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Supply chain
Supply chain risk management risk management
dimensions in Indian dimensions
automobile industry
A cluster analysis approach 1023
Satyendra Kumar Sharma and Anil Bhat Received 10 November 2012
Revised 28 February 2013
Department of Management, Accepted 18 March 2013
Birla Institute of Technology and Science (BITS) Pilani, India

Abstract
Purpose Globalization and outsourcing have rendered Indian automotive companies more
vulnerable to supply chain (SC) risks. Consequently, companies adopt different supply chain risk
management (SCRM) strategies to mitigate SC risks. The purpose of this paper is to explore SCRM
strategies in Indian automobile industry and to classify automobile firms based on SCRM dimensions.
Design/methodology/approach A survey instrument on SCRM dimensions was designed and
data were collected from 79 automobile firms. Principle component analysis (PCA) was performed on
the collected data to derive the factors underlying SCRM dimensions. Further, cluster analysis using
extracted factors as a clustering variate was performed to identify strategic groups from the given
set of firms.
Findings PCA derived seven factors, namely: avoidance, supplier development, flexibility,
risk pooling, redundancy, integration and control strategies. The surveyed firms were classified into
two clusters as low and high SCRM level.
Research limitations/implications A limitation of this study is that data were collected from
a single industry and in a single country.
Practical implications Understanding of SCRM dimensions shall increase the use of these
dimensions and firms can mitigate negative effects of SC risks. The detailed operationalization of
SCRM strategies highlights the importance of three strategies: avoidance, integration and supplier
development. Managers understanding of SCRM strategies will improve the firms performance and
business excellence.
Originality/value This research empirically validates SCRM strategies and investigates how these
create differences among firms.
Keywords Competitive strategy, Factor analysis, Operations management, Survey,
Strategic evaluation, Cluster analysis, Strategies, Supply chain risk
Paper type Research paper

1. Introduction
Supply chains (SCs) are becoming more complex and interdependent. Recent trends
such as market globalization, reduced product life-cycle, reduced supply base,
necessity to be lean, excessive use of outsourcing and off-shoring have all contributed
to increased risks to SCs ( Juttner, 2005; Manuj and Mentzer, 2008; Craighead et al.,
2007). The event study conducted by Hendricks and Singhal (2005) indicated that SC
disruptions affected SC performance negatively by 8 percent. Therefore, it is vitally
important to support SCs, so that the rate of disruptions can be minimized and Benchmarking: An International
recovery time from SC disruptions can be improved. Companies across the globe Journal
Vol. 21 No. 6, 2014
have started to pay attention to supply chain risk management (SCRM). SCRM is pp. 1023-1040
r Emerald Group Publishing Limited
a coordinated process among SC members which reduces the likelihood of risky events 1463-5771
and reduces the negative consequences on business after occurrence of risky DOI 10.1108/BIJ-02-2013-0023
BIJ events (Kleindorfor and Saad, 2005). The SCRM process may be viewed as a business
21,6 continuity plan, and it also entails the generic steps of risk management processes,
such as risk identification, risk assessment, risk mitigation plans and continuous
monitoring (Tummala and SChonehherr, 2011). SCRM is the management of risks in
such a way that entails both strategic and operational horizons for the long and short
term (Lavastre et al., 2012). So, SC risk mitigation is a critical element in SCRM.
1024 A recent survey by the Aberdeen Group (2012) describes how business organizations
do not have a fair understanding of SC risk mitigation strategies. They also do not have
the metrics or methodology for the selection of the right kind of SCRM strategies.
SCRM literature discusses the various SC risk mitigation strategies and typologies, but
it lacks information regarding how these strategies determine SCRM best practices.
Different companies adopt different strategies to mitigate their SC risks. Firms can
adopt risk management strategies which they use in a single organization in the
context of their SC. Risk mitigation strategy selection is based on a supply and demand
environment which may be characterized by low and high uncertainty.
In this paper, the second section presents a comprehensive review of SCRM
strategies. Companies gain a competitive advantage by having a SCRM strategic
perspective (Christopher and Lee, 2004). Companies in the same industry, exhibiting
the same strategic perspective, need to be investigated, and this should be linked to
company performance. The purpose of this paper is to uncover clusters in the industry
with the same SCRM position, so that firms can begin to understand their strategic
position with regard to SCRM, and can plan how to move to a higher SCRM level.
In the third section, the research methodology used to answer the mentioned
research questions has been presented. In the fourth section data analysis results have
been presented, then through a discussion of the findings, the managerial implications
have been drawn and presented. In the last section of the paper conclusions and future
scope of research have been provided.

2. Literature review
The objective of SC management is to consider the whole SC and maximize value to the
end customer (Lambert and Cooper, 2003). Any disruption at any stage of the SC may
affect the ultimate objective of the SC itself. Identifying SC risks and then finding their
probability and assessing their impact on the business is quite difficult. Therefore,
managers underestimate the importance of SCRM strategies and avoid investing in
them ( Juttner et al., 2003). Once the risks are assessed, a number of strategies can be
used to manage risks. These include: transferring risk, taking on the risk, eliminating
risk, reducing risk and subdividing risk (Hallikas et al., 2004).
Next we describe the various types of SCRM strategies suggested by various
authors.
Tang (2006) suggested that robust SC risk mitigation strategies could enable firms to
deploy their associated contingency plans efficiently and effectively when faced with
a disruption. Authors presented various topologies of SC risk mitigation strategies. The
topologies suggested by SCRM authors depend on the SC and the environmental context
of the focal firm. For example, Manuj and Mentzer (2008) suggested six SCRM strategies
for global SCs based on different supply and demand side environments. These
strategies are postponement, speculative, hedging, control, security and avoidance.
Table I displays the SCRM strategies suggested by various authors.
Unfortunately, there is no unanimity among researchers in classifying SC risk
mitigation strategies. Instead, managers need to gain a greater understanding of
Author SCRM strategies
Supply chain
risk management
Chopra and Sodhi (2004) Excess capacity, redundant suppliers, responsiveness, flexibility,
aggregation, more customer accounts, increase capability
dimensions
Cucchiella and Gastaldi Various real options like defer, stop resume. Explore, lease, outsource
(2006) and alter
Tang (2006) Postponement, product management, and product substitution
Goldsby et al. (2006) Leagile supply chain strategies
1025
Peck (2005) Avoidance, cooperation, control, flexibility
Manuj and Mentzer Postponement, speculation, hedging, share/transfer control, security and
(2008) avoidance
Ji and Zhu (2008) Supply mgmt., demand mgmt., product mgmt., and information mgmt.
Thun and Hoeing (2011) Proactive strategies and reactive strategies
Lavastre et al. (2012) Provided a long list of actions required for supply chain risk mitigation,
not specific set of strategies
Table I.
Source: Authors SCRM strategies

SCRM strategies for a given risk or situation. An analysis of the impact of various
mitigation strategies on various risks clearly shows that each risk mitigation strategy
has limitations and there is a need to identify specific strategies for specific risks
(Chopra and Sodhi, 2004). Most researchers are unanimous in their belief that input and
output market uncertainties are important risks to consider when designing modern
SCs (Lee, 2004). SCRM literature predominantly highlights the two ways of reducing
SC risk: reducing the frequency of occurrence of risky events (proactive strategies) and
reducing the negative consequences of risky events after their occurrence (reactive
strategies).
The following subsections presents the SCRM strategies.

2.1 Proactive strategies

Proactive strategies are decisions and activities that are aimed toward reducing the
probability of disruptions. Proactive strategies are implemented prior to the occurrence
of the risky events in a SC. The proactive strategies discussed in the literature
are below.
2.1.1 Avoidance. Avoidance occurs when the risks associated with operating in
a given product market or geographical area are considered to be unacceptable (Miller,
1992). From a SC perspective, avoidance can be related to products/geographical
markets, and supplier or customer organizations. A company could avoid specific
products, suppliers or geographical markets if the supply seems too unreliable. Each
supplier should be rated before selection not only on quality, price and delivery time
dimensions, but also on their business continuity plan (Smeltzer and Siferd, 1998).
2.1.2 Investment in developmental activities. Given the impact suppliers have on
a companys performance, it is important to know about ones suppliers. Companies
who invest in supplier development gain improvements in supply performance. This
consideration becomes critical if a supplier is supplying mission critical components
(Smeltzer and Siferd, 1998). Resource dependency theory explains that when a firm
becomes too dependent on some firms, it causes risk to the dependent company. Too
much dependence on one supplier might cause disruptions, but close relationships
with suppliers increase efficiency. Supplier development develops trust between the
supplier and the buyer that mitigates risks, and the supplier has an incentive to remain
BIJ committed to the relationship. Technologies such as radio frequency identification tags
21,6 on containers and global positioning systems can help in enforcing security.
2.1.3 Control strategy. Contract enforcement specifies the parameters governing the
buyer supplier relationship. Transaction cost theory views negotiating, monitoring and
enforcing contracts as transactions, all of which have associated costs. By reducing
the number of transactions, the management can reduce the associated costs (Hill,
1026 1990). By enforcing contracts, buyer companies can reduce the transaction costs and,
simultaneously, contract enforcement reduces supplier opportunism. Supplier
opportunism is a condition whereby a supplier steals, hides or distorts information
in a transaction (Willamson, 1986).
2.1.4 SC integration. Integrated SCs are better off when it comes to handling
disruptions. Lee et al. (1997) investigated the distinct contribution of integration with
customers and suppliers on SC performance such as cost containment and reliability.
Kim (2006) suggested an aggregate construct of integration and demonstrates that
integration relates positively to performance and customer satisfaction. The work of
Frohlich and Westbrook (2001) describes differentiation between customer and
supplier integration and presents an arch of integration (degree of integration), which
is related positively to SC efficiency. Kannan and Tan (2010) not only classified the arch
of integration, but also showed the impact of a broad span of integration on several
dimensions of performance. In the literature, it not clearly defined that SC integration
leads to SCRM.

2.2 Reactive strategies

Reactive strategies create capability within a SC to mitigate the effects of a disruption
after the occurrence of said disruption. These strategies are built on the principle of SC
recovery, which provide options that can allow a company to offset its losses in part of
a SC by gains from available alternatives (options).
2.2.1 Flexibility. Nordahl and Nilsson (1996) classified flexibility into external
flexibility and internal flexibility. Authors further divided external flexibility into four
different classes: product flexibility, mix flexibility, volume flexibility and delivery
flexibility, and internal flexibility into two levels, namely, production system flexibility
and resource system flexibility. Several studies, including Fawcett et al. (1996), Goldsby
and Stank (2000), Fredericks (2005) and Swafford et al. (2006) have found that
organizations characterized by higher levels of flexibility are more capable of
responding to unexpected events when compared to their non-flexible counterparts.
Firms can also use flexibility strategies as a proactive strategy to compete (Tang and
Tomlin, 2008). Toyota maintains excess capacities in its Thai and Indian plants. The
company changes its capacity utilization based on the rate of respective country
currency value in the global market.
2.2.2 Redundant resources. Excess inventory can mitigate disruptions without
affecting normal SC operations. Excess inventory in the form of safety stocks is used to
mitigate the effects of supply and demand uncertainty. Companies have now started
to revisit the JIT inventories. Ideal inventories save a companys reputation in case
of a crisis. A common method for building redundant resources is the use of safety
stocks (Sheffi and Rice, 2005). Building redundant resources increases flexibility, and
works like a reactive instrument for SCRM (Rice and Caniato, 2003).
2.2.3 Risk pooling strategies. If the underlying supply mechanism is inflexible,
specifically in the service industry where supply capacities are fixed, companies use
different demand management strategies so that they can manipulate uncertain
demand dynamically to match demand with supply. Under demand management Supply chain
strategies, pooling the demand uncertainty shapes the uncertain demand smoothly. risk management
Demand management strategies are examined by Carr and Lovejoy (2000) and
Mieghem and Dada (2001). Demand management strategies are designed to generate dimensions
one or more of the following effects:
. shifting demand across time;
. shifting demand across markets; and
1027
. shifting demand across products.

3. Research methodology
A survey instrument was designed to measure seven SCRM strategies derived from
the literature review: namely, avoidance, control, supplier development,
integration, flexibility, redundancy and risk pooling. An exhaustive literature
review was conducted in the areas of operations management and SC management
to identify relevant constructs and operational definitions of constructs. To measure
SCRM strategies, suitable items were chosen from the literature, which has been
discussed in the literature review section. We adapted existing questions to measure
avoidance (three item scale developed by Miller, 1992), supplier development (three
item scale developed by Smeltzer and Siferd, 1998), control (three item scale developed
by Hill, 1990; Willamson, 1986), SC integration (five item scale developed by Frohlich
and Westbrook, 2001), flexibility (five item scale developed by Nordahl and Nilsson,
1996), redundant resources (three item scale developed by Sheffi and Rice, 2005) and
risk pooling (four item scale developed by Carr and Lovejoy, 2000). A questionnaire
was created for each measured variable of SCRM strategies in a seven-point
Likert scale, where 1 means completely disagree and 7 means completely agree.
The questionnaire was operationalized in the Indian automobile industry. In
the subsequent stage of scale development, interviews with five industry experts in the
area of SCM and three academic persons were conducted. The content validity of
the questionnaire was assured through prior data collection. The language of certain
questions was modified. This data were not enough for statistical reliability and
validity tests. The main survey was conducted in a conference, where Indian auto SCM
professionals met and discussed automotive SC issues, challenges and solutions.
This was the perfect setting for data collection for this study because of the executives
knowledge sharing mood. More than 300 automobile SCM professionals participated in
the conference. A short presentation about SCRM research was given to all participants
and attendees were requested to participate in the survey. The net response was
79 after cancelling multiple responses from the same company. The Indian automobile
industry comprises 44 OEMs, 46 auto suppliers (turnover more than 500 core) and
76 logistics service providers (whose turnover is more than 500 core). In the population
size of 166, the companies net sample of 79 firms is fairly representative, when
all the sampling units belong to same industry in this case the automotive industry.
We also included three important elements in our sample. The returned questionnaires
were tested for their completeness.
A brief profile of returned questionnaire is as follows (Table II).
The Data collected through the questionnaire survey were compiled in an
excel sheet. SPSS version 19 was used to analyze the data, and missing values
were inserted with the average value of that particular variable. Data collected from
the questionnaire survey was tested on reliability (Cronbachs a) and validity
BIJ No. of Companies
21,6 Sales ($)
100 million under 250 million 18
250 million- under 500 million 22
500 million and above 39
No. of employees
100 under 500 15
1028 500 under 1,000 35
1,000 under 5,000 20
5,000 above 09
Category of respondents
Table II. Supply chain/logistics 30
Profile of surveyed Production 17
companies Purchasing/procurement officers 32

(factor loadings calculated using principal component analysis) by using SPSS version
19. Exploratory factor analysis (EFA) using principal component analysis method was
used to test the convergent validity of SCRM strategy constructs. Cronbachs a and
factor loading scores are shown in Table III.
Cluster analysis has been used to classify a set of objects into two or more groups
based on the similarity of the objects for a set of specified characteristics (Everitt
et al., 2001; Hair et al., 1984). Hierarchical agglomerative clustering method using
Wards method was used in this research. Clustering variables selection is crucial
because irrelevant variable selection may distort useful cluster analysis.
Agglomeration coefficient method was used to determine the appropriate number
of clusters. Cluster analysis has been criticized from a validity perspective due
to its high reliance on the researchers judgment. In this research, the criterion
validity (relationship with external variables, not used in the clustering process) was
used to establish cluster solution validity. Later on, emerged clusters were profiled
on several exogenous variables which have not been included in clustering or
criterion validity.

4. Data analysis and discussions

In this section, instruments of SCRM are examined. The results of reliability and the
validity of SCRM instruments is presented in Table III. This table includes reliability
evaluation and principle component analysis (PCA) results.
Reliability was determined using Cronbachs a for items. For all items, Cronbachs a
lies between 0.609 and 0.898. As a rule of thumb, coefficients of above 0.6 are
acceptable. The validity results satisfy standards of convergent validity (i.e. items load
on unique components with factor loading 40.5). PCA analysis results showed seven
significant SCRMS factors. These seven factors were named as integration strategy,
flexibility strategy, supplier development strategy, risk pooling strategy,
redundant resources strategy, avoidance strategy and control strategy. The
development strategy factors a value was 0.781, which is greater than the threshold
value of 0.60. For a newly developed scale an a near 0.6 is also acceptable (Sakakibara
et al. 1997). Integration strategy factor reliability improves from 0.898 to 0.955, if
item I1 (we use cross functional teams) is deleted. Except for this item, all other items
converged on an integration strategy factor. Similarly for the other SCRM strategy
constructs, items which converged on respective factors are shown in Table III.
 Factor
Supply chain
Construct Item Reliability loading risk management
Integration I2-Internal management communicates frequently with partners 0.898 0.944
dimensions
strategy I3-When problems occur, face to face meetings happen 0.911
I4-Joint efforts to prepare supply chain continuity plans 0.889
I5-Joint efforts to share risk related information 0.777
Flexibility F4-Produce different product types without major changeover 0.751 0.870
1029
F5-Chage over quickly from one product to another 0.808
F3-Producing wide variety of products in plants 0.798
F2-Operating efficiently with different product level 0.603
Supplier S3-Early involvement of supplier in product design 0.752 0.851
development S2-Investing in supplier development 0.851
S1-Making production and inventory plans jointly with suppliers 0.559
Risk pooling RP2-Revenue management through dynamic pricing 0.721 0.832
RP3-Product rollover strategies 0.821
RP4-Insure against losses 0.612
RP1-Aggregating demand across customers 0.503
Avoiding A2-Avoiding unreliable suppliers 0.681 0.865
A3-Avoiding suppliers in politically and geologically unstable 0.830
regions
A1-Creating facilities at safe locations 0.538
Redundant R1-Operating with excess capacity 0.637 0.844
resources R2-Using multiple sourcing 0.689
R3-Excess inventory/buffers
Control C2-Enforce tight security plans 0.609 0.699
strategy C1-Enforcing contracts with suppliers 0.766
C3-Using localized sourcing 0.568 Table III.
I1 (C4)-Use cross functional teams to solve problems 0.565 Factor analysis and
reliability of SCRM
Notes: KMO value 0.787; variance explained 77.7 percent strategies

EFA using PCA extracts the seven major factors from the SCRMS data set. Table III
shows that the measures included in this study are satisfactory for testing the
hypotheses. Research by Thun and Hoeing (2011) classified SCRM strategies into
preventive and reactive instruments. Zsidisn and Wagner (2010) studied the
moderating role of flexibility and redundant strategies on disruption occurrence.
There is no study in the literature that classifies SCRM strategies in a more
comprehensive way. This research classified the SCRM strategies by seven major
factors. Mean factor scores for SCRM strategies were calculated for further analysis.
Hierarchical clustering using Wards method was applied on seven SCRM factors.
Resulting clusters were described based on scores of SCRM strategies.
The quantitative data were clustered according to seven factors of theoretical
framework and mean SCRM strategy score is shown in Table IV. Agglomerative
cluster analysis revealed two cluster solutions. Statistical significant differences exist
between two clusters on five factors except flexibility and risk pooling. This analysis
describes how companies differ on SCRM strategies and how they can move from
one cluster to another cluster (low SCRM level to high SCRM level). This will be of
particular interest to the practitioners who can identify better practice guidelines when
working with SCRM. The dendogram has been shown in Figure 1.
Table IV shows results obtained from hierarchical cluster (performed in SPSS
version 19).
BIJ High SCRM Low SCRM
21,6 level level
(cluster 1) (cluster 2)

Cluster label
Mean cluster SCRM strategy score 4.43 3.56
No. of member relationship to cluster 42 37
1030 Cluster dimensions Mean levels of dimensions
Avoidance strategy 4.65 4.14
(Avoid unreliable suppliers, choose robust Suppliers with high quality)
Supplier development strategy 4.78 2.82
(Invest in supplier development involvement of supplier in product
design)
Integration 3.64 1.85
( Joint efforts to share risk related information)
Flexibility 4.69 4.38
(operate efficiently at different output levels multiple sourcing)
Redundancy 3.44 2.34
(excess capacity prod./storage, excess inventory)
Table IV. Risk pooling 4.37 4.30
Mean values of SCRM (Revenue management through dynamic pricing, insure against losses)
strategy factors Control 5.41 5.11
for each cluster (Enforce tight security plans and contracts with suppliers)

Two tailed t-test on the mean strategy score shows a significant difference ( p 0.000)
between two clusters. There is statistically significant difference between two cluster
means on all SCRM strategies except Flexibility and Risk Pooling strategies. t-Test
was performed to test the statistical significance of difference between two clusters on
different SC risk mitigation factors that were used in clustering. t-Test results have
been shown in Table V.
From the interpretation of results shown above, companies in Indian automobile
industry measured on SCRM strategies appeared to fall in two major clusters:
Companies having high SCRM level, and Companies having low SCRM level.
Cluster 1: this cluster contains 42 companies out of 79 surveyed companies. This
cluster scores a high value of SCRM strategy. Mean values of all its factors are also high.
On certain factors like supplier development, integration and redundancies mean score
for this cluster is quite high. Cluster1 companies scored high value on all SCRM
strategies. We can name cluster 1 as companies using high level SC risk management
because this group companies are scoring high on both preventive and reactive strategies.
Cluster 2: this cluster contains 37 companies out of 79 surveyed companies. This
cluster scored low values in comparison to cluster 1, on all clustering variables. These
companies use all strategies but the differences on avoidance, risk pooling and
flexibility are not as high as compared to other factors.
Two tail test provides the statistical significance of difference between two clusters
on seven SC risk mitigation strategies. There is statistically significant difference
between means of two clusters for avoidance ( p-value 0.007), supplier development
( p-value 0.000), integration ( p-value 0.000), and redundancy ( p-value 0.000).
Mean value difference of two strategies namely flexibility ( p-value 0.175), and risk
pooling ( p-value 0.767) is not statistically different. It means that flexibility and risk
pooling have become standard industry practice. Every firm in the dataset is following
 Supply chain
risk management
Dendrogram using Ward Linkage
Rescaled Distance Cluster Combine
dimensions
0 5 10 15 20 25
80
79 28
78
77
76
33
30
21
1031
75 43
74 41
73 40
72 78
71 7
70 29
69 39
68 77
67 22
66 52
65 56
64 10
63 37
62 24
61 12
60 14
59 71
58 23
57 4
56 5
55 6
54 16
53 31
52 32
51 73
50 26
49 27
48 8
47 20
46 25
45 35
44 36
43 34
42 49
41 74
40 48
Y

39 50
38 75
37 55
36 53
35 54
34 17
33 66
32 68
31 15
30 72
29 19
28 58
27 64
26 18
25 67
24 69
23 62
22 79
21 38
20 60
19 57
18 61
17 1
16 2
15 45
14 46
13 42
12 47
11 11
10 59
9 65
8 63
7 51
6 76
5 13
4 70
3 9
2 44
1 3
0 Figure 1.
Dendogram showing
cluster solutions
BIJ t-Test for equality of means
21,6 T df Sig. (two-tailed) Mean difference

A Equal variances assumed 2.792 77 0.007 0.507

Equal variances not assumed 2.797 76.270 0.007 0.507
S Equal variances assumed 8.661 77 0.000 1.974903474903474
1032 Equal variances not assumed 8.847 73.785 0.000 1.974903474903474
I Equal variances assumed 7.022 77 0.000 1.7915
Equal variances not assumed 7.286 63.267 0.000 1.7915
F Equal variances assumed 1.368 77 0.175 0.30534
Equal variances not assumed 1.360 73.282 0.178 0.30534
R Equal variances assumed 5.257 77 0.000 1.1026
Equal variances not assumed 5.452 63.655 0.000 1.1026
RP Equal variances assumed 0.297 77 0.767 0.06499
Equal variances not assumed 0.295 72.855 0.769 0.06499
C Equal variances assumed 1.727 77 0.088 0.2958
Equal variances not assumed 1.744 76.954 0.085 0.2958
Table V. Stra Equal variances assumed 8.852 77 0.000 0.863125
Significance test Equal variances not assumed 8.845 75.521 0.000 0.863125
results of clusters
on seven SCRM Notes: A, avoidance; S, supplier development; I, integration; F, flexibility; R, redundancy; RP, risk
strategy factors pooling; C, control

these strategies. Mean scores of clustering variables clearly describes that low SCRM
level companies also use flexibility and risk pooling strategies, that are generally used
as reactive strategies after any disruption occurrence. Companies that wish to move at
higher level of SCRM, need to think about adoption of proactive strategies like
avoidance, supplier development and integration. In other words flexibility and risk
pooling strategies have become the industry practice. By this analysis companies can
know their position on SCRM and design a plan for improving its SCRM level. It does
not mean that each company should try to move from low to high SCRM level. Each
risk mitigation strategy comes with cost and implementation of any SCRM strategy
depends on firms capability.
In order to seek richer patterns and to establish criterion validity, two external
variables were selected that could be used for linking with cluster solutions. There are
strong theoretical evidences that SCRM practices depend on an overall SC risk
exposure score and level of SC risk drivers (Manuj and Mentzer, 2008; Chopra and
Sodhi, 2004). Adoption of risk mitigation strategies depends on SC context, that is
measured by its level of risk exposure and factors influencing risk exposure.
We measured overall risk exposure of firms subjectively on seven-point Likert scale.
Statistical testing on relationship between these variables (exogenous variables, not used
in clustering) and cluster solution was tested. F-test results show statistical significance for
these variables. The results of statistical significance are shown in Table VI.

Cluster Overall mean SC risk score Mean drivers score (complexity and efficiency)

Table VI. Cluster 1 5.02 5.28

Distribution of respondent Cluster 2 4.22 4.80
companies between F-value 21.83 3.22
two clusters Significance level 0.00 0.07
F-test results show that two clusters (high and low risk level) significantly differ Supply chain
on two exogenous variables. This analysis establishes the criterion validity of two risk management
cluster solution.
dimensions
4.1 The relationship between level of SCRM strategy with firms position in SC and
firm size
In this section, qualitative data and previous research studies have been used to 1033
characterize clusters. Research study by Thun and Hoeing (2009) grouped German
companies using cluster analysis, separating companies in two groups, namely, firms
pursuing reactive SC risk mitigation strategies and preventive (proactive) SC risk
mitigation strategies. Two cluster solution was profiled on a set of additional variables
not included in the clustering variables and used in assessing criterion validity.
These addition variables are: source capacity of the firm and its position in SC. Firms
size affects SC risk mitigation. Large companies adopt more risk management
practices, these companies have high SCRM level (Wanger and Bode, 2006). Thus we
hypothesize that:

H1. There is an association between firm size and SCRM level.

SCRM is a collaborative effort, but someone in the SC need to take responsibility

for SCRM implementation. Thus we hypothesize that:

H2. There is an association between position of the firm in the SC and SCRM level.

Further to establish practical significance of these clusters, they were profiled using
addition variables. These results are shown in Tables VII and VIII.
Profiling of two clusters on associated firm characteristics i.e., stage of firm in SC
shows significant differences between two clusters. Significant w2 value supports
the association between SCRM level and stage of firm in SC. Position of the firm in the

Type of Firm OEM Supplier LSP

Cluster1 (high level SCRM strategy) (No.) 18 17 7

(Exp val) 14.88 15.94 11.16
Cluster2 (low level SCRM strategy) (No.) 10 13 14 Table VII.
(Exp val) 13.11 14.05 9.83 Two clusters profiling
on stage of firm
Notes: *w2-value is significant at 0.088 in supply chain

Firm Size 100-250 m 251-500 m 500 m above

Cluster1 (high level SCRM Strategy) (No.) 06 14 22

(Exp val) 9.57 11.70 20.73
Cluster2 (low level SCRM Strategy) (No.) 12 08 17
(Exp val) 8.43 10.30 18.27 Table VIII.
Two clusters profiling
Notes: *w2 value is not significant. p-value is 0.136 on firm size
BIJ SC affects SCRM level of firm. Mostly in an automotive SC, it is the responsibility
21,6 of focal company to implement SCRM. Another variable used for profiling clusters,
size of the firm did not show significant difference between clusters. Large firm
size does not mean that it will have high SCRM level, it all depends on, who takes
responsibility for SCRM.

1034 5. Managerial implications

Through extant literature review, SCRM strategies were identified and data were
collected on these strategies from automotive SC experts. PCA extracted seven SC
risk mitigation factors. Results of PCA showed that 29 SC risk mitigation practices
listed in main survey questionnaire can be captured by seven components. Mean
score of all seven factors (components) elicit about the SCRM strategies of automotive
SC in India. Such results can be useful in practice to simplify the most relevant
dimensions of SC risk mitigation practices, thus answering the question: what sets of
SCM practices and tools need to be implemented to achieve SCRM? Automotive
industry is a key contributor in Indian economy, accounting for about 4 percent
in GDP. With increasing global span, growth in outsourcing and off-shoring
automotive companies are using control strategy more prominently. Mean factor
score of each factor was calculated and descriptive statistics or each SC risk
mitigation strategy tells the level of presence of mitigation strategy in the SC. Control
strategy scored highest score among all seven SCRM strategies. Indian auto
component manufacturers are now supplying to global firms and OEMs are
exporting finished goods to other foreign countries. Supply base complexity have
increased tremendously. Control is a effective mechanism to mitigate risks in
complex and global SCs (Manuj and Mentzer, 2008). Flexibility is second most used
strategy with score of 4.55 and at third and fourth place were avoidance
and risk pooling strategies with scores of 4.41 and 4.34, respectively. With increased
customer expectations, OEMs are pressurized to supply products according to
customer requirements. Use of postponement strategy is increasing in automotive
SCs. Toyota has plants at multi locations and change the utilization of plants based
on exchange rate and volatility in demand in respective country. As now India is
becoming a preferred location for many OEMs for auto components. Many OEMs
use component commonality and aggregate demand across different variants.
Risk pooling strategy is used to mitigate demand risks (Talluri and Ryzin, 2005).
Responsive pricing, discounts on certain models in certain festive seasons is a
common practice in India. Indian auto components manufacturing companies are
developing their operations according to international standards to survive in
competition. Supply risk is more paramount in complex product (more bought out
components) SC (Zsidisin, 2010). Redundancy and integration stayed at last sixth and
seventh place. Stiff competition, cost has become a prime objective of each member of
SC. Cost containment is top priority and excess resources and buffer inventories are
preceded to be enemy of efficiency. Automotive SCs are focussing on JIT deliveries,
lean operations and cutting down excess/buffers at every stage. This analysis clearly
provides the practices followed by companies having high level of SCRM. Managers
now want to see if they want to create value through minimizing risks in their supply
network, and if so, they can plan the mitigation strategies, which will create
difference in terms of SCRM. We are not suggesting managers that by implementing
integration or supplier development, they need to move from low SCRM level to high
SCRM level, because risk mitigation incurs cost and these decisions will depend on
risk efficiency tradeoff. But surely this analysis will at least help managers to know Supply chain
their position and where they lag behind on SC risk mitigation strategies. Now risk risk management
pooling and flexibility is followed by most of the participants of the industry.
Conversely remaining SC risk mitigation strategies play a significant role in SCRM dimensions
level improvement, and should be privileged when a company decides to embrace an
SCRM improvement effort.
This research provides a picture on current practices of SCRM in Indian automobile 1035
industry. Further, Wards method of cluster analysis has been applied to classify firms
on the basis of SCRM strategies. Cluster analysis was performed, with the aim of
identifying the extent of the presence of SC risk mitigation strategies. Results were
interpreted by examining the main differences in the clustering variables across
clusters. This allowed the development of two clusters on 79 firms data.
Findings of this cluster analysis based on SCRM factors showed that two cluster
means are significantly different at 0.000 level. The findings can be used by
professionals to understand their current strategic positions and to help choose
strategies to move from a low to a higher SCRM level. It means that firms wanting to
move from low to high SCRM levels need to invest in S (supplier development),
I (integration), and R (redundancy). Further firms can think about A (avoidance) and
C (control), which are significant at o0.08 level. This cluster analysis provides
managers with an understanding of SCRM strategies that classifies firms into low
and high SCRM levels. Cluster analysis mapped with some exogenous variables
facilitated the identification of some theoretical points. The literature on flexibility
and risk pooling proves the most effective strategies for mitigating risks in the SC,
and most of the surveyed automotive firms have adopted these two strategies.
A w2 test on two exogenous variables regarding the position of a firm in the SC and
firm size provides vital perspectives to SCM managers that the size of the firm
does not assure SCRM implementation, it is the firm who takes the responsibility
for SCRM. Statistics established that OEM and big auto suppliers take more
responsibility and involve other members of the SC in their SCRM effort.

6. Conclusion and future scope of research

As a first outcome, automotive companies at different stages embraced SC risk
mitigation strategies. Cluster analysis confirms the different levels of SC risk
mitigation and mean differences on seven mitigation strategies for two clusters
provides important perspective to SCM managers. The statistics also highlight that
the implementation of SC risk mitigation strategies is higher in companies operating
in focal position in the SC. This can be justified based on the fact that adoption
of risk mitigation in the SC depend on the firm, who takes responsibility for SCRM
implementation. This research has indentified no. of salient patterns on which
better SCRM practice guidelines can be developed for Indian automotive industry.
Some of the limitation of the paper are that results are country specific and cannot
be generalized. However, comparative studies can be conducted by using the
strategic dimensions and analysis method proposed within this paper. Similarly,
this kind of studies can be carried out in other industries and other countries. The
most relevant limitation that one refers to the fact that, due to the limited sample size,
it was not possible to conduct a full statistical analysis (i.e. principal component
and cluster analysis) by separately investigating companies operating in different
SC position like OEM, suppliers or LSP. Such a study will be undertaken in future
research activities.
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Appendix. Survey Questionnaire

 Supply chain
risk management
dimensions

1039

About the authors

Satyendra Kumar Sharma has a BE and MBA from the MNIT Jaipur. He has more than seven
years experience in industry and academia. He is currently working as a Lecturer in the
Management Department, and is a nucleus member of the planning cell in the Practice School
Division, BITS Pilani. His is pursuing his PhD from the BITS Pilani. His research interest areas
are supply chain management, risk management and project management. He has published
BIJ papers in national and international journals and conferences. He is a member of various
professional bodies such as the Society of Operations and Production Management and AIMS
21,6 International. Satyendra Kumar Sharma is the corresponding author and can be contacted at:
satyendra.sharma1979@gmail.com
Professor Anil Bhat graduated in Mechanical Engineering in 1982 from the REC, Srinagar
and obtained his Doctorial Degree (fellowship) from the IIM-Bangalore. He has more than
1040 19 years of distinguished academic, administrative and managerial experience. He is presently
a Professor in the Management Group, Faculty Advisor, Center for Entrepreneurial Leadership
(CEL) at the BITS-Pilani His specialization is marketing research and his methodological
contribution has been in the area of Cluster analysis of rank order data. He has been guiding
students in his current research interests, namely, business creativity, post-modern marketing,
human decision making, strategic marketing, risk management and services marketing. He is
a member of the Academy of Management. He has published more than two dozen papers and
articles. He has also conceptualized, designed and conducted many MDPs for both private
and public sector companies.

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