Article

Risk Mitigation in Automotive Global Business Review

17(4) 116
Supply Chain: An Empirical 2016 IMI
SAGE Publications
Exploration of Enablers to sagepub.in/home.nav
DOI: 10.1177/0972150916645678
Implement Supply Chain http://gbr.sagepub.com

Risk Management

Satyendra Kumar Sharma1

Anil Bhat2

Abstract
Supply chain (SC) risk management (SCRM) is a high-level concern for SC professionals. Supply chain
risk management implementation is a difficult task because it requires involvement of various firms
across the SC. For effective SCRM implementation, managers need to know the enabling factors
and their relative importance. In this research, an empirical study on SC risk mitigation enablers was
carried out in Indian automotive industry to examine the relationship between SCRM enablers and
SCRM implementation. This relationship was tested using discriminant analysis. The research shows
that the most important enabler is information visibility and it is followed by incentives alignment.
Contingency planning is the third-most important enabler and last is risk management governance
(RMG). Success of the SCRM implementation in terms of its efficiency and effectiveness can be assured
by following the sequence of SCRM enablers suggested in this research.

Keywords
Risk management, supply chain, risk mitigation enablers, discriminant analysis

Introduction
Firms across the globe are focusing on cost reduction in the supply chain (SC). This phenomenon is
responsible for increase in SC complexity. The firms are investing in state-of-the-art technologies to
attract top-notch talents to boost their SC performance. Companies are adopting initiatives, such as
efficient consumer response (ECR), collaborative planning, forecasting and replenishment (CPFR),

1
Assistant Professor, Department of Management, Practice School Instructor, BITS Pilani, Jhunjhunu, Rajasthan, India.
2
Professor, Department of Management, BITS Pilani, Jhunjhunu, Rajasthan.

Corresponding author:
Satyendra Kumar Sharma, Assistant Professor, Department of Management, Practice School Instructor, BITS Pilani, Jhunjhunu 333031,
Rajasthan, India.
E-mail: satyendra.sharma1979@gmail.com

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2 Global Business Review 17(4)

radio frequency identification (RFID) and many others, to improve SC performance. These initiatives
improved SCs efficiency and speed. If companies want to become sustainable, then efficiency and speed
is not enough. Anecdotes in SC literature suggest that great companies get competitive advantage
by being more agile, adaptable and simultaneously they align interests of partners across the SC
(Lee, 2004). Excessive focus on cost and speed causes SCs to be fragile, and excessive leanness
makes SCs vulnerable (Kleindorfer & Saad, 2005). In the past few years, events such as severe acute
respiratory syndrome (SARS) outbreak in 2003, 9/11 terrorist attack in 2001, earthquakes in different
parts of the world, recently in Japan in 2011, attracted attention of many boards of companies.
Great companies beat rivals by performing during periods of breakdowns and also great companies are
ahead of competition in meeting customer expectations by matching supply and demand and spotting
trends in consumers behaviour. Importance of supply chain risk management (SCRM) is increasing and
awareness towards SCRM is increasing (Juttner, 2003). Supply chain risk management is a process
of understanding risks and minimizing their likelihood and their negative consequences across the
SC (Norrman & Jansson, 2004).
The literature on risk management shows that a common risk management process is generally
organized into three steps, namely, risk identification, risk assessment and risk mitigation (Kleindorfer
& Saad, 2005; Wagner & Bode, 2009). Generic risk management process also applies in SCs, but each
risk management step requires different approaches and tools/techniques. Extant literature is available
on different aspects of SCRM, but to the best of the authors knowledge, the SCRM implementation
issues are unexplored areas, which need further investigation and empirical evidence. Questions such as
how SCRM can be implemented, how all SC partners collaborate with each other for SCRM implemen-
tation and what are the factors that affect SCRM implementation need to be investigated in detail.
Supply chain risk management implementation requires a collaborative effort among firms
(Christopher & Lee, 2004; Juttner, 2003). Indian automotive industry is a large industry and global
automakers are making plans to invest in India. Trends such as outsourcing and globalization are much
prevalent in automotive industry. These are bringing in the best practices in Indian automotive industry,
and firms are becoming more efficient (Ghosh, Agarwal, Bandyopadhyay & Choudhuri, 2014). Risk in
the automotive SC can be mitigated if supply chain management (SCM) professionals understand
the variable that mitigates risks in the SC. Some of the variables that enable risk mitigation are informa-
tion sharing, aligning incentives, risk sharing and corporate social responsibility (Chopra & Sodhi, 2004;
Faisal & Shankar, 2006; Speckman & Davis, 2004). Faisal et al. (2006) studied various SC risk mitiga-
tion enablers and identified interrelationships among various SCRM enablers. Faisal et al.s (2006) study
was carried out in small and medium-sized enterprises (SME) and it was based on the opinion of a few
managers. It is important for managers to know that what is influencing power of risk mitigation vari-
ables, which enablers play a vital role in SCRM implementation so that managers can pay more attention
to particular enablers for effective SCRM implementation.
The following sections provide a review of literature, discussion of methodology employed in this
research and description of results. Finally, managerial implications of this research are discussed and
in the last section of the article, major findings with conclusion, limitation of the study and future scope
of the research are discussed.

Literature Review
Traditionally, risk management is limited to enterprises and it is popularly known as enterprise risk
management. In the current scenario, competition is shifting from companies to the SCs and risks at any

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Sharma and Bhat 3

link affect the whole SC. A popular dictum says that the strength of a chain is the strength of its weakest
link. So the importance of managing risk beyond the boundaries of a firm is increasing and the new
concept of SCRM has attracted attention of practitioners and academicians across the globe. Managing
risks across the SC will provide management greater opportunities and more possible benefits for the
entire SC (Christopher & Peck, 2004). Proactivity will assist firms in succeeding in a highly competitive
business environment. Supply chain risk management integrates the risk management practices with
strategy and planning process, throughout the SC. Supply chain risk management includes the SC part-
ners in risk planning and appropriate actions are taken for preventing and mitigating the negative impact
of risks in the SC. Choosing an appropriate strategy for SC risks is an important step and effective
implementation of any strategy depends on many organizational factors (Wagner & Bode, 2008). So, a
basic question arises in the minds of readers: What is the difference between SCRM strategies and
SCRM enablers and why, a separate discussion is required on these two issues? Yes, SCRM strategies
and SCRM enablers are different. Enablers are factors that enable strategy implementation. Strategy
execution depends on right kind of enabling capabilities of an organization. The following subsections
of literature review provide a detailed discussion on SCRM enablers.

Risk Management Governance

Advance warning systems can provide a company with valuable preparation time to align its capabilities
to minimize disruption effects. Prior information may allow complete prevention of a disruption. The
goal of an early identification of potential catastrophes requires foresight on the working environment,
that is, supplier, market, inventories, competitors, laws and transportation. It also requires constant
monitoring of the geographical environment. In 2000, Philips, a chip manufacturer, suffered a fire at its
Mexico plant. Both Nokia and Ericsson relied on Philips as the only supplier for their cell phone chips.
Nokia, anticipating the potential disruption, responded fast to contact Philips to use its alternative facili-
ties to meet Nokias demand and by watching their supplier processes, Nokia increased its market
share by 4 per cent, and on the other hand, Ericsson was not proactive in anticipating disruptions and not
quite responsive. Consequently, Ericsson reported a loss of $1.8 million from the shortage of chips
(Norman & Jansson, 2004). Pre-assigned roles and responsibilities can help in maintaining control and
preventing chaos. Physical, technological and informational resources must be collected, cleared, moved,
opened and governed.

Enhanced Visibility
Information visibility plays a vital role in the SC. If companies have a clear picture of disruptions in their
SC networks, they can respond effectively. Information visibility immediately enables companies to take
appropriate actions, such as rerouting, changing production plans, redeploying production resources
or adjusting capacities. Such information visibility requires two things: (i) event-driven data of SC oper-
ations and (ii) tight integration of information systems across suppliers, manufacturers, logistics service
providers and customers. Ciscos e-hub, a private exchange, meets these two requirements. It links
multiple tiers of suppliers and instantly provides all players a complete picture of supply disruptions
and shortages (Lee & Wolfe, 2003). Information asymmetry occurs in a SC when one member has
more access to information sources compared to the other players (Lee & Whang, 2000). The member

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4 Global Business Review 17(4)

who has more access to information can take undue advantage, which reduces the SC profits and
increases the SC vulnerability. For example, a manufacturer has a superior knowledge about its manu-
facturing process and product quality and a retailer has more knowledge about customers and product
demand. Information asymmetry does not resolve the conflicting decision criterion in terms of decisions
related to inventory, transportation, lead time, capacity and quality (Simichi-Levi, Kaminsky & Simchi-
Levi, 2000). In disruption discovery, visibility of the SC has become the new battleground for SC
competitiveness (Blakhurst, 2005). Supply chain visibility is real-time information sharing from every
node in the SC. Sometimes, information sharing and visibility is used interchangeably; here, information
sharing is an activity and visibility is outcome of that activity (Swaminathan & Tayur, 2003). The second
issue which is related to visibility is predictive analysis. Understanding the SC risk has become a priority
and tools are needed to predict the SC risks. There is a need for intelligent search agents and dynamic
risk indices at every node of the SC (Menczer, 2003). To date, there are no tracking and control systems
that control and manage each of the shipments continuously from origin to destination. There is a
need for advanced technologies which can provide the real-time visibility and monitoring capabilities to
identify disruptions and also alert the right parties, when problems occur (Xu, 2011).

Supply Chain Alignment

The other important antecedent for SCRM is aligning the resources and interests of all SC partners.
Here, alignment means aligning the SC partners interests to reduce the SC disruptions and increase the
SC performance. Top management commitment and transformational leadership are essential for supply
chain alignment (SCA) (Birasnav, 2013). Methods for SCA are listed below:
Aligning performance metric: Performance measures are based on individual metrics, isolated from
the entire goal. All the SC members do not have a performance measure for the entire SC. Any action
that aims at improving individual metric, without appreciating the overall system, is likely to have a
detrimental effect (Goldratt, 1994). Any incongruent strategic objective is a situation, where chain
members have different emphasis on strategic options to enhance competitive position (Bowersox,
1990). Each player in a SC has a different position and plays a different role that leads to different
strategic objectives. Performance measures are often based on cost reductions rather than on revenue
management. An appropriate performance measure for the whole SC is one of the enabling factors in
SCA that leads to resolution of conflicts among SC members and ultimately affects SC performance
(Fawcett & Magnan, 2002). Each member in the SC uses its own operational measures that inhibit the
collaboration (Kampstra, Ashayeri & Gattorna, 2006).
Aligning incentives: Supply chain partners should behave as one entity and create incentive structure
in such a way that other decision-makers take decisions from the SC perspective. Specifically, it removes
incentives that encourage forward buying and shortage gaming situations. Misaligned incentives in a
SC cause the opportunistic behaviour of the SC members. Misaligned incentives result in excess inven-
tory, stock-outs, inaccurate forecasts and inadequate sales efforts and even poor customer service. Even
companies know about the importance of aligned incentives in SC; still, it goes out of line. The possible
reasons of misaligned incentives are hidden actions of the SC partners and information asymmetry.
Vendors fear that if they share the cost information with big manufacturers, then manufacturers will try
to squeeze their profit margins (Narayana & Raman, 2004).
Aligning business processes: Fragmented business processes often contribute to a lot of waste in the
SC and create a demandsupply mismatch. Globally dispersed companies have different business

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Sharma and Bhat 5

processes such as overlapping ordering processes and different inventory estimation methods.
Fragmented intercompany business processes contribute to various wastes along the SC. Managers can
find the position of their SC on the fragmented business processes spectrum by looking at past data
regarding the number of times their company faced undesirable situations, such as high markdowns
and excess levels of inventories. Aligning the SC processes within and among SC partners increases the
SC resiliency (Olvera, 2008).

Contingency Planning
A contingency plan is an alternative plan that will be used if possible foreseen risk events become a
reality. Like all plans, contingency plan answers all other questions of what, when, where and how much
actions take place. Contingency plan serves as a users manual in case of disruption. Important tasks at
the recovery stage include assessment of undamaged resources and identification of the human resources
and physical infrastructure needed. Cooperation with law enforcement and government agencies is
essential (Abe & Ye, 2013). In certain disasters, it is possible to get state or central help, which can be
crucial in recovery. Contingency planning has a positive impact on a firms flexibility, ultimately enhanc-
ing its ability to respond to unforeseen disruptions in a manner that minimizes overall risk exposure
(Fawcett, Calantone & Smith, 1996). Helferich and Cook (2002) provided a detailed guideline for
disaster management process. Resources of a firm across the SC need to be correctly aligned and
deployed with disaster and recovery planning. Right deployment of resources across the chain becomes
an aid in driving capabilities with matched organizational processes (Day, 1994). Intranet and extranets,
electronic data interchange, video conferencing, global positioning system and even private radio all
provide assistance while likely creating a network of immense confusion (Richey et al., 2010).
In the available literature, we found various SCRM maturity models. Kinaxis (an SC risk research
agency) provided a six-level SCRM maturity model (SCRLC). This model has six levels, namely:
reactive (stage 1); aware (stage 2); proactive (stage 3); integrated (stage 4); resilient (stage 5); and
knowledge sharing and continuous learning (stage 6). A research study by MIT Forum and PWC identi-
fied and explored four levels of SCRM maturity: level 1 is reactive SC management; level 2 is internal
SCM with planned buffers; level 3 is collaboration across extended SC network; and level 4 is a dynamic
SC with flexibility. For this research, we have adopted the maturity-level framework suggested
by Kinaxis.

Research Methodology
Data Collection and Sample
Data for this research were collected through an administered survey in India from a sample of 1,046
automotive companies. Sample frame for this study was taken from Confederation of Indian Industry
(CII) directory. This directory consisted e-mail ids of important persons in automotive sector. Three key
people in automotive companies were selected for this study, namely, VP or GM in the areas of purchase/
production/logistics or SC and CEO of the company. The questionnaire was sent to three categories
of executives, namely: purchase managers, logistics managers or SC managers (if any). Survey was
administered online through the website surveymoneky.com. Mailing and subsequent three follow-
ups generated 79 usable responses (after cancelling multiple responses from the same company).

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Table 1. Demographic Details of Surveyed Companies

Annual Sales (in INR) No. of Companies Percentage

100 millionunder 250 million 18 22.78
250 millionunder 500 million 25 31.65
500 million and above 36 45.57
No. of Employees: No. of Companies Percentage
100under 500 12 15.18
500under 1,000 19 24.06
1,000under 5,000 30 37.98
5,000 and above 18 22.78
Source: Authors calculation.
Note: Designation of respondents
Supply chain/logistics40
Production09
Purchasing/procurement officers 30; total 79 respondents.

The response rate of 7.56 per cent was fairly good enough for online questionnaire. The sample covered
55 auto component suppliers and 24 original equipment manufacturers (OEMs). The details of surveyed
companies and respondents are given in Table 1.

Questionnaire and Scale Development

We used a multi-step process to initially develop and validate our instrument (as per Churchill, 1979).
Initially, we conducted an extensive review of the operations management, risk management and SCM
literature to identify relevant constructs, operational definition of identified constructs and associated
items to measure the particular construct. In this study, we used new measures (scales) for some of
the constructs. For example, to measure risk management governance (RMG) construct, two items
(questions) were taken from Richey et al. (2010) and one item, that is, using new predictive tools for
SCRM, was taken from Menczer (2003). One of the important dimensions in RMG is using risk scores
or dashboards across the SC which has not been discussed in academic literature, but some consulting
firms use this dimension to measure SCRM maturity level. Similarly, some of the items were taken from
practitioners point of view to complete the operational definition and coverage of the construct used
in this study. Wherever possible, we adopted existing scales to measure constructs.
In the survey questionnaire, the order of the questions (that are mentioned in Table 2 in the form
of items) was changed to avoid the respondents lack of interest by seeing similar kind of questions
together. The scale items were modified in the form of statements, so that respondents can relate the
listed practices to their companys SC. First, to establish content validity of the survey questionnaire, we
carried out a pilot study of 10 practitioners and 10 academicians related to SCM. A preliminary question-
naire was designed and the relevance of constructs and their measures, their wordings, directions and
format of questionnaire were refined on the basis of comments of practitioners and academicians.
Finally, a pretested questionnaire was administered to Indian automobile industry. A seven-point
Likert scale was used to operationalize all constructs used in this research. The questionnaire used in this
research is provided in Appendix.

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Sharma and Bhat 7

Table 2. Scale Development for SCRM Enablers

SCRM Enablers Measured Variables References

Risk Management Predictive analysis tools for SCRM Menczer (2003)
Governance (RMG) Use risk indices to monitor risks New Scale
continuously
Risk reporting and governance Richey et al. (2010)
procedures in place
Dissemination of risk management Richey et al. (2010)
practices through manuals
Information Visibility (IV) Inventory levels are visible throughout Lee and Whang (2000)
supply chain (SC)
Demand information is visible Swaminathan and Tayur (2003)
throughout SC
Transportation visibility across the SC Blakhurst (2005)
Contingency Planning Command group to analyze end-to-end Fawcett et al. (1996); Wang et al. (2008)
operations
Maintain organizations emergency plans Helferich and Cook (2002); Richey (2009)
Keep control of the organization at New Scale
all times
Defined contingency plan responsibilities Helferich and Cook (2002); Richey (2009)
Post-event analysis and lessons learned Fawcett et al. (1996)
SC Alignment (SCA) Defined meeting to share KPI Kampstra et al. (2006)
Partners priority on cost and delivery Olvera (2008)
matches
Customers priority on delivery matches Olvera (2008)
suppliers priority on delivery
Defined communication network New Scale
protocol
Supplier ordering processes match Olvera (2008)
with us
Cost pressure is borne by suppliers only Narayana and Raman (2004)
We educate our suppliers on SC risks New Scale
Our suppliers keep inventories for us Lee (2004); Tang & Tomlin (2008)
Risk and reward are shared Lee (2004); Tang & Tomlin (2008)
Source: Authors calculation.

Data Analysis and Discussion

Exploratory factor analysis (EFA) using varimax rotation method was used and this analysis extracted
four factors. All the four factors with their loadings and Cronbachs alpha (to measure reliability of con-
structs) values have been shown in Table 3.
From factor analysis using EFA, we extracted four SCRM enabling factors, namely, Risk Management
Governance, Information Visibility, Contingency Planning and Supply Chain Alignment. Risk
management governance factor loadings except on one item, namely, Using risk indices to monitor risk
(RM2), are more than 0.6. Information visibility factor loadings are greater than 0.75 and Cronbachs
alpha is slightly less than 0.7, that satisfies threshold criteria of reliability and validity. Contingency
planning factors variable CP5 (There is post-event analysis and lessons learned) is deleted from

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Table 3. Factor Loading and Cronbachs Alpha for SCRM Enablers

Construct Item Name Reliability Factor Loading Item Deleted

Risk Management RM1Having predictive analysis tools for 0.865 0.743
Governance (RMG) SCRM
RM2Use risk indices to monitor risks 0.574
continuously
RM3Having risk reporting and governance 0.774
process
RM4Dissemination of RM practices through 0.768
manuals
Information IV1Inventory levels are visible throughout 0.696 0.758
Visibility (IV) the supply chain (SC)
IV2Demand levels are visible throughout 0.764
the SC
IV3Transportation visibility 0.761
Contingency CP1Command group to analyze end- 0.737 0.644 CP5Post-
Planning (CP) to-end SC operations event lessons
CP2Maintain the organizations emergency 0.857
plans
CP3Keep control of the organization 0.819
at all times
CP4Defined contingency responsibilities 0.812
Supply Chain A1Defined meeting to share KPI 0.846 0.710 A8 and A9
Alignment (SCA)
A2Customers priority on cost matches 0.619
suppliers priority on cost
A3Customers priority on delivery matches 0.628
suppliers priority on delivery
A4Defined communication network protocol 0.688
A5Suppliers ordering processes match 0.663
with yours
A6Cost pressure is borne by suppliers only 0.646
A7We educate our suppliers on SC risks 0.579
Source: Authors calculation.
Note: KaiserMeyerOlkin (KMO) value = 0.831, variance explained = 67.67 per cent.

contingency planning factor. Supply chain alignment variables factor loadings, except A8 and A9
(suppliers keep inventories and risks and rewards are shared), are greater than 0.579. Variables A8 and A9
were deleted from SCA factor.
Initially, for RMG factor, four items; for IV factor, three items; for CP factor, five items, and for SCA
factor, nine items were taken for conducting the survey of automotive SCM professionals. Exploratory
factor analysis results have been shown in Table 3. One of the items in contingency planning factor
CP5 (There is post-event analysis and lessons learned) is deleted due to poor factor loading. The reason
for this deletion may be that contingency planning is about preparing plans and preparing resources
to cope with unforeseen events. Managers in SCM domain did not find a good correlation between
post-event analysis and lessons learned with other variables of contingency planning factor. Similarly,
SCA variables A8 (suppliers keep inventories) and A9 (risks and rewards are shared) are deleted because
of poor loading on SCA factor. These two variables were taken from Lee (2004). These two variables

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Sharma and Bhat 9

Table 4. SCRM Maturity Model Levels

Stage 6 Risk management perceived to be an enabling capability for the organization with clear knowledge
sharing and continuous improvement
Stage 5 Integrated processes implemented across the organization and embedded with business planning
systems
Stage 4 Formal and consistent processes established across the organization
Stage 3 Basic frameworks and processes being implemented in parts of the organization with inconsistent
results
Stage 2 Organizations are aware of risks but no structured responses implemented
Stage 1 Organizations are not aware of risks
Source: Authors calculation.

present the extent of collaboration among the SC partners, not the SCA. Respondents in this study also
expressed that A8 and A9 variables did not explain the sufficient variance in SCA factor.
Managers were asked to rate SCRM maturity level of their SCs. Six levels of maturity (levels 16)
and their description of SCRM maturity level that were provided to mangers are as follows. In this
research, to measure SCRM maturity level, the framework provided by Kinaxis was used. This frame-
work defines six levels to express SCRM maturity level. The definition of six SCRM maturity levels
is given in Table 4. Stage 1 indicates lowest level of SCRM maturity and stage 6 indicates the highest
level of SCRM maturity.
In this research, 79 automotive firms (OEMs and component manufacturing) participated. The last
question of the survey was on SCRM maturity level. Respondents were required to indicate the level or
stage that best described their companys SCRM maturity level.
An analysis on SCRM maturity level in Indian automotive SC is shown in Figure 1.
It is evident that no firm is on level 6 and very few companies (only 4.68 per cent) are on level 5.
It is also evident that firms are aware about SC risks. Only 1.87 per cent firms, meaning 1 out of 79
surveyed firms, did not know about the SC risks. Recent SC disruptions and increasing importance of
SCM competitiveness enhanced awareness about the SC risks and companies have started to identify
and measure the SC risks.
Most of the companies (who participated in the survey) lie on two levels. Figure 1 shows that 49.54
per cent firms were on level 3 and 34.58 per cent firms were on level 4. To make the analysis simple, we
created two levels in SCRM maturity model. Levels 13 are named as low SCRM maturity levels and
levels 46 are labelled as high SCRM maturity levels. So, we club the number of firms at levels 1, 2 and
3 to get the number of firms in low SCRM maturity level; 60.76 per cent or 48 firms out of the total
79 firms were in the low SCRM maturity level. Similarly, we club levels 4, 5 and 6 to get the number
of firms in high SCRM maturity level; 39.24 per cent or 31 firms were on high SCRM maturity level.
Supply chain risk management enablers affect the level of SCRM maturity. Supply chain risk
management maturity level can be taken as a dependent variable, which is categorical in nature and
all four SCRM enablers are taken as independent variables. Factor scores were computed for all four
factors using a multi-item summated scale. To analyze the effects of enablers (information visibility,
SCA, contingency planning and RMG) on SCRM maturity level, a two-group discriminant analysis
was conducted. Logistic regression (LR) is also used to predict a discrete outcome such as group mem-
bership from a set of variables that may be continuous, discrete, dichotomous or a mix, whereas the goal
of the linear discriminant analysis (LDA) is to predict group membership from a set of predictors, which
are continuous (Tabachnick & Fidell, 1996). The LR may be better suitable for cases when the dependant

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10 Global Business Review 17(4)

Figure 1. Percentages of Companies Showing Different Levels of SCRM

Source: Authors calculation.
Notes: 6: Risk management perceived to be an enabling capability for the organization with clear knowledge
sharing with continuous improvement.
5: Integrated processes implemented across supply chain.
4: Formal and consistent processes established across the organization.
3: Basic framework and processes being implemented in parts of the organization.
2: Organizations are aware of risks but no structured responses implemented.
1: Organizations are not aware of risks.

variable is dichotomous, such as yes/no, pass/fail, healthy/ill and life/death, while the independent vari-
ables can be nominal, ordinal, ratio or interval. The discriminant analysis might be better suited when the
dependant variable has more than two groups/categories. However, the real difference in determining
which one to use depends on the assumptions regarding the distribution and relationship among the
independent variables and the distribution of the dependent variable. The LR is much more relaxed and
flexible in its assumptions than the discriminant analysis. Logistic regression makes no assumptions on
the normality of explanatory variables, while LDA has been developed for normally distributed explana-
tory variables. It is, therefore, reasonable to expect LDA to give better results in the case when the nor-
mality assumptions are fulfilled, but in all other situations LR should be more appropriate (Grimm &
Yarnold, 1995). In this research, all explanatory variables normality is tested through normal probability
plot, so we used LDA for analyzing predicting power of SCRM enablers.
Two group discriminant analysis results are shown in Table 58.

Table 5. Canonical Discriminant Functions

Eigenvalues
Function Eigenvalue % of Variance Cumulative % Canonical Correlation
1 0.702 100.0 100.0 0.642
Source: Authors calculation.

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Sharma and Bhat 11

Table 6. Classification Results

Predicted Group Membership

Cluster 2 1 2 Total
Original Count 1 35 13 48
2 0 31 31
% 1 76.2 23.8 100.0
2 0 100 100.0
Source: Authors calculation.

Table 7. Test of Equality of Group Means

Wilkss Lambda F df1 df2 Sig.

RMG 0.823 16.511 1 77 0.000
IV 0.650 41.504 1 77 0.000
CP 0.799 19.416 1 77 0.000
SCA 0.694 33.952 1 77 0.000
Source: Authors calculation.

Table 8. Structure Matrix

Function
1
IV 0.877
SCA 0.793
CP 0.600
RMG 0.553
Source: Authors calculation.

It may be noted that Wilkss Lambda is 0.711, which transforms to a chi-square of 25.56 with 4
degrees of freedom. This is significant at 0.000 level. All the discriminant loadings for all SCRM ena-
blers are significant at 0.000 level. There are two groups, only one discriminant function is estimated.
The eigenvalue associated with this function is 0.702. The canonical correlation associated with this
function is 0.642. The square of this correlation, (0.642)2 = 0.412, indicates that 41.2 per cent of variance
in the dependent variable level of SCRM is explained or accounted for by this model.

Managerial Implication
Supply chain risk management level was taken as a dependent variable, which is categorical in nature
and SCRM enablers were taken as independent variables. The discriminating power of enablers is shown
in Figure 2. The magnitude of standard canonical discriminant function coefficients shows relative
importance of enablers in discriminating groups (two groups, namely, low and high SCRM level).
The relative importance of enablers can also be obtained by examining structure correlations. Structure
matrix presents the level of importance of predictor variables (enablers). Information visibility is the

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12 Global Business Review 17(4)

Figure 2. Discriminating Power of Risk Mitigation Enablers on SCRM

Level
Source: Authors calculation.

most important enabling variable and second is the SCA which is followed by contingency planning.
All predictor variables (enablers) are positive; this suggests that higher the values of predictor vari-
able (enablers), higher the value of SCRM. The relative importance of enablers provides guidelines to
managers about the areas they need to focus more for moving their SC from low to high level of SCRM.
Supply chain risk management level refers to the extent of a firms SCRM strategic position.
The discriminating power of enablers is shown in the structure matrix. The discriminating power of
enablers is in the order of information visibility, SCA, contingency planning and RMG. Lee (2004)
stated that agile and adaptable SCs invest in technologies, which provide data access across the SC part-
ners. Faisal et al. (2006) provided support to our research that to mitigate SC risks, information sharing
is essential, which results in trust among the SC members and ultimately leads to a collaborative relation-
ship. To mitigate uncertainty, companies need to formulate information sharing strategy with appropriate
tools/techniques to make information visible across the SC. Formulation of information sharing strategy
and mutual adjustments have a significant impact on the SC uncertainty (Hung, Ho, Jou & Tai, 2011).
Our research also indicates that if automotive SCs want to increase the SCRM level, they need to start
thinking and acting on information visibility among SC partners. Faisal et al. (2006) mentioned that
information visibility enables the SC relationships to mature on a continuum of collaboration and
partnership. This would help them in making strategic plans for SCRM, but this needs alignment of

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Sharma and Bhat 13

risks, rewards and incentives. In our research, the second-most important enabling factor is SCA.
For effective and successful implementation of SCRM, companies should think about alignment of
risk and reward, business processes and performance metric among SC members. Here, the scope of
alignment is not only limited to riskrewards alignment but also covers business processes alignment,
and SC members should look at one holistic SC performance metric. Business process alignment signifi-
cantly reduces misalignment between SC partners on competitive priorities and improves communica-
tion among SC partners (Vachon, Halley & Beauliu, 2009). The third important enabling factor in SCRM
is contingency planning. Even though companies are now working as partners and the entire SC is
working like a single unit, unknowns can disrupt the whole SC and tarnish the SC image. To deal with
these kinds of issues, companies should have contingency plans ready to cope with unknown SC disrup-
tions. Scenario planning and sensitivity analysis are used by companies to tackle these issues. Automotive
SCs should have alternative plans to mitigate the effect of unknowns, if they occur. Once, all three ena-
blers are in place, then companies can think about risk management governance, which is least important
enabler in SCRM implementation. Roles and responsibilities are fixed up for all partners to effectively
deal with SC risks. The Committee of Sponsoring Organizations of the Treadway Commission (COSO)
(2004) provided a risk management framework for enterprise risk management. Similarly, SC should
have an RMG model, which will provide guidance and assurance of risk management from
SC perspective. Though findings of this research study are applicable to Indian automotive industry,
the framework proposed in this research can be used by other industries also. In this research, we
found relevant variables for SCRM implementation that assist managers in identifying antecedents that
will help managers in SCRM implementation. The same study with proposed framework can be carried
out in other industries and the relative importance of the SCRM enablers can be explored.

Conclusion and Future Scope of Research

Research findings provide a guiding framework to look at risk mitigation enablers consequently.
Supply chain management managers can counter risks and can implement SCRM successfully if they
understand the importance of SCRM enablers. The magnitude of standard canonical discriminant func-
tion coefficients shows relative importance of enablers. Information visibility is the most important
enabling factor and second is the SCA which is followed by contingency planning. All predictor varia-
bles (enablers) are positive; this suggests that higher the values of predictor variable, higher the value of
SCRM maturity. This study was carried on automotive firms and can be generalized to Indian automo-
tive industry. This study explains 41.2 per cent of variance only. There may be other significant factors
which influence SCRM level, surely barriers affect SCRM level negatively and variance explanation
can be improved by incorporating barriers in research study. Limitations of the study are specific to
automobile industry and specific country. Similar studies can be carried out in other sectors and research
findings can be generalized.

Acknowledgement
I am grateful to the anonymous referees of the journal for their extremely useful suggestions to improve the quality
of the article. Usual disclaimers apply.

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14 Global Business Review 17(4)

Appendix
Q1. Please indicate the extent of disagreement or agreement on the following key strategies/practices in relation
to your organizations supply chain.
Strongly Disagree Strongly Agree
SCRM Enablers 1 2 3 4 5 6 7
We maintain inventory levels are visible throughout
the supply chain (SC)IV1
We keep control of the organization at all timesCP3
We maintain transportation visibilityIV3
Command group to analyze end-to-end SC operationsCP1
Demand levels are visible throughout the SCIV2
We maintain the organizations emergency plansCP2
We do conduct defined hierarchical meetings to
share key performance indicators (KPI)SCA1
We have defined contingency plan responsibilitiesCP4
There is post-event analysis and lessons learnedCP5
We do have risk reporting and governance processRM3
Our customers priority on cost matches with our
suppliers priority on costSCA2
Our customers priority on delivery matches with
our suppliers priority on deliverySCA3
We use risk indices to monitor risks continuouslyRM2
We do have defined communication network protocol
for our suppliersSCA4
Your suppliers ordering processes match with your
companys ordering processesSCA5
We educate and train our SC partners for SC risksSCA6
We do have predictive analysis tools for SCRMRM1
Cost pressure is borne by our suppliers onlySCA7
Our suppliers keep inventories, and risks and rewards
are shared by usSCA8
If distributors perform on inventory turnover ratio,
incentives are given to themSCA9
We disseminate risk management practices through
manualsRM4

Q2. Which of the following would you say best describes the current stage of development of your organizations
supply chain risk management strategy and framework? (Please tick any one option)
Stage Stage Description
6 Risk management perceived to be an enabling capability for the organization with clear knowledge
sharing and continuous improvement
5 Integrated processes implemented across the organization and embedded with business planning
systems
4 Formal and consistent processes established across the organization
3 Basic frameworks and processes being implemented in parts of the organization with inconsistent results
2 Organizations are aware of risks but no structured responses implemented
1 Organizations are not aware of risks

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Sharma and Bhat 15

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