Value creation via supply chain risk management in global fashion organizations outsourcing production to China

Abstract

Purpose The increased complexity of global supply chains and its inherent risk requires the re-evaluation of the SCRM discipline as a source of value creation for shareholders. This paper aims to unveil the areas that require more focus considering the point of view of Chinese manufacturers, and following a social constructivist approach oriented to fashion organizations outsourcing to China, unveil the elements driving the point of SCRM strategies. Design/methodology/approach The authors studied the existing body of knowledge related to SCRM and developed a model to quantify the influence of macro and micro risk factors to the different operations performance indicators. This model was used in a survey to 61 Chinese manufacturers of fashion products, while at the same time, an interview to 20 members of the SC group of fashion companies around the globe was conducted to understand the qualitative and quantitative elements shaping their SCRM initiatives. Findings The study shows that, while supply, manufacturing and demand risk remain as the main factors hindering value creation in the industry, the addition of the manufacturer’s perspective proves that other elements that are less evident to the customer, such as macro-social and micro-infrastructure (transportation, financial and information), require more attention. Additionally, it was noted that the influence of the different risk factors is different for the different performance indicators of quality, speed, cost, dependability and flexibility. Finally, it shows that current SCRM programs tend to be simplified methods of trial and error, fed with incomplete KPIs, shaped by the experience and priorities of dominant stakeholders and prompt to potential agency costs and focused on the short term. Research limitations/implications The focus on the fashion industry led to relatively small sample sizes for surveys and interviews. Although some patterns are identified, studies with larger sample sizes could facilitate the statistical analysis of unique characteristics in the different sub-groups. Additionally, the use of cross-sectional research designs that include survey techniques has the limitation of not explaining processes over time. Future reference to this work can be complemented with a new study to unveil the latest priorities. Practical implications This study shows that, to create value, fashion organizations first need to determine the operational elements that create value for them and then focus their limited resources on the risk elements that have proved more influence. The authors offer a systematic framework to measure the risk associated with global outsourcing; it can be used by organizations outsourcing globally to make strategic decisions, including potential outsourcing locations, to allocate resources across categories and to evaluate changes over time. Finally, the interview with SC practitioners shows that, to advance toward its objective of value creation, the SCRM discipline requires cross-collaboration and a holistic approach supported by more systematic processes that can reduce bias and potential agency costs. Originality/value This study offers insights about contemporary factors affecting the value creation function for fashion organizations outsourcing production to China and a more holistic approach vs other studies by including: a wider and more relevant categorization of risk factors, the perspective of Chinese manufacturers and the view of SC practitioners around the world. This study also develops a model to explain the cycle of SCRM in fashion organizations and the most common traps hindering its execution.