The role of supply chain diversification in mitigating the negative effects of supply chain disruptions in COVID-19
International Journal of Operations & Production Management
ISSN: 0144-3577
Article publication date: 27 April 2023
Issue publication date: 2 January 2024
Abstract
Purpose
This study examines the firm-level financial consequences caused by supply chain disruptions during COVID-19 and explores how firms' supply chain diversification strategies, including diversified suppliers, customers and products, moderate the negative effect on firm performance.
Design/methodology/approach
Based on data drawn from 222 publicly traded firms in China, the authors use event study methodology to estimate the effects of supply chain disruptions on the financial performance of affected firms. Regression analyses are conducted to examine the moderating effects of supply chain diversification.
Findings
Firms affected by supply chain disruptions during COVID-19 experienced a significant decline in shareholder value in two weeks and a subsequent decrease in operating performance in one year. Diversified suppliers, customers and products act as shock absorbers to alleviate the negative effects. Further regression shows a substitution effect between customer and product diversification. Cross-industry comparisons reveal that service firms experienced more loss than manufacturing firms. Customer diversification mitigates the adverse effects of supply chain disruptions for both manufacturing and service firms. Supplier diversification exerts a noteworthy role in manufacturing firms, while product diversification is beneficial for service firms.
Originality/value
The study provides empirical evidence on the magnitude of financial consequences of supply chain disruptions during COVID-19 in both the short term and long term and enriches the current understanding of how to build resilience from the supply chain diversification perspective.
Keywords
Acknowledgements
This research was supported by National Social Science Fund of China [grant number 21BGL013].
Citation
Wang, Q., Zhou, H. and Zhao, X. (2024), "The role of supply chain diversification in mitigating the negative effects of supply chain disruptions in COVID-19", International Journal of Operations & Production Management, Vol. 44 No. 1, pp. 99-132. https://doi.org/10.1108/IJOPM-09-2022-0567
Publisher
:Emerald Publishing Limited
Copyright © 2023, Emerald Publishing Limited