. Findings Initial results indicate respondents with international supply chains perceive that their rms place more importance on security and are more likely to assess the security procedures of supply chain partners. Results further indicate that, in general, respondents in international rms perceive better security performance is achieved in terms of the ability to detect and recover from security incidents. Once rms are grouped by performance, respondents in the high-performance cluster, represented predominantly by international rms, perceived signicantly higher performance in the areas examined. Originality/value This paper is the rst to compare, the differences in security measures employed by rms maintaining internationally oriented as opposed to domestically oriented supply chains and also relates the implementation of supply chain security measures to security and rm performance. Keywords Supply chain management, International business, Globalization, Food products Paper type Research paper

International Journal of Physical Distribution & Logistics Management Vol. 39 No. 7, 2009 pp. 574-594 q Emerald Group Publishing Limited 0960-0035 DOI 10.1108/09600030910996260

This research was supported by the US Department of Homeland Security (Grant Number N-00014-04-1-0659), through a grant awarded to the National Center for Food Protection and Defense at the University of Minnesota. Any opinions, ndings, conclusions, or recommendations expressed in this publication are those of the authors and do not represent the policy or position of the Department of Homeland Security.

Introduction International trade is a necessity in many supply chains. Global markets present opportunities for growth. Global suppliers often produce product less expensively than it could be produced domestically, supplement domestic production capacity when demand outstrips supply, or produce product when it is out of season in the USA (Roth et al., 2008). However, industry and government have become increasingly familiar with the complexity and risks that are characteristic of international trade. Factors contributing to global supply chain risk and complexity include threats of terrorism and the related security measures established to defend against this threat (Suder and Czinkota, 2005). Further, natural disasters (e.g. oods and hurricanes) impact domestic and global supply chains. Finally, we have seen recent and signicant recalls relating to product safety. As stated by Wagner and Bode (2008, p. 307), we nd a relatively unstable world on the one hand, and increasingly sensitive supply chains on the other. This sensitivity, in part, relates to the ability of a rm to develop supply chain continuity. Continuity refers to the minimization of supply chain disruptions such that a rm can reduce supply chain disruptions as well as recover should a disruption occur (Autry and Bobbitt, 2008). As such, supply chain continuity is not just about responding appropriately to a crisis, but also about trying to prevent a crisis from occurring in the rst place. Unprepared rms gamble that they will avoid the effects of a disruptive/damaging event but often nd it takes a longer time to recover and resume regular operations should a crisis occur (Autry and Bobbitt, 2008, p. 56). Managers need to understand the value of prevention (Giunipero and Eltantawy, 2004, p. 698) particularly given that rms which experience a severe supply chain disruption signicantly under-perform their peers in terms of stock price (Kleindorfer and Saad, 2005). Further, 69 percent of CFOs, treasurers, and risk managers at global 1,000 companies in North America and Europe feel that supply chain disruptions are a major threat to top revenue sources (Elkins et al., 2005). Differences exist in terms of the level of preparedness for potential security breaches and supply chain disruptions. While some rms are prepared, Rogers et al. (2004) indicate that other rms feel less vulnerable because they only trade certain goods or their liability ends when product is transferred to another party. As supply chains lengthen, so does the need for security (Giunipero and Eltantawy, 2004). For example, there is a positive relationship between the length of a supply chain and the exposure of the supply chain to the risk of terrorism (Cupp et al., 2004; Craighead et al., 2007). Global supply chains are inherently longer and more complex in terms of the number of entities involved in sourcing, manufacturing, and logistics processes with shipments accessible to more parties. This research focuses specically on the food industry because food supply chains are an important subset of the broader supply chain concept due to their importance to the populace, the US economy, and their vulnerability. A safe and secure food supply is a primary tenet underlying social stability. In 2007, the US imported over US$71 billion in food product (US Department of Agriculture: Economic Research Service, 2008). Many of these imports are from countries with more lax sanitation and security standards than the USA leading to a greater risk of product contamination. A contamination event could severely damage a rms brand equity, requiring expensive recovery efforts. Agricultural products, and their related industries, signicantly contribute to the

Supply chain security practices 575

IJPDLM 39,7

576

economic welfare of the USA through jobs and exports (Rand Corporation, 2003). Furthermore, of seven general areas of vulnerability to terrorism, ve are related to the food supply chain (Harl, 2002). Supply chain disruptions are not isolated to imports, but also food exported from the USA. Food sourced or sold internationally travels long-distances leading to a number of points where terrorists could access the supply chain (Cupp et al., 2004) or where an unintended disruption could occur. It is estimated that as many as 25 different entities participate in the average global supply chain (Russell and Saldanha, 2003). These entities include suppliers, government entities, carriers, terminal/port operators, and customers (Closs and McGarrell, 2004). With each additional party that participates in a given shipment, the risk of intentional or unintentional disruption increases due to the increased number of handoffs involved. In spite of this increased risk, there has been little research published in the supply chain literature specically examining international food supply chain security issues. The purpose of this research is to determine if rms purchasing or selling food product internationally: . place greater managerial importance on security; and . are more likely to engage supply chain partners in security related verication and information exchange. Secondarily, responding to the call by Manuj and Mentzer (2008) to link risk management strategies to outcomes of these strategies, this research explores the relationship between security initiatives and performance, product quality, and customer service. This research is presented in several sections. First, literature is provided to support the hypotheses. Second, the methodology and research results are presented. Finally, conclusions, limitations, and future research are presented. This research provides a much-needed exploration of food supply chain practices in terms of enhanced security and its resulting impact on performance, product quality, and customer service. Literature review Food supply chains have undergone signicant changes in recent history. Roth et al. (2008) posit that the food industry is now characterized by a smaller number of large rms who sell either commodities (undifferentiated products sold in large quantities) or value added products (differentiated products with credence attributes such as organic foods) on an increasingly global basis. Global food supply chains are more complex in that they include a greater number of parties, with each party potentially handling product, as well as various geographic, administrative, cultural, and economic factors that must be considered (Ghemawat, 2001). Additionally, the level of food hygiene practices and the development of food regulatory agencies may differ between countries (Roth et al., 2008). The increased complexity that is characteristic of global supply chains signicantly increases the possibility and potential severity of supply chain disruptions that could result (Craighead et al., 2007). Suder and Czinkota (2005) imply that the increased uncertainty and risk characteristic of global supply chains may cause rms to increase local production and sourcing. While this may be true in some industries, food globalization is likely to

continue (and grow) due to issues of seasonality (e.g. local production occurs only seasonally), production consolidation, and consumer demand requiring year round product supply. Additionally, some commodities must be sourced internationally as there exists limited or no US source of supply (e.g. coffee). As such, international sourcing and market distribution is likely to continue and managers must take proactive steps to secure their supply chains. Closs and McGarrell (2004, p. 8) dene supply chain security management as:
The application of policies, procedures, and technology to protect supply chain assets (product, facilities, equipment, information, and personnel) from theft, damage, or terrorism, and to prevent the introduction of unauthorized contraband, people, or weapons of mass destruction into the supply chain.

Supply chain security practices 577

Therefore, rms with global supply chains are potentially at greater risk. Additionally, Manuj and Mentzer (2008) found two new dimensions of risk (speed and exibility) when studying global supply chains. Further, evidence derived from case studies indicates that as rms expand into the global marketplace they also increase security to compensate for this risk (Manuj and Mentzer, 2008). In one study, purchasing managers exhibited greater willingness to pay more for food purchases when such purchases involved international sourcing (Voss et al., 2009). Owing to the repercussions of a security incident and the increased importance of security when trading internationally, it is likely that rms with global supply chains place greater managerial importance on security. Improvement in security begins with management practices (Gulisano, 2003). Voss et al. (2006) found that security is a strategic concern given the managerial perception that security is one method to protect brand equity (Aberdeen Group, 2004; Gaudenzi and Borghesi, 2006). Manuj and Mentzer (2008) posit that management plays a key role in improving rms security practices. Management needs to develop clear policies to protect against a potential disruption by allocating the time and investment needed to reduce the likelihood of an unwanted event (Giunipero and Eltantawy, 2004). Managers must reward employees seeking to improve rms security capabilities. Without high-level buy-in, security initiatives are unlikely to be instituted and/or will be much less successful (Radjou, 2003; Kleindorfer and Saad, 2005; Quinn, 2003). Creating an organizational culture that understands and appreciates the importance of security is critical (Williams et al., 2008). Given the increased risk and uncertainty that is characteristic of global supply chains as well as the importance of management practices to the implementation and maintenance of security initiatives, it is likely that rms engaging in global trade will place more managerial importance on security than rms who only source and sell product domestically. H1 posits: H1. Firms engaging in global trade perceive that more managerial importance is placed on supply chain security than do rms operating domestically. The popular press and government publications provide many recommendations regarding the ways in which rms may improve their security capabilities. As companies continue to outsource, particularly on a global basis, the notion that a supply chain is only as secure as its weakest link (Shef, 2001) becomes increasingly critical. Closs and McGarrell (2004, p. 10) state:

IJPDLM 39,7

Not only must rms be concerned about security procedures within their own processes and those of rst tier suppliers, but also they are dependent on the security procedures throughout the entire supply chain.

578

Shef (2001) as well as Closs and McGarrell (2004) both imply that the security measures of one rm are negated if supply chain partners do not practice the same due diligence. In spite of this, companies that outsource a portion of their supply chain can look for ways to mitigate security risks (Giunipero and Eltantawy, 2004). For example, as stated by Giunipero and Eltantawy (2004), rms can develop quality certication programs. Supply chain partners can also build compliance and security standard operating procedures into these programs by establishing clearly dened responsibilities in the event of an emergency and by sharing contingency plans (Suder and Czinkota, 2005). All members of the supply chain must develop plans to prepare for, and recover from, security incidents (Dobie et al., 2000). Additionally, rms need to establish communication strategies for sharing information on potential and actual disruptions as information systems provide a rst-defense mechanism (Closs et al., 2008, p. 43). In order to ensure that supply chain partners are employing proper security practices, Elkins et al. (2005) state that rms should also monitor and audit suppliers. Collaboration between supply chain partners is a key to the success of security initiatives (Rice and Caniato, 2003; Rinehart et al., 2004; Shef, 2001; Cook, 2003; Kleindorfer and Saad, 2005; Varkonyl, 2004; Wolfe, 2001; Elkins et al., 2005). Supply chain partners who share security related information are more likely to reduce risks and achieve more efcient and effective security implementation (Manuj and Mentzer, 2008). Cook (2003) cites the need to develop relationships with suppliers to ensure they place a priority on security. However, as discussed by Williams et al. (2008), rms should employ a security segmentation philosophy to recognize that different types of relationships require different security practices. Given the increased number of supply chain partners involved in global food sourcing and distribution, and the uncertainty related to the security performance of each entity, it is likely that rms involved in global trade are more likely to engage supply chain partners in security related assessments and information exchange. Therefore, H2 posits that rms engaging in global trade are more likely to monitor and collaborate with supply chain partners in order to ensure that their operations are secure: H2. Firms engaging in global trade perceive that more emphasis is placed on supply chain partners security capabilities than do rms operating domestically. Although evidence exists that supply chain risks have a negative impact on supply chain performance (Wagner and Bode, 2008), the literature provides little guidance regarding the effect of security initiatives on security performance (e.g. detecting incidents, responding to incidents, etc.) and even less evidence regarding the effect of security measures on rm performance (e.g. customer service and product quality). Williams et al. (2008) hypothesize that since a link exists between supply chain management practices and performance, it is likely a similar link exists between supply chain security efforts and performance. Autry and Bobbitt (2008) utilized content analysis to evaluate qualitative research data, and identied potential outcomes or benets from a security orientation, including rm, operational, and

market-level performance outcomes as well as improved customer satisfaction and greater supply chain continuity. Anecdotal evidence indicates that rms with a high level of incident detection and response competency are less likely to experience severe repercussions from supply chain incidents (Craighead et al., 2007). Lee and Whang (2003) nd that utilization of track and trace technology synergistically improves customer service and security. Security measures may also have a synergistic effect on product quality as increased product testing and inspections may also decrease the number of shipments containing unsuitable product. However, no conclusive evidence of this is found in the literature. Further, no evidence is available pertaining to the effect of security measures on incident detection and response performance even though the more security measures employed in a given supply chain, the greater security performance should be. Therefore, H3 states: H3. Firms engaging in global trade perceive that their rms achieve higher supply chain security performance than do rms operating domestically. Method Dunn et al. (1994) recommend the utilization of qualitative and quantitative methods in logistics research. Given the newness of supply chain security as a research topic, this investigation employed a two-step process to achieve stated objectives. First, investigators conducted a qualitative research study to: (1) ensure foundational understanding of supply chain security through qualitative, in-depth interviews; and (2) develop a quantitative survey to assess respondents perceptions related to the aforementioned hypotheses. A grounded theory approach (GTA) was used to guide the qualitative, in-depth interviews. GTA was developed by Glaser and Strauss (1967) as a method for generating theory through empirical observations (Strauss and Corbin, 1990). In GTA, interview data are analyzed in order to identify themes, patterns, and categories (Easterby-Smith et al., 1991). This comparative process continues over multiple observations until data saturation occurs (Glaser and Strauss, 1967). An interview guide was developed and pre-tested with academic reviewers and industry practitioners familiar with supply chain security issues. The interview guide was comprised of a series of open-ended questions designed to elicit the subjects views regarding supply chain security and their rms security performance. The food industry was chosen as a research setting. A purposive sampling approach was taken when selecting the companies for interview participation. Small, medium, and large rms were included as well as rms focusing on different food commodities. Firms considered leaders in their industry segment were also included. Interviews were conducted in person when possible or via telephone when distance to the interviewee was prohibitive. No fewer than two researchers participated in each interview. More than 50 managers employed by 15 different domestic food manufacturers and distributors participated in the interviews. Participant responsibilities ranged from supply chain, purchasing, quality control, and security functions and their positions ranged from manager to executive ofcer.

Supply chain security practices 579

IJPDLM 39,7

580

Following the qualitative interview stage, researchers designed a quantitative survey instrument utilizing ve-point Likert scales for all questions. Items pertaining to respondents perceptions of the managerial importance placed on security and the extent to which they have engaged supply chain partners in security related assessment and information exchange were measured with strongly agree to strongly disagree anchors (e.g. Our rms senior management views supply chain security as necessary for protecting our brand or reputation). Items pertaining to the respondents perceptions of security performance were measured with signicantly decreased to signicantly increased anchors (e.g. our rms security investment has signicantly increased/decreased our ability to detect security incidents inside our rm). All questions were scaled such that a higher response (e.g. 5) indicated the respondent perceived that greater performance was achieved. The quantitative survey was pre-tested in an iterative fashion by administering it to qualied supply chain and criminal justice academics as well as food industry professionals. Modications were made to the survey following the pretest until researchers determined that questions were clear and achieved the original survey goal. The target sample of food manufacturers was drawn from mailing lists of major food and security related industry groups as well as participating government organizations. A total of 1,385 potential respondents were asked to complete the survey; 251 surveys were returned for an overall response rate of 18 percent. Of the completed surveys, 44 surveys were deemed unusable due to missing data rendering a nal sample size of 195 (n 195) with a usable response rate of 14 percent. Comparisons of early and late responders indicated no signicant differences existed between the groups (Armstrong and Overton, 1977). In order to assess the differences between rms who maintain global supply chains and those who only source and sell domestically, two demographic questions were posed. Respondents were asked to indicate if their supplier base and their customer base could best be described as local, regional, national, or global. Respondents who indicated global to either or both of those questions were classied as part of the international group (n 107) given at least a portion of their supply chain was global in nature. Respondents who indicated that both their rms supplier base and their rms customer base could best be described as local, regional, or national were classied as part of the domestic group (n 88). Additional demographic information on the sample is shown in Table I. A series of one-way ANOVAs were performed to compare rms with an international component to their supply chain to rms with a domestic-focused supply chain. ANOVA was used as it assesses whether differences exist across the two groups. ANOVA is similar to performing multiple t-tests to compare groups, but ANOVA is the preferred method as it reduces the likelihood of Type 1 error, which is the probability of nding a signicant difference between groups when none actually exists (Hair et al., 1998). Results are presented subsequently. Results H1 posits that rms engaging in global trade perceive that more managerial importance is placed on supply chain security than do rms operating domestically. Table II summarizes the results for H1 and indicates that respondents in international

Question Title President Vice-president Director Manager Supervisor Other Job function Supply chain Security Quality assurance All Other Annual revenue (rm) Over 500 million 100-500 million 20-100 million 20M or less Primary scope of activities (rm) Manufacturing Grocery/foodservice retailer Retail/wholesaler/distributor Logistics service provider Other

International group Frequency % 6 8 25 44 14 10 9 16 59 1 22 51 23 22 9 83 5 15 0 4 6 8 23 41 13 9 8 15 55 1 21 48 22 21 9 77 5 14 0 4

Domestic group Frequency % 28 16 16 20 4 4 26 7 26 1 28 9 15 21 38 57 5 15 4 7 32 18 18 23 4.5 4.5 30 8 30 1 31 11 17 25 44 65 6 17 4 8

Supply chain security practices 581

Table I. Demographic information

Item Our rms senior management views supply chain security as necessary for protecting our brand or reputation Our rm has a senior management position focusing on security (e.g. director of security and chief security ofcer) Our rms senior management supports food supply chain security initiatives Our rm has a corporate level strategy to address security concerns Our rms senior management views supply chain security as a competitive advantage Our rms senior management views supply chain security initiatives as a necessary cost of doing business

Group International Domestic International Domestic International Domestic International Domestic International Domestic International Domestic

Mean 4.08 4.02 3.44 2.60 4.13 4.05 3.74 3.37 3.42 3.34 3.94 3.60

F-ratio 0.734 13.50 0.321 4.337 0.190 4.385

p-value 0.393 0.000 * 0.572 0.039 * 0.663 0.038 * Table II. Managerial security views

Note: *Indicates a signicant difference for the F statistic at the p , 0.05 level

rms perceive their rms are signicantly more likely to employ a senior manager in charge of security (F 13.50; p , 0.05), have a corporate level strategy to address security concerns (F 4.337; p , 0.05), and view security as a necessary cost of doing business (F 4.385; p , 0.05).

IJPDLM 39,7

582

Interestingly, no signicant difference between the groups was found in terms of perceptions that security is a method of brand protection, senior management supports security initiatives or that security is a means to garner competitive advantage. However, the mean responses indicate both domestic and international rms view security as a means to protect their brand or reputation (international mean 4.08; domestic mean 4.02), and have managerial support for security initiatives (international mean 4.13; domestic mean 4.05). Therefore, both international and domestic rms agree that security is a means to protect their brand or reputation and indicate managerial support for security initiatives. Further, no signicant difference exists between international and domestic rms with respect to viewing supply chain security as a competitive advantage however, both groups demonstrate limited agreement with this question (international mean 3.42; domestic mean 3.34). H2 states that rms engaging in global trade perceive that more emphasis is placed on supply chain partners security capabilities than do rms operating domestically. Results for H2 pertaining to suppliers and customers are presented in Table III. Results indicate that respondents in international rms perceive their rms are signicantly

Item Our rm has specic education programs for our supply chain partners regarding supply chain security procedures Our rm uses an external audit team (as opposed to self-audits) to verify the security procedures of our supply chain partners Our rm has dened consequences for supply chain partners who fail to comply with supply chain security procedures Our rm has established a communication strategy for providing information about contamination/security incidents to our supply chain partners Our rm uses security audits to determine if relationships should be maintained with suppliers Our rm uses security audits to determine if relationships should be maintained with customers Our rm audits the security procedures of contract manufacturers Our rm audits security procedures of frequently used suppliers (e.g. employee/driver background checks, origination and ownership, ingredients, and packaging procedures) Our rm audits security procedures of infrequently used suppliers (e.g. employee/driver background checks, origination, ingredients, and packaging) Our rm audits security procedures of our customers (e.g. employee/driver background checks, origination, ingredients, and packaging)

Group International Domestic International Domestic International Domestic International Domestic International Domestic International Domestic International Domestic International Domestic International Domestic International Domestic

Mean 3.05 2.49 3.07 2.94 3.06 2.73 4.07 3.85 3.03 2.32 2.60 2.19 3.18 2.35 2.82 2.31 2.46 1.97 2.35 1.82

F-ratio 9.35 0.312 3.06 1.71 14.47 4.60 19.47 7.40

p-value 0.003 * 0.577 0.082 0.192 0.000 * 0.033 0.000 * 0.007 *

8.75 10.43

0.003 * 0.001 *

Table III. Suppliers and customers

Note: *Indicates a signicant difference for the F statistics at the p , 0.05 level

more likely to engage supply chain partners in educational programs as well as audits and security-related assessments. Respondents in international rms perceive that their rms are signicantly more likely to educate supply chain partners on security procedures (F 9.35; p , 0.05), use audits to determine if relationships should be maintained with suppliers (F 14.47; p , 0.05), audit security procedures of contract manufacturers (F 19.47; p , 0.05), audit security procedures of frequently used suppliers (F 7.40; p , 0.05), audit security procedures of infrequently used suppliers (F 8.75, p , 0.05), and audit security procedures of customers (F 10.43; p , 0.05). No signicant difference between the groups was found in terms of using external audit teams to verify the security procedures of supply chain partners, dening consequences for supply chain partners who fail to comply with security procedures, establishing a communication strategy for providing information on incidents to supply chain partners, and to determine if relationships should be maintained with customers. The means for both groups on all these items (except establishing a communication strategy) illustrate that the respondents perceive little if any agreement that their rms are conducting these activities. Results for H2 pertaining to service providers are presented in Table IV and indicates that respondents in the international group perceive their rms are signicantly more likely to verify service providers use of government or industry security guidelines (F 6.95; p , 0.05), perform background checks on employees (F 6.54; p , 0.05), monitor transportation assets (F 14.67; p , 0.05), maintain a database containing emergency contact information for all service providers (F 7.14; p , 0.05),

Supply chain security practices 583

Item Our rm veries that our service providers use government or industry security guidelines Our rm collaborates with service providers to improve their security programs Our rm veries that service providers perform security background checks on their employees Our rm veries that service providers monitor transportation assets Our rm maintains a database containing emergency contact information for all of our service providers Our rm has identied transportation vulnerabilities from point of origin to nal destination (including shipping modes/routes) Our service providers transportation assets are locked while in transit Our service providers transportation assets are sealed while in transit Our rm only uses those service providers with whom we have an established relationship Our rm requires transportation providers to provide advanced shipment information (e.g. ASNs or advanced manifest requirements) before delivery

Group International Domestic International Domestic International Domestic International Domestic International Domestic International Domestic International Domestic International Domestic International Domestic International Domestic

Mean 3.57 3.11 3.03 2.78 2.82 2.32 3.21 2.51 3.65 3.15 3.05 2.61 3.48 3.45 4.02 3.83 3.62 3.52 3.21 2.81

F-ratio 6.95 1.77 6.541 14.67 7.14 5.87 0.034 1.339 0.472 4.45

p-value 0.009 * 0.185 0.011 * 0.000 * 0.008 * 0.016 * 0.854 0.249 0.493 0.036 * Table IV. Service providers

Note: *Indicates a signicant difference for the F statistic at the p , 0.05 level

IJPDLM 39,7

584

identify transportation vulnerabilities (F 5.87; p , 0.05), and require advanced shipment notices (ASNs) (F 4.45; p , 0.05). However, no signicant difference was found between the groups regarding the extent to which these respondents perceive their rms collaborate with service providers to improve security programs, use service providers who employ locks on transportation assets, ensure service provider assets are sealed, and only use service providers with whom the rm has an established relationship. The means for both groups show potential for improvement in these areas since respondents perceive little if any agreement that their rms are conducting these activities. The international group perceives their rms employ six out of ten security measures related to suppliers and customers at a signicantly higher level than the domestic group. The respondents in the international group also perceive their rms employ six out of ten security measures related to service providers signicantly more than the domestic group. While support for H1 and H2 is not completely corroborated, rms operating internationally do perceive greater managerial importance (three out of six items) and perceive more supply chain oriented-security procedures with suppliers and customers (six out of ten) as well as with service providers (six out of ten). By and large, when no signicant differences exist between international and domestic groups, the mean values for the activities show that neither group is conducting the respective activities to a great extent. Further, the means for the domestic group are not statistically higher than the means for the international group on any item. H3 posits that respondents from rms engaging in global trade perceive that their rms achieve higher security performance than do rms operating domestically. Results pertaining to H3 are provided in Table V. Note in Table V that higher means

Item Our rms security investment has signicantly reduced/signicantly increased our ability to detect security incidents across the supply chain Our rms security investment has resulted in signicantly reduced/signicantly increased security incidents across the supply chain Our rms security investment has signicantly reduced/signicantly increased our resilience in recovering from security incidents across the supply chain Relative to our major competitors, our security investment has signicantly reduced/signicantly increased customer service to a greater extent Relative to our major competitors, our security investment has signicantly reduced/signicantly increased product quality to a greater extent Relative to our major competitors, our rm has been able to more effectively signicantly reduce/ signicantly increase service levels to customers

Group International Domestic International Domestic International Domestic International Domestic International Domestic International Domestic

Mean 3.72 3.30 3.26 3.25 3.57 3.32 3.45 3.44 3.43 3.46 3.45 3.40

F-ratio 13.62 0.003 5.148

p-value 0.000 * 0.956 0.024 *

0.009 0.105 0.304

0.925 0.746 0.582

Table V. Security performance

Note: *Indicates a signicant difference for the F statistic at the p , 0.05 level

indicate improved performance (e.g. higher mean greater detection capability, reduced incidents, increased resilience, increased product quality, and increased customer service). Results presented in Table V indicate that respondents in international rms perceive their levels of managerial importance placed on security and efforts to engage in security procedures with supply chain partners pay benets in terms of their ability to detect security incidents (F 13.62; p , 0.05) and their ability to recover from security incidents (F 5.15; p , 0.05). However, no signicant difference was found between the two groups in terms of the perceptions of the ability of their rm to reduce the number of incidents as well as the ability to improve customer service, product quality, and service levels. While respondents in international rms do not report signicantly higher performance, it should be noted that neither group shows strong agreement that performance has improved dramatically. This is potentially explained by the relative newness of security initiatives and implies that pay off is not immediate. In some cases security initiatives may even reduce short-term performance. For example, when a rm starts conducting audits, they are likely to uncover previously undetected problems. In this sense, early security audits may result in reduced short-term compliance performance but, in the long run, should allow a rm to proactively prevent serious disruptions. Given the support for H1 and H2, it was surprising that the ANOVA results comparing performance of international and domestic rms did not show greater statistical differences. As such, an additional analysis was performed to further examine the performance results. A cluster analysis was performed to see if there were more than two clusters of rms (e.g. rms with international supply chains and rms with domestic supply chains) when examining performance results. The primary purpose of cluster analysis is to group respondents based on their characteristics such that a high degree of similarity is obtained within each cluster coupled with high-dissimilarity across clusters (Hair et al., 1998). Respondents were clustered based on the six security performance variables shown in Table V and using the type of rm (international versus domestic) as the categorical variable of interest. The cluster procedure selected three clusters as the optimal number based on the Schwarz Bayesian information criteria. Cluster A represents rms with high-perceived security performance whereas Cluster B and Cluster C represent rms with low-perceived security performance. Cluster membership distribution is shown in Table VI with respect to whether the rms supply chain is more internationally or domestically focused.

Supply chain security practices 585

Cluster membership International Domestic Total

High performance (Cluster A) 20a 7b 27

Low-performance-domestic (Cluster B) 0 81 81

Low-performanceinternational (Cluster C) 87 0 87

Notes: a74 percent of Cluster A; b26 percent of Cluster A

Table VI. Cluster membership based on performance

IJPDLM 39,7

586

As shown in Table VI, Cluster A (high performance) has the fewest members and is comprised of predominantly international rms (74 percent of rms in Cluster A are international). However, seven rms in this Cluster (26 percent) are rms with domestically oriented-supply chains. All the members of Cluster B are domestic rms while all the members of Cluster C are international rms. The centroids of each cluster were well separated with Cluster A showing a higher performance mean than Cluster B and Cluster C for all six performance measures (Table VII). The means of the performance measures were compared using MANOVA for each of the three clusters. MANOVA is similar to ANOVA in that it examines differences between groups. However, MANOVA enables differences between groups (e.g. the three clusters) across several dependent variables (in this case, the six performance items) to be examined simultaneously. As such, MANOVA is important as it tests the signicance of relationships given interdependencies that may exist across the performance items. As shown in Table VIII, cluster membership accounts for approximately 34 percent of the variability across the six performance items. All univariate and between subject effects are signicant at the 0.05 level. Additionally, perceived performance for Cluster A is statistically higher than Cluster B for all but one item (ability to reduce security incidents), and Cluster A is statistically higher than Cluster C for all items. While Cluster A contains some rms that operate with supply chains that are domestic, the bulk of rms in this cluster are global in nature. While this does not conrm H3, it does show limited support that a higher percentage of respondents who perceive their rms are achieving greater supply chain security performance are in rms with globally oriented supply chains. Perceived performance of Clusters B and C was statistically different in only one performance area (ability to detect security incidents) where the performance mean for Cluster C (low-performance-international) was signicantly higher than the mean for Cluster B (low-performance-domestic).
Cluster centroids C 3.52 0.71 3.18 0.66 3.38 0.69 3.24 0.46 3.27 0.45 3.27 0.54

A Ability to detect incidents Mean SD Ability to reduce incidents Mean SD Ability to recover from incidents Mean SD Customer service improvement Mean SD Increase product quality Mean SD Increase service levels Mean SD 4.56 0.57 3.60 1.25 4.50 0.61 4.46 0.54 4.26 0.58 4.35 0.59

B 3.20 0.72 3.23 0.54 3.20 0.64 3.33 0.50 3.37 0.51 3.28 0.48

Combined 3.53 0.82 3.26 0.74 3.46 0.78 3.45 0.64 3.45 0.59 3.42 0.64

Table VII. Cluster centroids

Test Pillais trace * Wilks Lambda * Hotellings trace * Roys largest root * Between subjects effect Ability to detect Ability to reduce Ability to recover Increase customer service Increase product quality Increase service levels

Value 0.688 0.346 1.790 1.740 Mean square 18.60 1.91 17.62 16.33 10.40 13.43

Approx. F (all df 6) 16.42 21.84 27.83 54.52 F 38.25 3.61 40.66 68.84 42.29 48.95

Supply chain security practices

Signicance 0.000 0.029 0.000 0.000 0.000 0.000 Observed power 1.00 0.66 1.00 1.00 1.00 1.00

587

Notes: *Signicance of all F stats 0.000; partial h 2 is equivalent to 0.344 per Pillais trace

Table VIII. MANOVA results

The cluster analysis also provided interesting results with respect to the performance variables that contribute most to cluster membership based on performance. Figures 1-3 show the variables in descending order of importance in terms of their contribution to cluster membership. The dashed line in each gure represents the signicance (i.e. t-statistic) of each variable. T-values greater than zero indicate that performance was above average and values less than zero indicate below average performance. All performance variables for Cluster A have a positive direction illustrating above average performance. All the performance items, except for the ability to reduce security incidents, contributed to cluster membership for Cluster A. All performance variables for Clusters B and C have a negative direction illustrating below
Bonferroni adjustment applied Critical value Test statistic Customer service improvement Ability to detect incidents Ability to recover from incidents Increase service levels Increase product quality Ability to reduce incidents

2.5

0.0

2.5 5.0 T-value

7.5

10.0

Figure 1. High-performance rms (Cluster A)

IJPDLM 39,7
Ability to detect incidents

Bonferroni adjustment applied Critical value Test statistic

588

Ability to recover from incidents Increase service levels Customer service improvement Increase product quality Ability to reduce incidents

Figure 2. Low-performance rms-domestic (Cluster B)

2 T-value

Bonferroni adjustment applied Critical value Test statistic Customer service improvement Increase product quality Increase service levels Ability to reduce incidents Ability to recover from incidents Ability to detect incidents

Figure 3. Low-performance rms-international (Cluster C)

0 T-value

average performance. For Cluster B, the ability to detect security incidents, the ability to recover from security incidents, and increased service levels contribute to cluster membership. However, for Cluster C, the ability for security investments to improve customer service, increase product quality, and increase service levels contribute to

cluster membership. This indicates that the clusters are formed based on different performance metrics. Given that the international rms also tended to have higher annual revenue in comparison to the domestic rms in this sample (as shown in Table I), we also examined the potential impact that annual revenue had on perceptions of performance. As such, MANOVA was also run with cluster membership and annual revenue as xed factors to test whether the differences across cluster membership and annual revenue impacted perceptions of performance. The univariate effects of revenue and the interaction of cluster membership and revenue were not signicant at the 0.05 level (using Pillais trace) and the partial h 2-values were 0.05 and 0.038 (revenue and cluster membership-revenue interaction, respectively) indicating that revenue contributes very little to the model and does not have a signicant impact on the model. Additionally, Table IX provides a cross-tabulation of cluster membership and annual revenue to count the number of rms by cluster in each annual revenue category. Table IX highlights that rms of all four annual revenue categories were found in each cluster (high performance, low-performance-domestic, low-performanceinternational). While 48 percent of international rms (as shown in Table I) had revenue over $500 million, only ten of the 27 rms (37 percent) in the high-performance cluster had revenue over $500 million and 22 percent of rms in the high-performance cluster had revenue in the lowest category ($20 million or less). In addition, 48 percent of the rms in the low-performance-international cluster had revenue over $500 million. Conclusions and limitations This research surveyed food manufacturers to assess security implementation differences and performance implications between rms with globally oriented supply chains and those with domestic supply chains. Results indicate that managers with global supply chains perceive, in general, that their rms place more managerial importance on supply chain security and are more likely to ensure the security procedures of supply chain partners (suppliers, customers and service providers). However, managers with global supply chains (as a whole) failed to perceive that their rms achieve signicantly better performance than domestic rms with the exception of an increased ability to detect and recover from security incidents. Once rms were grouped by cluster analysis, respondents in Cluster A (the high-performance cluster) did perceive signicantly greater supply chain security performance than managers in Cluster B (low-performance-domestic) with the exception of the ability to reduce the number of incidents and in all areas than managers in Cluster C (low-performance international). The majority of rms in Cluster A operate with international supply chains.
Annual revenue $20-100 $100-500 million million 5 20 18 6 14 18

Supply chain security practices 589

Cluster membership (no. of rms) High-performance Low-performance-domestic Low-performance-international

$20 million or less 6 33 8

Over $500 million 10 9 41 Table IX. Cluster membership and annual revenue

IJPDLM 39,7

590

Given the support of H1 and H2, results support the notion that managers who operate in international supply chains perceive greater security risks and view security as a cost of doing business on an international scale. As such, these managers perceive their rms are more active in supply chain security procedures such as educating suppliers, performing audits and security assessments with suppliers, contract manufacturers, and customers, and verifying that service providers follow government/industry security guidelines. International sourcing provides a source of goods and materials that may be cheaper than domestic sources or may supplement the capacity of domestic suppliers. International markets also may provide untapped sources of revenue. However, rms engaging in global trade incur the increased risk of intentional or unintentional supply disruptions, which may lead these rms to be more likely to employ a senior level manager in charge of security, implement a corporate level strategy to address security concerns, and consider security as a necessary cost of business. The results indicate that rms operating globally are more likely to engage supply chain partners in security related activities and information exchange. This nding may be dependent on the importance placed on security by the rms managers. Auditing and collaborating with supply chain partners in the exchange of security related information detracts from resources that could be expended elsewhere to achieve goals that would contribute to short-term objectives. The increased risk inherent to international operations may have inuenced the participants in these rms to recognize that they must ensure supply chain partners place similar importance on security. Interestingly, respondents from rms in the international group perceive their rms are signicantly more likely than rms operating domestically to employ security education programs for their suppliers and customers and participate in audits with suppliers and contract manufacturers, but were not signicantly more likely to collaborate with service providers to improve security programs or to only utilize service providers with whom they have an established relationship. This represents a potential vulnerability for rms both domestically and internationally. This vulnerability is potentially magnied by the fact that respondents in both types of rms showed little to no agreement that their service providers locked and sealed transportation assets while in transit. Supply chain assets are more vulnerable when sitting still, such as at a service providers warehouse, or while under the control of a transportation service provider (Gulisano, 2003). It is important for rms in the food industry, regardless of their supply chain reach, to work to collaborate with service providers in order to correct this potential vulnerability. Despite their emphasis on supply chain security, results indicate that managers in international rms as a whole do not perceive that their rms have achieved enhanced security performance in comparison to managers in rms operating domestically. Based on the cluster analysis results, a smaller percentage of rms (domestic and global) perceive above average performance with respect to security benets. While the vast majority of rms in the above average performance cluster were international (74 percent), this number represented only 19 percent of the international rms. The remaining international rms were members of a below average performance cluster. The same was true for domestic oriented rms the majority of respondents in domestic rms (92 percent) perceived their rms achieve below average performance results. This nding illustrates that all rms have the potential to improve supply

chain security performance. However, as noted previously, there may be a lag effect on security performance where it may take time for benets to materialize from supply chain security initiatives. While this work has contributed to the current body of supply chain security knowledge, certain limitations do exist. First, the food industry may be more attuned to the importance of security than other industries due to recent contamination incidents and the effect of these incidents on consumers purchasing habits. Future research should seek to determine if results hold in other settings and with other industries. Second, this work implies a cause and effect relationship between managerial importance placed on security and reaching out to supply chain partners to assess and improve their security capabilities. This cause and effect relationship is logical but not explicitly tested in this research. Future research should seek to determine if managerial importance placed on security is the greatest driver of efforts to increase supply chain security or if other factors (e.g. customer pressure or incentives) play a greater role. International sourcing and distribution is unlikely to disappear in the near future. Firms that operate globally may be at greater risk and, thus, need to place more managerial importance on security to ensure a secure supply chain that both prevents disruptions as well as responds effectively should a crisis occur. In light of these results, managers would be wise to continue improving and investing in intra-rm and supply chain-wide security initiatives in order to improve supply chain security performance which may protect their stakeholders and prevent future supply chain incidents.
References Aberdeen Group (2004), How Supply Chain Leaders Protect Their Brands: A Benchmark Report on Regulatory Compliance and Product Safety Mandates for Food, Pharmaceuticals, Consumer Products, and Medical Devices, Aberdeen Group, Boston, MA, September, p. 28. Armstrong, J.S. and Overton, T.S. (1977), Estimating nonresponse bias in mail surveys, Journal of Marketing Research, Vol. 14, pp. 396-402. Autry, C.W. and Bobbitt, L.M. (2008), Supply chain security orientation: conceptual development and a proposed framework, International Journal of Physical Distribution & Logistics Management, Vol. 19 No. 1, pp. 42-64. Closs, D.J. and McGarrell, E.F. (2004), Enhancing Security throughout the Supply Chain, IBM Center for the Business of Government, Washington, DC, p. 52. Closs, D.J., Speier, C., Whipple, J.M. and Voss, M.D. (2008), A framework for protecting your supply chain, Supply Chain Management Review, March, pp. 38-45. Cook, T.A. (2003), A new security mandate: government initiatives are forcing supply chain professionals to develop new skills, Supply Chain Management Review, Vol. 5, pp. 11-12. Craighead, C.W., Blackhurst, J., Rungtusanatham, M.J. and Handeld, R.B. (2007), The severity of supply chain disruptions: design characteristics and mitigation capabilities, Decision Sciences, Vol. 38 No. 1, pp. 131-56. Cupp, O.S., Walker, D.E. II and Hillison, J. (2004), Agro terrorism in the US: key security challenge for the 21st century, Biosecurity and Bioterrorism, Vol. 2 No. 2, pp. 97-105. Dobie, K., Glisson, L.M. and Grant, J. (2000), Terrorism and the global supply chain: where are your weak links?, Journal of Transportation Management, Vol. 12 No. 1, pp. 57-66.

Supply chain security practices 591

IJPDLM 39,7

592

Dunn, S.C., Seaker, R.F. and Waller, M.A. (1994), Latent variables in business logistics research: scale development and validation, Journal of Business Logistics, Vol. 15 No. 2, pp. 145-72. Easterby-Smith, M., Thorpe, R. and Lowe, A. (1991), Management Research: An Introduction, Sage, London. Elkins, D., Handeld, R.B., Blackhurst, J. and Craighead, C.W. (2005), 18 ways to guard against disruption, Supply Chain Management Review, Vol. 9 No. 1, pp. 46-53. Gaudenzi, B. and Borghesi, A. (2006), Managing risks in the supply chain using the AHP method, International Journal of Logistics Management, Vol. 17 No. 1, pp. 114-36. Ghemawat, P. (2001), Distance still matters: the hard reality of global expansion, Harvard Business Review, Vol. 79 No. 8, pp. 137-47. Giunipero, L.C. and Eltantawy, R.A. (2004), Securing the upstream supply chain: a risk management approach, International Journal of Physical Distribution & Logistics Management, Vol. 34 No. 9, pp. 698-713. Glaser, B.G. and Strauss, A. (1967), The Discovery of Grounded Theory: Strategies for Qualitative Research, Aldine, Chicago, IL. Gulisano, V. (2003), You cant outsource responsibility: a 3PLs view on security, Purchasing, Vol. 132 No. 5, pp. 13-15. Hair, J.F. Jr, Anderson, R.E., Tatham, R.L. and Black, W.C. (1998), Multivariate Data Analysis, 5th ed., Prentice-Hall, Englewood Cliffs, NJ. Harl, N.E. (2002), US agriculture, food production is threatened by bioterrorism attacks, Ag Lender, April, p. 1. Kleindorfer, P.R. and Saad, G.H. (2005), Managing disruption risks in supply chains, Production and Operations Management, Vol. 14 No. 1, pp. 53-68. Lee, H.L. and Whang, S. (2003), Higher supply chain security with lower cost: lessons from total quality management, Stanford Graduate School of Business Research Paper Series, Stanford, CA, October, p. 28. Manuj, I. and Mentzer, J.T. (2008), Global supply chain risk management strategies, International Journal of Physical Distribution & Logistics Management, Vol. 38 No. 3, pp. 192-223. Quinn, F.J. (2003), Security matters, Supply Chain Management Review, Vol. 7 No. 4, pp. 38-45. Radjou, N. (2003), Securing the supply chain: constructive paranoia, Network Computing, Vol. 14 No. 19, p. 2. Rand Corporation (2003), Agro terrorism: what is the threat and what can be done about it?, Rand Corporation Research Brief Series, Santa Monica, CA, available at: www.rand.org Rice, J.B. and Caniato, F. (2003), Building a secure and resilient supply network, Supply Chain Management Review, Vol. 7 No. 5, pp. 22-30. Rinehart, L.M., Myers, M.B. and Eckert, J.A. (2004), Supplier relationships: the impact on security, Supply Chain Management Review, Vol. 8, pp. 52-9. Rogers, D., Lockman, D., Schwerdt, G., ODonnell, B. and Huff, R. (2004), Supply chain security, Material Handling Management, Vol. 59 No. 2, pp. 15-17. Roth, A.V., Tsay, A.A., Pullman, M.E. and Gray, J.V. (2008), Unraveling the food supply chain: strategic insights from China and the 2007 recalls, Journal of Supply Chain Management, Vol. 44 No. 1, pp. 22-39. Russell, D.M. and Saldanha, J.P. (2003), Five tenets of security-aware logistics and supply chain operation, Transportation Journal, Vol. 42 No. 4, pp. 44-54.

Shef, Y. (2001), Supply chain management under the threat of international terrorism, International Journal of Logistics Management, Vol. 12 No. 2, pp. 1-11. Strauss, A. and Corbin, J. (1990), Basics of Qualitative Research: Grounded Theory Procedures and Techniques, Sage, Newbury Park, CA. Suder, G. and Czinkota, M.R. (2005), Towards and understanding of terrorism risk in the MNE, Multinational Business Review, Vol. 13 No. 3, pp. 3-23. US Department of Agriculture: Economic Research Service (2008), Value of US Agricultural Trade, by Calendar Year, US Department of Agriculture: Economic Research Service, Washington, DC, available at: www.ers.usda.gov/data/fatus/DATA/XMScy1935.xls (accessed August 25, 2008). Varkonyl, I. (2004), Breaking down silos in supply chain security, Journal of Commerce, Vol. 8 No. 2, p. 1. Voss, M.D., Page, T.J. Jr, Keller, S.B. and Ozment, J. (2006), Determining important carrier attributes: a fresh perspective using the theory of reasoned action, Transportation Journal, Vol. 45 No. 3, pp. 7-19. Voss, M.D., Closs, D.J., Calantone, R.J., Helferich, O.K. and Speier, C. (2009), The role of security in the food supplier selection decision, Journal of Business Logistics, Vol. 30 No. 1. Wagner, S.M. and Bode, C. (2008), An empirical examination of supply chain performance along several dimensions of risk, Journal of Business Logistics, Vol. 29 No. 1, pp. 307-25. Williams, Z., Lueg, J.E. and LeMay, S.A. (2008), Supply chain security: an overview and research agenda, International Journal of Physical Distribution & Logistics Management, Vol. 19 No. 2, pp. 254-81. Wolfe, M. (2001), Fifth EU/US forum on intermodal freight transport, available at: http://ops. fhwa.dot.gov/freight/documents/frt_sec_ex_sum4_4_02.doc (accessed September 2, 2003). About the authors Judith M. Whipple is an Associate Professor of Supply Chain Management in the Eli Broad College of Business at Michigan State University. Prior to this, she directed the Food Industry Management program at Michigan State University. Her teaching interests include logistics and supply chain management. Her research interests include supply chain integration, supply chain security, alliances and relationship marketing, collaborative commerce, and customer satisfaction/value marketing. He was awarded the MSU University-wide Teacher Scholar Award in 2005 for excellence in teaching and research. He has published work in a variety of marketing and supply chain management journals, participated as a speaker in professional and academic meetings, and is a member of the Council of Supply Chain Management Professionals and the Institute for Supply Management. Judith M. Whipple is the corresponding author and can be contacted at: whipple9@msu.edu M. Douglas Voss is an Assistant Professor of Marketing and Supply Chain Management at The University of Central Arkansas. He received his PhD in logistics and marketing from Michigan State University and an MS and BS in Transportation and Logistics Management from the University of Arkansas. His research has been accepted or appeared in the Journal of Business Logistics, Transportation Journal, the International Journal of Physical Distribution & Logistics Management, Supply Chain Management Review, and Logistics Quarterly, as well as several conference proceedings including the Council of Supply Chain Management Professionals, Production and Operations Management Society, and the American Marketing Association. He received the E. Grosvenor Plowman Award for the best paper submitted to the 2006 Council of Supply Chain Management Professionals Educators Conference. David J. Closs is the John McConnell Chaired Professor of Business Administration and the Chairperson of the Department of Supply Chain Management at the Eli Broad College of

Supply chain security practices 593

IJPDLM 39,7

594

Business, Michigan State University. He is Co-author of Logistical Management, World Class Logistics: The Challenge of Managing Continuous Change, and 21st Century Logistics: Making Supply Chain Management a Reality and has published numerous articles on logistics strategies, systems, modeling, inventory management, supply chain risk, and forecasting. He actively participates in logistics executive development seminars and has presented sessions in North America, South America, Asia, Australia, and Eastern Europe. His primary research interests include supply chain strategy, information systems, security and planning techniques. He is an active member in the Council of Logistics Management and was Editor of the Journal of Business Logistics. He is the Executive Editor of Logistics Quarterly.

To purchase reprints of this article please e-mail: reprints@emeraldinsight.com Or visit our web site for further details: www.emeraldinsight.com/reprints