Reducing operational and financial harm from supply disruptions

Supply disruptions can cause significant financial harm to sourcing firms. However, well-designed recovery plans can mitigate these negative consequences. This study investigates the association between the operational impact of supply disruptions and financial performance and draws on Effectuation theory to test the contingent moderation effects of recovery plans based on effectuation versus causation reasoning on this association. We analyze 140 supply disruptions experienced by sourcing firms across sectors such as manufacturing, chemicals, and textiles in India. Combining primary data collected via a telephone survey with secondary financial data, we employ hierarchical regression analysis to test our hypotheses. Results show that supply disruptions with high operational impact negatively affects financial performance. This negative effect is attenuated by recovery plans based on effectuation reasoning, particularly when supply disruption triggers unfamiliar or uncontrollable. For controllable and familiar supply disruption triggers, recovery plans based on causation reasoning are more effective at attenuating the negative effect of supply disruptions with high operational impact on financial performance.