To concentrate or to diversify the supply base? Implications from the U.S. apparel supply chain during the COVID‐19 pandemic

Abstract

AbstractThe COVID‐19 pandemic resulted in severe supply disruptions and revenue losses, especially for buyers highly dependent on foreign suppliers. Unsurprisingly, scholars and industry experts claim that high dependence on any exchange partner is detrimental to buyers. The literature, however, is ambivalent about whether supply base concentration—the number of sources in a firm's supply base and the degree of importance of each source—benefits or harms buyers. Our study addresses this ambivalence by investigating whether supply base concentration, conceptualized as supplier concentration, supplier country concentration, and carrier concentration, worsens or mitigates the impact of supply disruptions as they unfold over time. We use longitudinal data from ocean bills of lading to examine these relationships in the context of U.S. buyers importing apparel during the COVID‐19 pandemic. Our results show that higher pre‐disruption supplier concentration and supplier country concentration helped buyers mitigate the impact of supply disruptions related to COVID‐19, with diminishing effects once supplier and supplier country concentration exceeded specific inflection points. Conversely, higher pre‐disruption carrier diversification helped buyers mitigate the impact of supply disruptions related to COVID‐19. Notably, these effects depend on the specific phase of the supply disruption. We discuss implications for research and practice.