Managing Supplier Sustainability Risk: An Experimental Study

Abstract

Buying firms are increasingly exposed to sustainability risk arising from negative conditions or potential events in their supply base that might provoke adverse stakeholder reactions. Procurement managers at these firms can pursue multiple strategies to address this risk with suppliers, including acceptance, monitoring-based mitigation, avoidance, and collaboration-based mitigation. This study aims to investigate how perceived risk, supplier dependence and financial slack resources contribute to the strategic preferences of these managers. A vignette-based experiment with procurement managers is used to examine the factors affecting the managers’ strategic preferences in managing supplier sustainability risk. The empirical results revealed that the procurement managers’ preference for avoidance or collaboration strategies was stronger when they perceived higher risk, but their preference varied based on the degree of supplier dependence. Specifically, when they perceived a high level of risk, procurement managers were more inclined toward a monitoring strategy with dependent suppliers and preferred an avoidance strategy when they dealt with independent ones. Financial slack was also an influential factor: managers with more slack at their disposal preferred to collaborate with suppliers to address the risk; on the other hand, limited slack shifted their preference toward an acceptance strategy, regardless of the level of risk. This study helps to develop a more nuanced picture of how procurement managers make challenging and complex trade-offs when responding to supplier sustainability risk.