supply risk management: the effect of electronic component...

International Journal of Recent Advances in Organizational Behaviour and Decision Sciences (IJRAOB) An Online (Double-Blind) Refereed Research Journal (ISSN: 2311-3197)

2018 Vol: 4 Issue: 1

1068 www.globalbizresearch.org

Supply Risk Management: The Effect of Electronic Component’s

End-of-Life (EOL) on a Consumer Electronics Company

Ed Henry N. Cañeda,

Center of Advance Studies,

Cebu Institute of Technology – University, Philippines.

E-mail: [email protected]

Ronald B. Payao, DM,

Center of Advance Studies,

Cebu Institute of Technology – University, Philippines.

E-mail: [email protected]

___________________________________________________________________________

Abstract

The recent mergers of Electronic Component Manufacturers are a global trend that has

brought uncertainty to their customers (inclusive of Consumer Electronics Companies

[CECs]). The purpose of this study is to examine the importance of implementing Supply Risk

Management to selected CECs in Metro Cebu and the effective strategy in reducing the effect

of electronic component’s End-of-Life (EOL). This study is important in preventing the

occurrence of production downtime that will invariably result to financial loss among

companies in the supply chain. The research informants included key supply chain personnel.

This study utilized the descriptive research method and documentary analysis. The results

revealed the following: (1) The implementation of Supply Risk Management is a very important

part of the supply chain management, and (2) Selected CECs in Metro Cebu practice risk

transfer as the leading mitigation strategy. The study concluded that risk transfer is the most

effective strategy in reducing the effect of electronic component’s EOL. Moreover, the study

discovered that not all respondents agree that supply risk management is communicated to all

employees. The study recommended that other industries in Metro Cebu may benchmark CEC’s

supply risk management implementation using basic standard for risk management process,

but the tools may differ.

___________________________________________________________________________

Key Words: supply chain risk management, supply risk, end-of-life (EOL), electronic

components, Philippines

JEL Classification: M 110, L 630, M 160




1. Introduction

The recent mergers of Electronic Component Manufacturers (ECMs) created a tsunami

effect on the Consumer Electronics Companies (CECs). ECMs, which include semiconductor

firms and chipmakers, recently announced more than $150 billion of acquisition deals closed

in 2016 (Sperling, 2016), a figure higher compared to $100 billion in 2015 and $37 billion in

2014, something that has been going on annually since the early 2000s. The slow industry

growth and rising costs are driving historic acquisitions among semiconductor firms looking to

streamline their organization and product lines (Don Clark and Dealogic, 2015). This global

trend of acquisition and merging of ECMs brought uncertainty to their customers, mainly

CECs. End-of-Life (EOL), defined as the end of support or selling of the product lines, is one

of the after-effects of this event. For this reason, a CEC will likely be forced to review existing

sourcing strategies and adapt countermeasures in stabilizing the supply chain. At its most basic

definition, the supply chain is viewed simply as the process by which products or services are

brought to market (Camerinelli, 2009). This unpredictability is one of the many global events

that a CEC’s supply chain management must anticipate and prepare for. They are largely

viewed as such since no one knows which specific area will be affected the most and in what

magnitude it could disturb. The detrimental effect to the CEC’s supply chain is comparable to

events like natural disasters, international compliances and the rise of a new market such as the

mobile industry and Internet of Things.

The difference between a supplier’s and their customer’s product lifecycles sometimes

creates two types of gaps that result in excess supply or unmet demand (Martin, 2015).

In the first lifecycle gap, the supplier quickly ramps production to take advantage of

the customer’s demand at the time of peak profitability for the new product lines. This happens

if the forecasts of the two industries are not aligned, thus supply surpasses demand, resulting to

product excess in the marketplace. The second lifecycle gap happens if the supplier’s sales

decline and the product reach the end of its lifecycle; the supplier scales down the production

and the product enters the EOL product lifecycle phase as illustrated in figure 1.

Figure 1: The Two Lifecycle Gaps (Indicelectronics.com)




Thus, a CEC, as a customer, can no longer secure the volumes needed for production, or the

ECM, as the supplier, will be forced to add premium price for EOL products from the cost of

continuing the old production line. The effects of electronic component’s EOL to the CECs are

the supplies’ premium price, cost in production rescheduling, or worse, the production line

stoppage due to supply depletion. All boil down to financial losses as the bottom-line effect.

Both industries are aware of the effects and relationship implication of products in an EOL

lifecycle phase. It is inevitable that ECMs cannot keep the cost of retaining the older production

line. Oftentimes, a CEC seeks for alternate suppliers or buys the remaining supply in the black

market to address the lifecycle gap. The waves of consolidation of ECMs may push the second

lifecycle gap into a much-earlier time as illustrated in figure 2, thus, generating higher financial

losses.

Figure 2: The Possible Two Lifecycle Gaps after the Mergers of Electronic Component

Manufacturers

In figure 2, it becomes evident that a CEC must reassess its business strategy in order to

focus on the core functions that are critical to the company’s growth, overcoming non-core

activities and challenges that drain more resources (JJS Manufacturing).

The decision of many CECs to outsource some of their business operations and non-core

activities, such as manufacturing to low-cost countries like the Philippines, particularly in

Metro Cebu, began as early as the 1970s. Metro Cebu’s economic processing zones catered

CEC locators from Japan, Asia and later from other Western countries as strategic alternative

to China’s manufacturing prowess. Subsequently, the local manufacturing industry has grown

dramatically and extended their services not only as a contract manufacturer, but also in supply

chain management. In the recent years, multinational CECs opened their regional sites catering

research and development, and back offices to take advantage of the lower labor cost. However,

it is important for these CECs to gain control of the global supply chain management while

maximizing the experience of the local sites and contract manufacturers in Metro Cebu.

This research study is conducted to examine the importance of supply risk management and

to find out the effective strategy in mitigating the effect of electronic component’s EOL as the

supply risk caused and heightened by the mergers of ECMs. This is deemed as contribution to

the literature on supply chain risk management (SCRM) from an emerging economy like the

Philippines with different approach in risk management. Second, this provides empirical




evidences for risk mitigation strategies’ efficacy, a research gap in SCRM field. The validity

and effectiveness of these strategies and practices have rarely been validated by empirical

evidences in mitigating supply chain risks (Ho et al., 2015; Li et al., 2015; Carbonara and

Pellegrino, 2017).

The rest of this paper is structured as follows: Section 2 presents the literature review.

Section 3 discusses the theoretical framework and research hypotheses. Section 4 presents the

research methodology. Section 5 provides the data findings. Section 6 discusses the results.

Section 7 concludes with future research suggestions.

2. Literature Review

The following section establishes a theoretical foundation for studying supply risk

management. This section begins with the literature review of supply chain risk and supply

chain risk types. Next, a discussion of supply risk factors, supply risk and previous related

studies. This section concluded with the brief discussion of supply chain risk management.

2.1 Supply Chain Risk

The definition of supply chain risk varies from different authors, and it affects how they

communicate with the academes and practitioners. Ho et al. (2015) conducted an intensive

literature review covered in 224 journal articles from various academic databases, peer-

reviewed articles and international journals between 2003 and 2013. The rigorous work aimed

to consolidate all definitions of supply chain risk, and it finally defined “supply chain risk as

the likelihood and impact of unexpected macro and/or micro level events or conditions that

adversely influence any part of a supply chain leading to operational, tactical, or strategic level

failures or irregularities.”

2.2 Supply Chain Risk Types

The research field had several descriptions of supply chain risk types; however, they can be

simplified into two major groups: internal and external risks (Kumar, Tiwari and Babiceanu,

2010; Olson and Wu, 2010; Wu, Blackhurst and Chidambaram, 2006). Supply risk, an external

risk, is the most studied supply chain risk type according to Ho et al. (2015). This is due to both

man-made disruptions and natural disasters that gained more interests among industries in

recent years.

2.3 Supply Risk Factors

Supply risk is defined as the probable failure in the supply of goods in terms of “time, quality

and quantity” resulting in incomplete orders. The unpredictable market response to innovations

increases the risk of shortfall or excess of supplies (Sreedevi and Saranga, 2017). Thus, external

factors such as the advent of a new market and technology drive the supply risks.

The mergers of ECMs is an event driven by several supply risk factors as summarized by

Ho et al. (2015) in table 1. “Supplier market strength” and “sudden hike in costs” supply risk




factors are equivalent to the two factors mentioned in the previous section in the historic

acquisitions and mergers among ECMs. There may be other supply risk factors that drive the

event such as global outsourcing, a new market and others that are beyond the scope of this

research.

The increase to the number of electronic components’ EOL recorded by a CEC for several

years is considered as a supply risk. It could go unnoticed and appear as a normal interruption

to the supply chain because of its gradual increase per year. However, as the increase

compounded and reached tipping point, the impact could be severe.

Unlike major natural disasters such as the 2011 Japan Earthquake, widespread mass media

coverage guarantees that top management is mindful of the potential disruptions. According to

Hendricks, Jacobs and Singhal (2017), given that a crisis like an earthquake can threaten the

lives of employees, and the business may be severely damaged if immediate action is not taken,

top management will react quickly. They are likely to devote resources and people to investigate

and address potential disruptions. This can prevent the situation from worsening and can lead

to quick recovery, resulting in lower financial losses.

2.4 Supply Chain Risk Management

Supply chain risk management (SCRM) has emerged as the most prominent field in supply

chain management and has gained attention from both academia and practitioners since 2001

(Jüttner et al., 2003; Ho et al., 2015; Asgari et al., 2015; Qazi et al., 2017). This interest is

mainly due to two reasons. First, the increase number of natural and man-made disasters.

Second, the increased competitive pressure in the business environment and the globalization

of markets (Carbonara and Pellegrino, 2017). SCRM is defined as the development and

implementation of strategies to manage both day-to-day and exceptional risks along a supply

chain, with the objective of reducing vulnerability and ensuring business continuity (Nooraie

and Parast, 2015). It plays a major role in successfully managing business processes in a

proactive manner (Mavi, Goh and Mavi, 2016).

There are three elements of SCRM: (1) internal risk management, (2) marketing risk

management, and finally, (3) supply risk management (Zwiβler and Hermann, 2012). From this

point onward, this paper will use the term supply risk management instead of supply chain risk

management to hide the other two elements of SCRM of no interest and to focus on the supply

risk management centered on supply-related risks.

3. Theoretical Framework and Research Hypotheses

This section begins with the development of the supply risk management theoretical

framework. Next is a discussion of the four phases of risk management and the five risk

mitigation strategies. Finally, this section concluded with the development of research

hypotheses.




3.1 Supply Risk Management Theoretical Framework

Figure 3 presents the supply risk management theoretical framework adopted in this study.

Supply risk has a direct relationship to financial loss, and both are also the independent and

dependent variables, respectively. The relationship between the two variables has been the

subject of many studies because it directly affects the revenue and stability of the company.

Supply risk management is the third variable and plays the moderating role in this theoretical

framework. Risk management is widely studied as a moderating variable in the field of supply

chain management as discussed in the previous section.

There are four phases that must exist for a success of risk management. These phases in

order are as follows: (1) risk identification, (2) risk assessment, (3) risk mitigation, and (4) risk

monitoring.

Figure 3: Supply Risk Management Theoretical Framework

3.1.1 Phase 1: Risk Identification

Risk identification is the first phase of risk management that often requires the longest time

in the whole course. Supply risk identification primarily focuses on the monitoring of suppliers’

performance. The literature mentioned several tools in identifying and analyzing risks and

uncertainties—quality control tools like the Pareto diagram. Other authors reviewed the

literature and summarized the risks instead using tools in identifying and analyzing risk.

3.1.2 Phase 2: Risk Analysis

Risk identification is followed by risk assessment. The risks are evaluated as to their

probability of occurrence and the potential severity of impact. The two dimensions can be

Transfer

Buffering

Avoidance

Control

Acceptance

Risk Monitoring

Risk Identification

Risk Assessment

Risk Mitigation

Supply Risk Management

Mergers of ECMs

The EVENT

Slow Industry Growth

Rising Costs

FACTORS

Electronic Component’s EOL

Supply Risk

Financial loss

Effect




defined both in qualitative and in quantitative terms. Failure Mode and Effects Analysis

(FMEA) is a common tool used in the electronic manufacturing industry to identify and analyze

risk.

3.1.3 Phase 3: Risk Mitigation

The ultimate purpose of risk identification and analysis is to prepare for risk mitigation.

Mitigation includes reduction of the likelihood that a risk event will occur and/or reduce the

effect of a risk even if it does occur (National Research Council of NAP, 2005). The five risk

mitigation strategies used in this study will be discussed in section 3.2.

3.1.4 Phase 4: Risk Monitoring and Review

Risk monitoring and review continuously happens at each step along the way, not just at the

end of the process. ISO 31000 emphasizes that monitoring and review assures that the

countermeasures taken are effective, that the lessons are learned and that risk will be

appropriately controlled, and that the organization will be ready for the change. It is equally

important to communicate and consult collaborators to every step taken.

3.2 The Five Risk Mitigation Strategies

Like risk management, risk mitigation strategies proliferated beyond the supply chain and

different field of disciplines. In recent years, the supply chain management field have several

combinations of risk mitigation strategies discussed and summarized in the appendix. The five

commonly used strategies identified for this research study are as follows: risk transfer, risk

buffering, risk avoidance, risk control and risk acceptance.

3.2.1 Risk Transfer

There is a common practice in the CECs to transfer risk to their stakeholders capable of

handling them. However, there is general agreement in taking risks only if there is a significant

compensation or reward.

3.2.2 Risk Buffering

This is the installation of the contingency plan to absorb all the effects of supply risks

without compromising the project schedule. The contract manufacturer’s strength is their

purchasing power and the capability to pool sourcing requirement from several customers. This

allows them to overestimate production quantities, manpower, production lead time and other

costs. Their investment in production storage areas capable of handling thousands of volumes

in anticipating all types of supply risks is a holding ability that many CECs take advantage.

3.2.3 Risk Avoidance

This is a risk mitigation strategy that is not commonly utilized because most CECs are more

likely to think of how to transfer the risk to other stakeholders rather than how to reevaluate

internal processes to avoid risk. The nature of the strategy may be technical innovation,

financial adjustment, political power and other means of countering the cause of the risk. A




good example is the decision to launch a Project A with the higher cost expenditure over a

much-cheaper Project B but with a much-riskier approach.

3.2.4 Risk Control

This refers to assuming a risk but taking steps to lessen or otherwise alleviate its impact or

likelihood. Risk control can take the form of installing data-gathering or early warning systems

that provide information to assess more accurately the impact, likelihood or timing of a risk. If

the warning of a risk can be obtained early enough to take action against it, then information

gathering may be preferable to more tangible and possibly more expensive actions (National

Research Council of NAP, 2005). An example of a risk control method is monitoring

technology trend and market intelligence both vital to electronic sectors.

3.2.5 Risk Acceptance

This is the last option. If the risks cannot be transferred, buffered, avoided or controlled,

then they must be accepted ahead of time so that production schedule can proceed, assuming

that the decision to go ahead with the production schedule is more acceptable rather than not

going. So in the case of minor risks, it may be best simply to accept them. This should be clearly

communicated to all stakeholders.

3.3 Research Hypotheses

From the supply risk management theoretical framework, the research hypotheses can be

formulated and discussed below.

3.3.1 Supply Risk Management as the Moderating Variable

The study of supply risk management is abundant to Western countries through indexed

journals and famous databases (Google Scholar, ScienceDirect, IEEExplore, Emerald). There

are several Asian countries that showed interests in the field in recent years (Gunasekaran,

Subramanian and Rahman, 2015; Kirilmaz and Erol, 2017; Li et al., 2015; Rajesh, Ravi and

Rao, 2014; Sreedevi and Saranga, 2017). However, there is almost no indication of research

conducted in the Philippines.

The limited access to local university journals provides very small information on the

importance of supply risk management in CECs present in the country. Despite the abundance

of studies in other countries, there is a need to establish supply risk management concept in the

Philippines as an emerging economy and a manufacturing outsource alternative to China. Based

on the above arguments, we posit the first hypothesis:

Alternative Hypothesis 1 (HA1): Because of the implementation of supply risk

management, there will be a reduction of the effect of electronic component’s EOL caused by

mergers of ECMs.

Null Hypothesis 1 (HO1): Because of the implementation of supply risk management, there

will be no significant difference or an increase of the effect of electronic component’s EOL

caused by mergers of ECMs.




3.3.2 Risk Mitigation Strategies as an Integral Part of Supply Risk Management

The second hypothesis cannot be formulated without the development of the first

hypothesis. The mechanism of this study is that the consumer electronics company must have

the supply risk management concept employed for the second hypothesis to posit. Part of this

study is identifying the effective risk mitigation strategy in reducing the effect of electronic

component’s EOL due to the mergers of ECMs.

However, there are five risk mitigation strategies, and once tested, each may yield a different

outcome, so the alternative hypothesis can be written into the hypothesis below:

Alternative Hypothesis 21 (HA21): Because of the risk transfer, there will be a reduction of

the effect of electronic component’s EOL on a consumer electronics company.

Alternative Hypothesis 22 (HA22): Because of the risk buffering, there will be a reduction

of the effect of electronic component’s EOL on a consumer electronics company.

Alternative Hypothesis 23 (HA23): Because of the risk avoidance, there will be a reduction


Alternative Hypothesis 24 (HA24): Because of the risk control, there will be a reduction of

the effect of electronic component’s EOL on a consumer electronics company.

Alternative Hypothesis 25 (HA25): Because of the risk acceptance, there will be a reduction


Also, the corresponding sub-null hypothesis can be written as follows:

Null Hypothesis 21 (HO21): Because of the risk transfer, there will be no significant

difference or increase of the effect of electronic component’s EOL on a consumer electronics

company.

Null Hypothesis 22(HO22): Because of the risk buffering, there will be no significant


company.

Null Hypothesis 23 (HO23): Because of the risk avoidance, there will be no significant


company.

Null Hypothesis 24 (HO24): Because of the risk control, there will be no significant


company.

Null Hypothesis 25 (HO25): Because of the risk acceptance, there will be no significant


company.




4. Methodology

4.1 Research Design

This study utilized the descriptive research method. It attempts to look into the situation and

collect information without changing the environment and nothing is manipulated. This study

used the survey method in collecting the primary data. Moreover, it is not limited to the survey

as it used documentary analysis from selected CECs in Metro Cebu related to supply risk

management.

4.2 Research Instrument

The essence of the survey method can be explained as “questioning individuals on topics

and then describing their responses” (Jackson, 2011). The survey questionnaires utilized closed

questions that provide possible answers that target respondents must choose from. The

advantage of closed questions is the answers can be more easily compared and that the

evaluation is more objective (Raithel, 2008).

The first portion of the survey contains closed questions to examine the importance of

implementing supply risk management to the selected CECs in Metro Cebu. The idea is to

capture how these companies deal with the uncertainty brought by the consolidation of the

global ECM industry and the increasing number of EOL electronic components as a

repercussion. When asking the respondent to assess the importance of certain statements, a

Likert scale was used as shown in table 1.

Table 1: Level of Importance in Likert Scale

Scale Description

4 = Very Important (VI)

- The supply chain organization understands the impact of supply risks.

- The company and staff had several experiences in handling supply

risk.

- The staff is trained in risk management, such as ISO or other industry

standards.

3 = Important (I)


- The company and staff had some experience in handling supply risk.

- The staff is not trained in risk management but applied some

solutions.

2 = Less Important (LI)


- The company and staff had very little experience in handling supply

risk.

- The staff is not trained in risk management.

1 = Not at all Important

(NI)

- The supply chain organization does not understand the impact of

supply risks.

- The company and staff had no experience in handling supply risk.

- The staff is not trained in risk management.

The second portion of the survey contains closed questions to find out the effective strategy

in reducing the effect of electronic component’s EOL as the main supply risk. When asking the

respondent to assess the effectiveness on certain statements, a Likert scale was used as shown

in table 2.




Table 2: Level of Effectiveness in Likert Scale

Scale Description

4 = Very Effective

(VE)

It is very effective if it is easy to implement, it is cost efficient and there is

100% support from the management and supply chain organization.

3 = Effective (E) It is effective if it is easy to implement, it is cost efficient, and there is

greater number of support from the supply chain organization.

2 = Less Effective

(LE)

It is less effective if it is easy to implement, it is expensive and there is less

number of support from the supply chain organization.

1 = Not Effective

(NE)

It is not effective if it is hard to implement, it is expensive and there is no

support from the supply chain organization.

4.3 Research Respondents

The target respondents to this study are the people behind the supply chain operations and

involved in the supply risk management of the CECs. This is the population working on the

procurement, sourcing or production, or the people working in identifying and analyzing

possible supply risks and uncertainties. They hold the positions such as supply chain managers,

sourcing managers, procurement managers, planners, buyers and associates, or any personnel

working on supply risk management such as administrators, accountants, engineers,

consultants, etc. The target companies are the selected CECs that include outsource production,

contract manufacturers and research and development sites in Metro Cebu located in various

economic zones in the metropolis. Metro Cebu is composed of the cities of Cebu, Mandaue,

Lapu-Lapu, Talisay, Naga and Danao, and the municipalities of Consolacion, Liloan and

Minglanilla. However, the concentration of the respondents is located in three economic zones

in Lapu-Lapu City.

4.4 Data

First and foremost, this study utilized a secondary data from a consumer electronics

company that identifies the list of supply risks encountered from 2011 to 2016 as presented in

a Pareto diagram in figure 1 and analyzed using FMEA in table 3. These tools are two of the

most popular quality control tools used in engineering, manufacturing and other production

environment.

The empirical portion of the research used a survey questionnaire to study the importance

of supply risk management implementation in selected CECs in Metro Cebu and the effective

risk mitigation strategies in reducing the effect of electronic component’s EOL. Moreover,

survey questionnaire is a good instrument for an empirical study targeting the practitioners with

their untapped expertise in all four phases of supply risk management.

The next sub-sections will discuss the risk identification and assessment using the secondary

data from a consumer electronics company. Next is the study on supply risk management in

selected CECs in Metro Cebu. Finally, the data findings from the survey questionnaires.




4.4.1 Electronic Component’s EOL as the Primary Supply Risk

This study focused on the idea that electronic component’s EOL is the primary supply risk

in recent years. A data from a multinational CEC in Metro Cebu revealed that electronic

component’s EOL is the highest supply risk encountered from year 2011 to 2016 (Lexmark

International Inc., 2017). The consolidation of ECMs for the past years heightens not only EOL,

but also the other supply risks as identified in figure 4. Using FMEA to analyze the list of supply

risk identified, the researchers concluded that EOL is the highest supply risk in electronic

components as shown in table 3. By using the Pareto diagram and FMEA tools, we can identify

and analyze which supply risk to focus on. This study utilized this finding and proceeded with

survey questionnaires reaching more practitioners in the supply chain organizations in CECs in

Metro Cebu that will be discussed in the next section.

Figure 4: Pareto Diagram of Supply Risks on a Consumer Electronics Company

Table 3: FMEA of the Top 4 Supply Risks

Failure Mode and Effects Analysis (FMEA)

Process name: Supply risk identification and analysis

Failure Mode

A. Severity

B. Probability of

Occurrence

C. Probability of

Detection

Risk Preference

Number (RPN)

10 = Most Severe 10 = Highest 10 = Lowest RPN=AxBxC

End-of-Life (EOL) 9 9 8 648

Part Change Notice (PCN) 6 10 9 540

Single Sourced 10 4 7 280

Part Number Modification 5 10 9 450




4.4.2 The Study on Supply Risk Management in Selected CECs in Metro Cebu

This study used the convenience sampling technique. A convenience sample is a specific

type of non-probability sampling method that relies on data collection from population

members who are conveniently available to participate in study (Research Methodology, n.d.).

There were 26 CECs identified to participate in this study. Ten (10) CECs gladly

participated, and 5 CECs without any local supply chain organization agreed not to participate

because it will not provide the correct respondents. Unfortunately, 6 CECs declined to

participate due to proprietary information that needs to be protected, and 5 CECs were

undecided to participate as of this writing. For this reason, this study opted to use convenience

sampling because the CECs’ consent created the limitation to produce probability sampling to

the target respondents. Nevertheless, the 10 CECs participated distinctly represented the CEC

industry in Metro Cebu.

There were 21 respondents from 10 CECs who participated in the research survey. Managers

were the highest respondents at 38% of the population, followed by supply chain staff and

buyers/purchasers both at 19%, administration at 14% and engineers at 10%. The 90% of the

CECs had their production site located in Metro Cebu, while the rest (10%) had their contract

manufacturers located in China. On the other hand, the CECs who allowed the research study

were initially hesitant and asked more information about the affiliated organization of the

researcher for the fear of revealing vital information to competitors. The research

questionnaires went through stringent approval process from the management before it reached

the target respondents.

Table 4: Percentage of Respondents

Position Number of

Respondents Percentage

Engineers 2 10%

Buyers/Purchasers 4 19%

Managers 8 38%

Administration Staff 3 14%

Supply Chain Staff 4 19%

TOTAL 21 100%

4.4.3 The Importance of Supply Risk Management Implementation

As shown in table 5, majority agreed that the implementation of supply risk management is

very important to the selected consumer electronics companies in Metro Cebu. All of the supply

risk management concept statements are all within the 3.5 to 4.0 range, resulting to 3.7

computed grand mean that is equivalent to “Very Important” scale. This means that the local

CEC industry understands the impact of supply risks to the business. The companies and staff




had the experiences and are trained to deal the uncertainties from global suppliers. Hence, the

alternative hypotheses (HA1) is accepted while the null hypotheses (HO1) is rejected.

Table 5: Supply Risk Management Concept

Supply Risk Management Concept

Respondents’ Assessment

(VI)

4

(I)

3

(LI)

2

(NI)

1 x̅

1.) Implementation of supply risk management as part of the supply chain

management.

19 2 0 0 3.9

2.) Top management fully supports the implementation of supply risk

management.

19 2 0 0 3.9

3.) Customers and suppliers are committed to the implementation of the

company’s supply risk management.

12 9 0 0 3.6

4.) The implementation of supply risk management is communicated to

employees in all level.

12 7 2 0 3.5

5.) Process steps and responsibilities are clearly outlined during the

implementation of supply risk management.

18 3 0 0 3.7

6.) Tools and methods in identifying and analyzing supply risk are provided

during the implementation of supply risk management.

15 6 0 0 3.7

7.) Risk mitigation plans are discussed and implemented.

14 7 0 0 3.7

8.) Risk monitoring and documentation are conducted during and after the

implementation of supply risk management.

14 7 0 0 3.7

9.) Implementation of supply risk management is a continuous and never-ending

process.

11 10 0 0 3.5

Total 3.7

Legend:

Range Scale

3.5–4.0 Very Important

2.5–3.4 Important

1.5–2.4 Less Important

0–1.4 Not at all Important

It is worth noticing, when the respondents were asked to assess the level of importance of

the implementation of supply risk management communicated to employees in all levels, an

interesting spread-out of data revealed that 10% of the informants indicated that the

implementation of supply risk management as less important. However, 57% emphasized that

it is very important, and 33% indicated it is important. Notwithstanding, the computed mean of

3.5 indicated that the communication of the implementation of supply risk management to

employees in all levels is very important as illustrated in figure 5.




Figure 5: Communication to Employees in all Levels

4.4.4 Risk Mitigation Strategies’ Effectiveness in Reducing the Effect of Electronic Component’s

EOL

Table 6 shows the respondents’ assessment of the level of effectiveness of the five risk

mitigation strategies. All of the strategies are within the 2.5 to 3.4 range scale, which means

they are all identified by respondents as effective strategies. This means that all five risk

mitigation strategies are effective in reducing the effect of electronic component’s EOL. Hence,

the alternative hypothesis (HA21, HA22, HA23, HA24, HA25) are accepted while the null hypothesis

(HO21, HO22, HO23, HO24, HO25) are rejected.

Table 6: Risk Mitigation Strategies

Risk Mitigation Strategies

Respondents’ Assessment

(VE)

4

(E)

3

(LE)

2

(NE)

1 x̅

1.) Reducing the effect of Electronic Component’s EOL by implementing

the “Risk transfer” strategy.

8 3 0 0 3.38


the “Risk avoidance” strategy.

7 14 0 0 3.33


the “Risk buffering” strategy.

5 13 3 0 3.00


the “Risk control” strategy.

6 13 2 0 3.19


the “Risk acceptance” strategy.

4 13 3 1 2.95

Legend:

Range Scale

3.5–4.0 Very Effective

2.5–3.4 Effective

12, 57%

7, 33%

2, 10%

The implementation of supply risk management is

communicated to employees in all levels.

Very Important

Important

Less Important




1.5–2.4 Less Effective

0–1.4 Not Effective

Additionally, the table shows another interesting data: three respondents believed that “Risk

Buffering” is a less-effective strategy, while “Risk Control” had two respondents indicated as

such. It is interesting to note that three respondents identified “Risk Acceptance” as less

effective, and another one thought it is not an effective strategy.

Figure 6 shows the distribution of the respondents’ assessment of the effectiveness of five

risk mitigation strategies in reducing the effective of electronic component’s EOL. “Risk

Transfer” still leads the number of respondents who identified it as a very effective strategy.

Another interesting finding: those who identified “Risk Acceptance,” “Risk Buffering” and

“Risk Acceptance” as less/not effective were the four buyers/purchasers. Although, their

answers are not enough to reject the alternative hypothesis (HA23, HA24, HA25). It is essential to

note that these are the people who work directly with suppliers and distributors and are

immediately exposed to all types of supply risks. Finally, it is evident that majority of the

respondents believed that all of the strategies are effective as the concentration of the

distribution are in “Effective” and “Very Effective” scales.

Figure 6: Respondents’ Level of Effectiveness to the Risk Mitigation Strategies

6. Results and Discussion

The findings of the study show that the selected CECs in Metro Cebu recognized the

importance of the implementation of supply risk management in reducing the effect of

electronic component’s EOL caused by the mergers of ECMs.

All respondents agreed that supply risk management should be part of the supply chain

management and that all had the knowledge to implement it. These companies understand the

impact of EOL as supply risk and had trained and experienced staff to manage them. There is

0

2

4

6

8

10

12

14

Very Effective Effective Less Effective Not Effective

Risk Transfer

Risk Avoidance

Risk Control

Risk Buffering

Risk Acceptance




no doubt that the top managements had the full support and that the customers and suppliers

are committed.

Although most respondents believed that communication to employees in all levels is very

important, a few respondents in management roles believe it is less important. This is an

opportunity for improvement on reviewing corporate communication strategies. Furthermore,

majority indicated the importance of having clearly outlined process steps and responsibilities.

The study did not focus on the specifics of the process applied. Requiring details may touch

on sensitive and confidential information. Notwithstanding this anticipated objection, a few still

declined to participate. Again, the study did not dig deeper on the tools and methods used in

identifying and analyzing supply risks. However, the researcher indicated to these respondents

that more important than anything else was their availability during the implementation of the

supply risk management and their willingness to supply information that pertains to the supply

risk management implementation.

Companies may use different sets of tools and methods that could be business-strategic

advantages. This could be an opportunity for another research study to identify the commonly

used tools and methods in CECs so that other industries may emulate them in their environment.

Finally, all respondents agreed that it is very important that implementation of supply risk

management is a continuous and never-ending process.

The second part of the study focused on the effectiveness of five risk mitigation strategies

in reducing the effect of electronic component’s EOL. Majority of the respondents indicated

that the five strategies are effective in reducing the effect of electronic component’s EOL.

Moreover, the data unfolded that “Risk Transfer” is the most effective risk mitigation

strategy; however, the study was not conducted to identify the more popular risk mitigation

strategies. To be able to discover which strategy is more effective, there exists the logical

necessity of implementing all the five strategies, thus making available the opportunity of

comparison based on actual observation. It was almost axiomatic that is there is no single

strategy that will reduce the effect of electronic component’s EOL. All of them are important

as companies tend to combine one or more of the strategies. According to Terje Aven (2016),

in most cases the appropriate strategy would be a mixture of all strategies.

The relationship to the suppliers is another factor to consider before adopting any of them.

Electronic components come in wide variety of types, and no single strategy will be effective

enough to address the electronic component’s EOL.

7. Conclusion and Recommendations

The study concluded that all selected CECs in Metro Cebu recognized the importance of the

implementation of supply risk management. The five risk mitigation strategies are all effective

in reducing the financial loss as the effect of electronic component’s EOL. “Risk Transfer” may




come out as the most effective risk mitigation strategy, but it is best paired up with other risk

mitigation strategies in this study. The following sub-section includes implications for practice,

research limitation and direction for future research.

Implications for Practice

There are significant implications for practitioners and researchers from this study. First,

this study provides empirical evidence of the importance of supply risk management

implementation in CECs in Metro Cebu and that the five risk mitigation strategies are effective

in mitigation the effect of electronic component’s EOL as the supply risk. It is worthwhile

noticing that several local CECs are hesitant to participate because supply risk management is

part of the company’s strategic management and that competitors may use them to win the

competition. Likewise, this study provides the basis to other supply chain practitioners wanting

to adopt the supply risk management concept and the five risk mitigation strategies

efficacy. CECs that declined to participate may find this research study as valuable information

in the implementation of supply risk management to their respective companies. In future

studies, the non-participating companies may find this study useful and may decide to

participate in related studies in the future.

Second, this study empirically analyzed the direct relationship of the supply risk and

financial loss. However, the compelling result is the groundwork of the locally conducted

supply risk management. The supply risk management concept may be relevant to other

neighboring manufacturing companies because it presented the framework to improve their

relationship to CECs if they intend or are already part of the supply chain level of echelons.

Last, this study may be relevant to researchers and academe because it concerted the locally

conducted study in the fields of supply risk, supply risk management and risk mitigation

strategy inadequately represented in emerging economies like the Philippines and in indexed

journals. Furthermore, this may provide direction to future empirical studies to local researchers

in the Philippines.

Research Limitation

This study has three limitations. First, we isolate our attention to electronic component’s

EOL as the primary supply risk among all other supply risk identified in figure 4. Other supply

risks may have direct or indirect relationship to supply risk factors and mergers of ECMs’ event.

However, it will produce multiple independent variables with intertwining relationships among

supply risks that could bring confliction to the theoretical framework.

Second, the literature review did not include conference proceedings, theses and

dissertations due to limited access to local universities archives. Access to these references

would reveal empirical studies in the field of SCRM that were not published in indexed

journals, and that could influence the direction of this research paper. As mentioned by some

authors, the SCRM field in recent years is dominated by mathematical approach and lacking




with empirical evidences (Gunasekan, Subramanian and Rahman, 2015; Li et al., 2015).

Empirical validation to these quantitative and qualitative methods suggested as part of the

future research that could be the direction of these local references.

Last, some of the companies and practitioners did not allow further interactions. Others

declined to allow survey due to topic that may expose confidential information. However, very

few allowed quick interviews to provide directions to researchers. This limits the research study

to apply close-ended survey questionnaires as the quickest way to reach the key personnel

without having too much time spending on it. It makes sense conducting surveys and quick

interviews during conferences and conventions as practitioners are out from work and are open

to interaction (Sodhi, Son and Tang, 2011).

Direction for Future Research

First, future research studies should examine the other potential effect of electronic

component’s EOL as the supply risk. Aside from financial loss, there are other potential

consequences like operational, social, environmental, relational, and strategic (Giannakis and

Papadopoulus, 2017).

Second, it would be interesting to monetize the estimated financial impact of electronic

component’s EOL and other supply risks. The following studies (Carbonara and Pellegrino,

2017; Hendricks, Jacobs and Singhal, 2017; Kirilmaz and Erol, 2017; Qazi et al., 2015)

provided several approaches and computational models that can be imitated in monetizing

financial losses.

Third, another worth for future research is the combination of two or more risk mitigation

strategies in mitigating the financial loss as the effect of electronic component’s EOL and other

supply risks. As exposed from the data results, there is no single risk mitigation strategy that

stands out among the rest. Nonetheless, the combination of two or more might yield a better

result. Studies from Qazi et al. (2015) and Yoon et al. (2017) revealed methods and approaches

in combining strategies in mitigation supply chain risks that can be benchmarked.

Last, it is interesting to know the importance of supply risk management implementation to

other industries in Metro Cebu. Like CECs, these industries have their raw materials and

suppliers from all over the world. Food processing, mechanical works, plastic molding and

garment industries are abundantly scattered in the metropolis. They may use the International

Standard Organization 31000:2009 as the basic standard for risk management. The process may

be the same, but the tools and methods in identifying and analyzing supply risks may differ

depending on each industry’s application.




Appendix

Summary of Supply Risk Factors

(Ho, Zheng, Yildiz and Talluri, 2015)

Summary of Risk Mitigation Strategies in SCRM Field (2013–2017)

Risk Mitigation Strategies in SCRM Authors

Increase capacity, Increase inventory, Increase

responsiveness, Increase flexibility, Aggregate demand,

Increase capability, Redundant suppliers

Talluri et al. (2013)

Adjust supply chain design, Flexible supply base, Flexible

supply contracts, Dynamic assortment planning, Aggregate

or pool demand, Adding capacity, Standardization, Increase

agility, Concurrent processes, Increase collaboration,

Reducing bullwhips, Cross-trained employee, Postponement,

Rationalize product range, Strategic stocking, Flexible

transportation, Revenue management, Silent product

rollover, Have more customer accounts, Responsive pricing

strategies, Using insurance.

Rajesh, Ravi and Rao (2014)

Avoidance, Sharing/Transferring, Insure, Postponement,

Accept

Rokou and Kirytopoulos (2014)

Avoidance, Preventive, Mitigation, Co-operation, Insurance,

Retention

Giannakis and Papadopoulos (2015)

Macro, Demand, Manufacturing, Supply, Transportation,

Financial, Information, General

Ho et al. (2015)

Risk-Informed, Cautionary/Pre-cautionary, Discursive

strategies

Terje Aven (2016)

Supply Risk Factors Authors

1. Inability to handle volume demand changes

2. Failures to make delivery requirements

3. Cannot provide competitive pricing

4. Technologically behind competitors

5. Inability to meet quality requirements

6. Supplier bankruptcy

7. Single supply sourcing

8. Small supply base

9. Suppliers’ dependency

10. Supply responsiveness

11. High capacity utilization at supply source

12. Global outsourcing

13. Narrow number of intermediate suppliers

14. Lack of intermediate suppliers

15. Lack of integration with suppliers

16. Lack of suppliers’ visibility

17. Supplier management

18. Supplier market strength

19. Supplier opportunism

20. Monopoly

21. Selection of wrong partner

22. Transit time variability

23. Contractual agreements

24. Low technical reliability

25. Supplier fulfillment errors

26. Sudden hike in costs

Zsidisin and Ellram (2003)

Chopra and Sodhi (2004)

Cuchiella and Gastaldi (2006)

Gaudenzi and Borghesi (2006)

Wu, Blackhurst and Chidambaram (2006)

Kull and Talluri (2008)

Manuj and Mentzer (2008)

Schoenherr, Tummala and Harrison (2008)

Tsai (2008)

Tuncel and Alpan (2010)

Wagner and Neshat (2010)

Tummala and Schoenherr (2011)

Hahn and Kuhn (2012a)

Samvedi, Jain and Chan (2013)




Product postponement, Strategic stock, Multiple sourcing,

Make and buy

Carbonara and Pellegrino (2017)

Avoidance, Control, Co-operation, Flexibility Kirilmaz and Erol (2017)

Upstream risk mitigation/Redundancy, Upstream risk

mitigation/Flexibility, Downstream risk

mitigation/Redundancy, Downstream risk

mitigation/Flexibility

Yoon et al. (2017)

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