Implications from the Rana Plaza Disaster (Guest Post by Brian Jacobs and Vinod Singhal)
Today’s guest post comes from Brian Jacobs and Vinod Singhal, who present the results of their recent research on social issues in global textile supply chains.
Rana Plaza, an eight-story building in Bangladesh that housed garment factories employing approximately 5000 workers, collapsed on April 24, 2013. The resulting fatalities (over 1100) and injuries (over 2400) made it one of the worst industrial accidents in history. The scale of this tragedy increased awareness of the risks and costs of sourcing from low-cost countries. Such risks and costs are often assumed to be sufficient to motivate firms to source production in developed, high-cost countries rather than developing, low-cost countries. To examine this assumption, we studied the stock market reaction to 39 global apparel retailers with significant sourcing in Bangladesh. We found that although stock market reaction to retailers on the day of the Rana Plaza disaster was negative, its magnitude and significance dissipated by the following day. Our research shows that capital market forces alone are insufficient to prevent tragedies such as the Rana Plaza disaster, or to motivate large scale changes in sourcing patterns. In fact, garment exports from Bangladesh have increased since 2013 even though substandard working conditions persist. While managers should weigh ethics and their moral obligation in addition to financial considerations, it is doubtful that firms can affect the needed changes without participation by non-market forces such as NGOs and policymakers. For full details of our research, please see our article The Effect of the Rana Plaza Disaster on Shareholder Wealth of Retailers: Implications for Sourcing Strategies and Supply Chain Governance, forthcoming in Journal of Operations Management.
Vinod Singhal is a Professor of Operations Management and holds the Charles W. Brady Chair at the Scheller College of Business, Georgia Institute of Technology, Atlanta, Georgia. Brian Jacobs is an Associate Professor of Supply Chain Management at the Eli Broad College of Business, Michigan State University, East Lansing, Michigan.
Jacobs, B., & Singhal, V. (2017). The Effect of the Rana Plaza Disaster on Shareholder Wealth of Retailers: Implications for Sourcing Strategies and Supply Chain Governance. Journal of Operations Management DOI: 10.1016/j.jom.2017.01.002
Performance Measurement Systems in the Era of Turbulence
Our new article, titled Accounting for External Turbulence of Logistics Organizations via Performance Measurement Systems (Supply Chain Management: An International Journal, Vol. 21, No. 6), is out now. It deals with the interface of supply chain risk management – a “hot topic” in SCM research – and performance measurement systems (PMS). The article was co-authored by Andreas Bühler, Carl Marcus Wallenburg and me. We address two research objectives: First, we focus on the outcome of PMS design for turbulence: We argue “that accounting for external turbulence via metrics in PMS design is beneficial for logistics organizations and show to what extent it increases organizational resilience and the [performance] of the companies”. Second, we focuses on the antecedents of PMS design for turbulence: We demonstrate “that the approach which the upper management of an organization has toward how to use the PMS in general will strongly impact the extent to which an organization incorporates risk metrics into its PMS”.
Bühler, A., Wallenburg, C.M., & Wieland, A. (2016). Accounting for External Turbulence of Logistics Organizations via Performance Measurement Systems. Supply Chain Management: An International Journal, 21 (6), 694-708 DOI: 10.1108/SCM-02-2016-0040
If you do not have access to the article, the accepted author manuscript can be downloaded for free at Copenhagen Business School’s Research@CBS platform (click on the document in the green box there).
Logistics Performance Index 2014
Today, the World Bank has released its Logistics Performance Index 2014. The report is titled “Connecting to Compete 2014: Trade Logistics in the Global Economy”. The index, which is based on survey data collected from more than 1,000 logistics managers, allows a comparison of 160 countries in terms of trade dimensions, such as infrastructure quality, customs performance and timeliness of shipments. It is a valuable resource for researchers, business executives and politicians to analyze the current state of logistics in the world. The results of the new report “point to Germany as the best performing country with an LPI score of 4.12 […] (on a scale of 1 to 5)”. Moreover, “15 of 28 European Union (EU) member states and 23 of 34 Organisation for Economic Co-operation and Development (OECD) members were among the top 30 countries”. The report highlights that “[s]upply chains—only as strong as their weakest links—are becoming more and more complex, often spanning many countries while remaining critical to national competitiveness”.
Global Supply Chain Survey 2013
I recently received this year’s Global Supply Chain Survey by PricewaterhouseCoopers (PwC). It turns out that the leaders in PwC’s survey “have supply chains that are efficient, fast and tailored – a model that lets companies serve their customers reliably in turbulent market conditions and that differentiates between the needs of different sets of customers”. The authors present six key findings: (1) Companies should view the supply chain as a strategic asset to achieve better financial results; (2) Companies should focus on three key drivers: “perfect order delivery, cost reductions and supply chain flexibility”; (3) Companies should recognize that one size does not fit all; (4) Companies should not outsource core strategic functions (i.e., strategic procurement, sales and operations planning and research and development); (5) Companies in emerging markets should introduce differentiating processes; (6) Companies are increasingly interested in next-generation technologies and sustainable supply chains. Most of these results are in line with my own observations.
Measuring Performance
Performance measurement is difficult! Generations of empirical researchers have presented measures of organizational performance. In their article Measuring Organizational Performance: Towards Methodological Best Practice, Richard et al. (2009) have reviewed past studies. They reveal the multidimensional nature of this important construct. According to the authors, organizational performance encompasses three specific areas of firm outcomes: (a) financial performance (profits, return on assets, return on investment, etc.); (b) product market performance (sales, market share, etc.); and (c) shareholder return (total shareholder return, economic value added, etc.). Limited effectiveness of commonly accepted measures in tapping this multidimensionality is highlighted. The appendix of the article, which is published in the Journal of Management, includes many examples of research that includes organizational performance as a dependent, independent, or control variable. To my knowledge, no comparable review is available for supply chain performance. It would be interesting to know, how this construct can be measured properly.
