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Leverage risks for supply chain Leverage risks

for supply
robustness against corruption chain
robustness
Xiaojing Liu
School of Economics and Management, Zhejing Sci-Tech University,
Hangzhou, China and
ISOM Department, Business School, The University of Auckland,
Received 28 October 2020
Auckland, New Zealand Revised 26 February 2021
Tiru Arthanari Accepted 23 March 2021

ISOM Department, Business School, The University of Auckland,

Auckland, New Zealand, and
Yangyan Shi
School of Economics and Management, Shanxi University, Taiyuan, China and
Department of Management, Macquarie Business School, Macquarie University,
Sydney, Australia

Abstract
Purpose – This paper examines the establishment of supply chain robustness against corruption by utilizing
risk interactions.
Design/methodology/approach – Based on empirical results from the New Zealand dairy industry, a
system dynamics model is established to explore the underlying relationships among variables.
Findings – The results show that although certain supply chain risks seem unrelated to corruption, their
mitigation would help mitigate the impact of corruption due to risk interactions; and mitigation of some of the
risks is more effective in mitigating the impact of corruption. Leverage risks have been defined and identified in
this research, which expands the extant knowledge in reducing the impact of corruption on supply chains.
Originality/value – The research illustrates how the impact of corruption can be studied in an integrated way
with dairy supply chain SD analysis. It is a pioneering study to mitigate the impact of corruption on supply
chains from supply chain robustness.
Keywords Corruption, Supply chain robustness, Risk management, System dynamics modeling,
Dairy industry, New Zealand
Paper type Research paper

1. Introduction
Corruption is pervasive in both public and private sectors, as can be seen from various cases
illustrating the impact of corruption on supply chains, such as the bribery case of Rolls-Royce
(Watt et al., 2017). Corruption in supply chains can penetrate every aspect of business operations
(Transparency International, 2009), such as Volkswagen’s emission scandal in 2015. According to
PwC’s 2018 Global Economic Crime and Fraud Survey (PwC, 2018), bribery and corruption were
ranked among the top five supply chain problems in consumer, professional and industrial
products. The threat of corruption to the private sector and supply chains has been demonstrated
by Webb (2016), who stressed that the Global Declaration against Corruption in 2016 tackled very
little business activity. In both developed and developing territories, only around one-third of
organizations conduct a risk assessment on anti-bribery and corruption (PwC, 2018).

Dr. Xiaojing Liu thanks China Scholarship Council for supporting the doctoral study at the University of
Industrial Management & Data
Auckland. Dr. Yangyan Shi thanks the key fund programme for the Scientific Activities of Selected Systems
Returned Overseas Professionals in Shanxi Province [2018, RSC1617] and the programme for the Top © Emerald Publishing Limited
0263-5577
Young Academic Leaders of Higher Learning Institutions of Shanxi [TYAL, 2019052009]. DOI 10.1108/IMDS-10-2020-0587
IMDS Corruption is an issue that influences supply chain management. In global supply
chains, the potential for corruption is raised because of more people and firms being
involved, the difference of domestic standards, and the large volumes of transportation of
goods and services across different boundaries (Monterio et al., 2018). Also, corruption and
supply chain management are directly referred in the scope of Goal 12 of the sustainable
development goals (SDGs), proposed by the United Nations (UNs) (Scheyvens et al., 2016).
Supply chain relationships are more complicated in dealing with products and services
with enormous international supply chain players. As a widespread and persistent
problem, corruption has undergone many research studies from various perspectives. In
recent years, there has been a transfer in corruption studies from country-level to firm-level
data (Jensen et al., 2010), from macro-level to micro-level (Hauser and Hogenacker, 2014),
and from public sector to private sector (S€o€ot et al., 2016). Corruption is rarely studied in
operations and supply chain management (Arnold et al., 2012). Also, many existing studies
focus on studying corruption prevention (Arnold et al., 2012; S€o€ot, 2012; S€o€ot et al., 2016)
rather than its mitigation. Eliminating corruption as a preventive strategy is hard to
accomplish. An attempt to mitigate the harmful effects is a viable option. An early
conceptual study has discussed corruption’s impact on supply chain performance (SCP)
(Liu et al., 2019).
Supply chain robustness is imperative when considering corruption. A supply chain that
can resist change while keeping the initial stable configuration is robust (Wieland and
Wallenburg, 2012). Pursuing the mitigation of corruption’s impact could be deemed as
robustifying supply chains against corruption. The effect of supply chain risks (SCRs) would be
different in a corruption-free and a corruption-impacted supply chain. From this perspective, we
consider corruption an external factor, explore its modification to the effect of SCRs, and
investigate how to robustify supply chains against corruption based on SCR interactions.
Supply chains with risk interference produce certain performances, constituting an
intricate system. It is essential to conduct an in-depth examination of such a system’s model
and elaborate risk interactions. This would make it possible to incorporate the study of
corruption into this model. Corruption modifies the SCR effect, which means it is connected
with risk variables. Corruption is linked to the complexity of SCR interactions, which
increases the whole system’s overall complexity. This connection means that the impact of
corruption on supply chains may be mitigated indirectly through mitigating SCRs.
Mitigating each risk to various degrees subsequently adjusts the effect of corruption. It is
critical to identify specific risks – leverage risks proposed in this paper, based on SD modeling
and simulation, and to explore how to mitigate the impact of corruption on supply chains, that
is, to robustify supply chains against corruption.
This research attempts to operationalize the robustness analysis through dynamic simulation
rather than remain at a qualitative level. Accordingly, two research questions are raised.
RQ1. How can a dynamic model of the system that integrates corruption’s impact on
SCRs, consequently, on SCP, be established?
RQ2. What risks can be mitigated to effectively make supply chains robust against
corruption’s impact?
The remainder of this paper is set out in sections. Section 2 reviews existing studies on supply
chain risk management (SCRM), supply chain robustness, and supply chain robustness
against corruption. Section 3 studies the interactions among the relevant variables derived
from empirical research: an SD model is constructed to illustrate those interactions, and
scenarios and simulation analysis are presented. Section 4 discusses the research findings
and current studies. Section 5 presents managerial implications, and Section 6 offers a
summary, contributions and limitations.
2. Literature review Leverage risks
2.1 Supply chain risk management (SCRM) for supply
The phases of implementation of SCRM have been widely researched, either on individual
phases (Chen et al., 2013; Christopher and Lee, 2004; Neiger et al., 2009) or integrated process
chain
(Bandaly et al., 2012; Harland et al., 2003). Ho et al. (2015) concluded that most researchers focus robustness
on the individual process rather than the integrated approach. An early paper (Liu and
Arthanari, 2014) provided a summary of articles on SCRM process from the dimensions of risk
analysis (risk identification, estimation and evaluation) and risk control (risk mitigation and
monitoring). For different SCRM phases, approaches were presented, such as risk identification
method (Kayis and Karningsih, 2012; Neiger et al., 2009) and risk mitigation strategies (Oke and
Gopalakrishnan, 2009; Peng et al., 2014). SCRM process incorporates several phases. However,
there is a lack of research from the holistic viewpoint (Fan et al., 2017; Fan and Stevenson, 2018).
SCRs refer to risks that transmit among supply chain members (Li et al., 2015). Many
scholars have noted the risk propagation (Basole and Bellamy, 2014; Dolgui et al., 2018;
Sokolov et al., 2016), resulting in disastrous consequences (Waters, 2011). Bandaly et al. (2012)
argued that risk management in supply chains does not mean managing specific risks using
different independent approaches. They provided three reasons: SCRs are interrelated;
mitigating one risk may increase the occurrence probability of another risk; and mitigating
risks by one supply chain member may produce risks for other members in the supply chain.
Decision-making regarding SCRs may become risky with narrow information (Gaudenzi and
Borghesi, 2006). Oehmen et al. (2009) highlighted the role of the system of SCRM to analyze
the causes and effects of SCRs and dynamic behavior. Furthermore, Prakash et al. (2017a)
suggested the necessity of adopting a systems-based integrated approach.
The critical risks have to be identified and mitigated based on the domino effect in the
complicated risk inter-relationships (Fan and Stevenson, 2018; Oliveira et al., 2019; Venkatesh
et al., 2015). The primary focus of existing literature is to present mitigation of critical risks for
minimizing risk effects on SCP. However, our research focuses on mitigation of leverage risks
for minimizing the external factor – corruption’s impact on SCP.

2.2 Supply chain robustness

The definition of supply chain robustness is not clearly defined (Durach et al., 2015; Vlajic
et al., 2012; Wieland and Wallenburg, 2012). According to Wieland and Wallenburg (2012),
supply chain robustness means “the ability of a supply chain to resist change without
adapting its initial stable configuration.” Durach et al. (2015) defined it as “the ability of a
supply chain to resist or avoid change.” Wieland and Wallenburg (2012) found that SCRM is
crucial for supply chain robustness. In the research model, SCRM was one construct that
affected robustness. Differently, in a recent study by Baz and Ruel (In press), four stages of
implementing SCRM (i.e. risk identification, risk assessment, risk mitigation and risk control)
were detailed and individually listed as four constructs. They proposed that only risk
identification and risk control positively affect supply chain robustness.
Studies on supply chain robustness are conducted from qualitative conceptual and
quantitative modeling levels (Vlajic et al., 2012). They construct an integrated framework to
design a robust supply chain. The procedures can be followed to identify disturbances and
vulnerability sources and explore appropriate redesign strategies for a robust supply chain.
To better understand supply chain robustness, Durach et al. (2015) examined its multi-
dimensional nature and built a theoretical framework of this construct. In terms of the
quantitative modeling level, Vlajic et al. (2012) stated that supply chain robustness is
primarily employed in modeling solutions or solving supply chain problems (planning,
inventory management, network design, etc.). For instance, Pan and Nagi (2010) studied the
robust supply chain design problem under demand uncertainties. Production planning was
considered together with supply chain design, and a robust optimization program was
IMDS established for analysis. Jabbarzadeh et al. (2017) recognized the simultaneous consideration
of supply and demand uncertainties and showed a production-distribution planning model
that can effectively control those variations.
Vlajic et al. (2012) suggested that little research focused on the measurement of supply
chain robustness. Qiang et al. (2009) and Vlajic et al. (2012) proposed approaches to measure it.
The difference lies in the manner of calculation, where Qiang et al. (2009) considered
robustness at a pre-specified disruption level, while Vlajic et al. (2012) predefined the desired
robustness range for key performance indicators.

2.3 Supply chain robustness against corruption

A broad range of studies on supply chain robustness considers risks from a general and non-
targeted perspective. Risks interfering with supply chain activities can have distinct features.
As various types of SCRs emerge, Wieland and Wallenburg (2013) suggested that the impact
of risk types (e.g. every day vs exceptional risks) deserves the consideration of supply chain
robustness studies. Corruption, regarded as an external factor, modifies the risks in supply
chains, a specific disruption for research in its impact on supply chains.
The phenomenon of corruption in supply chain management would have economic, social,
and environmental impacts. Although there is growing interest in private sector corruption,
systematic research remains very scarce. S€o€ot et al. (2016) examined managers’ perceptions of
private sector corruption risks and the relationships between managers’ perceptions of
corruption risks and strategies for preventing corruption. Arnold et al. (2012) assert that no
research focused on corruptive behavior in operations and supply chain management,
conducting case studies and identifying the factors contributing to a firm’s inclination
towards corruption. Liu et al. (2019) make a qualitative study of supply chain robustness
against corruption. Baseased Liu et al.’s study, this research paper will construct a dynamic
model further to explore the underlying dynamics to operationalize the robustness analysis,
attempting to fill the gap in this research stream. Based on existing studies, little research
focuses on corruption in the context of supply chain management, which is similar to the
conclusion of de Sousa Monteiro et al. (2018). It is imperative to quantify risks (Schmitt and
Singh, 2012), delve into the system’s feedback, and explore the underlying dynamics.
Adopting a systemic view of SCRs helps develop mitigation strategies to improve supply
chain robustness against corruption.

3. Research model of managing SCRs against corruption

In this research, we use the methodology of combining the case study method and SD
modeling. Case studies were conducted to explore SCRs and the impact of corruption in the
dairy sector. Based on the empirical results derived from Liu et al. (2019), we developed an SD
model for SD analysis.
Gr€oßler et al. (2008) claimed that SD is highly appropriate for studying operations
management. It copes with supply chain problems from a high-level view and uses simulation
under different scenarios facilitating policy selection for business decision-makers. This
method has also been explicitly employed for risk management issues in the supply chain
context. Mehrjoo and Pasek (2016) constructed an SD model to assess risks and explore risk
impact on SCP in the fast fashion apparel industry. However, Thiel et al. (2014) noted the
scarcity of simulation used in food supply chain management.
There are only a few studies of corruption using SD. Ullah et al. (2012) are the first to build
an SD model for a comprehensive corruption system, including various corruption-related
aspects such as culture, economy, and politics. Cosenz and Noto (2014) analyzed firm-level
corruption on company performance by SD modeling. These researchers investigated
corruption in the public sector attracting numerous concerns. However, there is little SD
research on corruption in the private sector. Transparency International (2009) indicated that
private sector corruption occupies a significant proportion of corruption in supply chains. In Leverage risks
our paper, we attempt to focus on corruption by incorporating the study of corruption into for supply
supply chain operations.
From the discussions above, we find it insightful to apply SD to explore supply chain
chain
management, to identify underlying dynamics in dairy supply chains, and to examine the robustness
corruption-impacted supply chains for effective management.
There are five phases in the systems thinking and modeling process: problem structuring,
causal loop diagram (CLD); dynamic modeling; scenario planning and modeling; and
implementation and organizational learning (Maani and Cavana, 2007). The SD modeling
application is introduced as system structure, CLD development; dynamic model construction;
data settings and model validation; and scenario analysis and simulation results.

3.1 System structure

According to Benbasat et al. (1987), case study research is more suitable for research at the
stages of exploration, classification, and hypothesis development. This study explores the
interrelationships between SCRs and corruption. We chose companies in NZ dairy supply
chains for data collection. The companies were contacted by email or phone under ethics
approval, and we focused on particular positions when selecting interviewees. Ten
interviewees from seven dairy firms participated in our research project. The respondents
were from senior executive positions, which can be expected to have comprehensive
knowledge and experience related to the entire supply chain. The adoption of semi-structured
interviews helped to deeply explore SCRs and the impact of corruption in supply chains. The
semi-structured interview questions were prepared as a guide, and the respondents were free
to add further comments in terms of their practical experiences. Our initial models were
available for respondents, assisting their overall comprehension and contributing to model
construction. In addition, email communication with the respondents was adopted to collect
further data. The establishment of risk variables and their interrelationships was completed
in the use of thematic analysis. Table 1 shows the primary causes, risk events, and associated
effects.
The dairy supply chain of focus is a three-echelon supply chain: suppliers, the focal firm,
and customers. Supplies are from two primary sources: raw milk, and materials [1] to produce
dairy products. The focal firm is the dairy company processing raw milk and materials into
various dairy products. Customers are the firms or agents which purchase the products from
the focal firm. The products are either ingredients which are further processed by customers,
or finished market products.
Figure 1 presents the dairy supply chain structure showing supply chain operations with
risks in general. The lower part shows the normal operations of the dairy supply chain.
Materials flow through suppliers, the focal firm, and on to customers. Information from the
customer end is transferred upstream. The production and procuring schedules are
determined based on the customer demand forecast and inventory. The upper part reflects
the SCR variables and their interactions, which affect supply chain operations and
performance. Risks occurring in different nodes and links are shown as dotted lines. Solid
lines in the upper part are the causes and effects of different variables.
Corruption in supply chains has various effects for different stakeholders, such as
suppliers and the focal firm. In this research, these impacts are determined based on existing
studies and interview findings, consisting of two primary aspects: raw material price, and
customer order.
The empirical findings contribute to the establishment of the risk variables and their
interrelationships. SD modeling can identify such interrelationships and illustrate the
underlying dynamics.
IMDS Causes Risk events Effects

Contamination; Raw milk quality audit inaccuracy Poor raw milk Milk production volume
quality
International supply and demand Milk solids price Payment to farmers
fluctuation
Weather Raw milk volume Raw milk volume
fluctuation
Out of specifications Poor raw material Volume of accepted raw
quality materials
Plant downtimes; Human errors Process instability Loss of processing or plant
availability; Product quality
Contamination from any part of the process; Raw Poor product Product remake; Product
material quality; Product specification quality delivery delay
international supply and demand Product price Product price; Customer order
fluctuation
Accident; Product quality Product delivery Product delivery time
delay
Table 1. Economic conditions; Legal and political issues; Customer order Sales in the market
Main risk indicators Noncompliance; Technology innovations fluctuation

Profit

Price fluctuation
of raw milk and
Product price fluctuation
raw materials
Poor product quality
Raw milk production
fluctuation
Customer order fluctuation
Poor raw milk Poor raw
quality material quality
Process instability Product delivery delay

Suppliers Delivery The focal firm Distribution

Customers
Raw milk and raw Dairy product Product inventory
materials processing & inventory

Figure 1. Producing and

Overview of dairy order to suppliers
Demand forecast Customer order
supply chain
operations
incorporating risks

3.2 CLD development

In this paper, the SD model is the refinement of the models proposed by Liu and Arthanari
(2016). The normal dairy supply chain shows the operation process, which was constructed
mainly based on Sterman (2000).
 A CLD has been developed in Liu et al. (2019), reflecting detailed indicators and their Leverage risks
relationships. Figure 2 illustrates the main feedback loops showing the operational and for supply
accompanying activities. The reinforcing loop highlights the reinforcement in the product
transferring process covering procurement, processing, and sales. The balancing loop
chain
considers the issue of cost, which acts against the increasing trend. The internal feedback robustness
loops have been elaborated in that paper. Risk variables are associated with supply chain
operations by affecting the operational indicators; corruption modifies the entire system
as an external variable.

3.3 Dynamic model construction

A stock and flow diagram (SFD) quantitatively describes variables and their logical
relationships. Using SFDs, a numerical foundation is acquired for an SD model (Forrester,
1961; Sterman, 2000). In this regard, an SFD is needed to distinguish variable types and
comprehensively illustrate the internal structure, thus providing the basis for the simulation
of the system’s behavior over time.
When various risks are considered together in the same system, the relationships become
complicated. In this research, the model was established and simulated via the software
iThink 9.1.4 – a model builder with a graphical interface provided by isee systems. We present
the dynamic model from two aspects: supply chain operations; and SCRs and the impact of
corruption.
3.3.1 Supply chain operations. This section elaborates on supply chain operations and
mainly reflects the feedback loops in Figure 2. We present the operations at three stages: raw
milk production and collection; dairy products processing and inventory; and product
distribution, profit, and customer order.
(1) Raw milk production and collection
Two stocks are established in terms of raw milk: raw milk production and raw milk collection.
Raw milk production reflects the volume supplied by farmers, and raw milk collection refers
to the volume ultimately collected by a dairy processor, including raw milk collected from
other dairy companies. The volume collected from the farm does not necessarily equal the
volume supplied by farmers (see Figure 3).

Cost
Profit
B
Delivery Cost Revenue

Product delivery
Technology innovations
Dairy product inventory
Raw milk processing

Milk from
other companies

R Customer order

Desired milk Desired dairy

product inventory
Figure 2.
Desired production
Adjustment for dairy Main feedback loops
product inventory
IMDS
Desired milk from
other companies Milk from
Raw milk production other companies

Rate of production Rate of collection

Unused raw milk

Normal production
Raw milk collection

Figure 3.
Raw milk production
and collection
Rate of milk collection Rate of milk processing

(2) Dairy products processing and inventory

The volume of milk processed is supposed to be determined under the strategy of make to
order. “Expected order” is used for the customer’s order forecast. Production scheduling
depends on the order forecast and inventory. The “desired production” consists of two parts,
the order forecast and inventory adjustment for the desired inventory level. “Dairy product
inventory” varies depending on product processing, product delivery, and scraps that arise
from the poor quality of products (see Figure 4).
(3) Product distribution, profit and customer order
The delivery of dairy products fulfills customer orders, and this relies on product inventory.
“Rate of change in expected order” equals the difference between “customer order” and
“expected order,” divided by “time to average order.” The stock “profit” is calculated based on
various costs and revenue. This research assumes a table function between “profit” and
“probability of technology innovations” and between “profit” and “profit impact on
technology innovations.” As no precise data describe their relationships, table functions are
chosen to reflect the interviewees’ perceptions. With the increase in profits, companies can
further support technology innovations. Products with an enhanced level of technology
innovation would attract customer interest and raise customer orders (see Figure 5).
The combination of operations at different stages produces Figure 6, which generally
illustrates dairy products’ transition process. The operational process contains feedback
among indicators, and the nonlinear relationships increase the computational complexity.
3.3.2 SCRs and the impact of corruption. We present some risks using SFDs in Figures
7a–g. The risks are elaborated by demonstrating risk factors, the occurrence of risk events,
and the relevant consequences. The variables impacted due to risk events will, in turn, affect
other indicators, constituting a complex network.
Interrelated indicators are used to describe each risk, and they ultimately point to one or
more variables in supply chain operations. In this study, raw milk quality does not refer to the
quality level. Instead, the quality stands for the percentage of qualified raw milk.
 Leverage risks
Milk from for supply
other companies chain
Dairy product inventory
robustness

Desired milk from Rate of processing Rate of delivery

other companies

Rate of milk processing

Rate of scrapping
Dairy product inventory
adjustment time
Expected order
Scrap rate Dairy product
Desired milk inventory coverage
Adjustment for dairy
product inventory

Desired dairy Figure 4.

product inventory Dairy products
processing and
inventory
Desired production

Milk solids price Raw material price

Product price
Profit

Rate of increase
Rate of cost Rate of revenue in product price

~
~ Probability of Occurrence of
Profit impact on technology innovations technology innovations
technology innovations

Technology innovations
impact on customer order Customer order

Dairy product inventory Expected order

Rate of delivery
Rate of change
in expected order
Figure 5.
Product distribution,
profit, and
Product delivery time customer order
Time to average order
 IMDS

Figure 6.

operations
SFD for supply chain
Milk solids price Raw material price

Product price

Prof it
Rate of increase
in product price

Rate of cost Rate of rev enue

~
Probability of
technology innov ations
~
Prof it impact on
Milk f rom
technology innov ations
other companies

Occurrence of
technology innov ations
Technology innov ations
Desired milk f rom impact on customer order
other companies

Raw milk production

Product deliv ery time
Dairy product inv entory
Rate of production Rate of collection Customer order

Rate of unused raw milk Rate of processing Rate of deliv ery

Normal production
Raw milk collection

Desired milk
Rate of scrapping Expected order
Rate of milk collection Rate of milk processing Dairy product inv entory
adjustment time

Scrap rate Dairy product

Rate of change
Adjustment f or dairy inv entory cov erage
in expected order
product inv entory

Desired dairy Time to av erage order

product inv entory

Desired production
 Leverage risks
Random number 7
for supply
Probability of chain
contamination
robustness
Random number 8
Probability of raw milk Impact on
quality audit inaccuracy raw milk quality Occurrence of poor
raw milk quality

Occurrence of raw milk Raw milk quality

quality audit inaccuracy

Best raw
milk quality
Impact on raw milk
quality to the site
Quality of raw
milk to the site

Raw milk production

Product quality

Rate of production

(a)

Random number 2 Probability of out

of specifications

Probability of raw material Impact on raw

quality audit inaccuracy material quality
Random number 3 Occurrence of poor
raw material quality

Occurrence of raw material

quality audit inaccuracy Raw material quality
Impact on raw material
quality to the site
Quality of raw
material to the site
Product quality
(b)
Figure 7.
(a) SFD of raw milk
quality risk. (b) SFD of
Best raw raw material quality
material quality risk. (c) SFD of raw
milk volume risk. (d)
SFD of product quality
risk. (e) SFD of product
price risk. (f) SFD of
customer order risk. (g)
SFD of corruption’s
impact
IMDS Raw milk quality
Impact on raw milk
quality to the site
Occurrence of raw milk
Raw milk production
quality audit inaccuracy

Rate of production

Normal production
Impact on production

Occurrence of
adverse weather

Probability of Random number 6

adverse weather

(c)
Dairy product inventory

Rate of scrapping

Normal rate Quality impact

Specification rate on delivery time Probability of product
Quality of raw quality audit inaccuracy
material to the site Impact on quality
to distribution
Scrap rate Occurrence of product
Quality of raw quality audit inaccuracy
milk to the site
Quality of product
Probability of wrong specification
to distribution Random number 5
within process instability
Probability of human errors Constant 2
Constant 1

Product quality Best product quality

Contamination impact on
Probability of process Occurrence of wrong
product quality
instability occurrence product specification
Occurrence of
process instability
Occurrence of product
contamination
Specification Random number 4
Probability of Random number 15
impact on
plant downtimes Random number 1
product quality
Probability of
product contamination

(d)

Pulse factor 2 Pulse factor 3

Pulse factor 1 Pulse factor 4

Product price Initial product price

International dairy product supply
and demand fluctuation impact

Raw material price Technology innovations

factor on price Rate of change
Product price situation
Milk solids price in product price

Rate of change in ~
raw material price Technology innovations Product price impact
Rate of change in ~ on customer order
impact on product price
milk solids price
Profit impact on
technology innovations
Profit
Random number 13
Occurrence of
technology innovations
~
Rate of cost Rate of revenue Probability of
technology innovations
Figure 7.
(e)
 Leverage risks
Probability of
noncompliance
Random number 11
Random number 12
Probability of
economic conditions
for supply
~
Product price impact
chain
on customer order
Occurrence
Noncompliance
Occurrence of robustness
of noncompliance economic conditions
impact

Occurrence of
technology innovations Economic
conditions impact
Customer order

Technology innovations Occurrence of legal Random number 14

impact on customer order Normal
and political issues
customer order

Legal and political Probability of legal

issues impact and political issues
Dairy product inventory
Expected order

Rate of delivery
Rate of change
in expected order

(f)
Raw material price

Probability of legal
Rate of change in
and political issues
raw material price

~
~
Corruption impact on probability
Corruption impact on
of legal and political issues
raw material price

Corruption
Figure 7.
(g)

Regarding the impact of corruption, three categories were identified from the empirical
findings; the ultimate factors; “legal and political issues”; and “raw material price,” were
established to reveal the impact of corruption (Liu et al., 2019).
Equations signify comprehensive relationships among correlated variables. The main
equations and their explanations in the model are available in supplementary materials.
3.4 Data settings and model validation
The model was simulated for 260 weeks (i.e. 5 years). The time step is suggested by Forrester
(1961) to be 1/4 to 1/10 of the smallest time constant, as a much larger time step could produce
integration error. In this research, the time step was 0.25 of a week, indicating that all the
model values were calculated every quarter week over the whole simulation run. Euler
Integration was selected as the numerical method in this model, as it is generally regarded as
the most convenient explicit method. Data were mainly based on company financial reports
and interviews. There were different participating companies, therefore, parameters were not
the actual data of a particular company. Additionally, data in the model were disguised to
ensure confidentiality. Some initial values are presented in Table 2. The input data about risk
indicators, such as the probability of risk factors and risk impacts, were based on
interviewees’ perceptions, with values elaborated in Table 5. For the sake of consistency, the
unit of raw milk volume took the weight unit “lbs”, instead of the volume unit “liters.”
IMDS The model is consistent in dimensions. The software iThink has the built-in function Check
Units. Dimensions in the model are checked for consistency. Units are confirmed as consistent.
The constructed model also passed through the behavior reproduction test. The
simulation curves of seven performance indicators were emailed to the interviewees.
A succinct introduction was made to clarify the intention of the request and the meaning of
those figures. There was a response rate of nearly 50%. All respondents have confirmed these
simulation trends, apart from one interviewee feeling confused about the simulation curve of
the cost rate. However, this research simplified the equation for dairy cost fluctuation and
assumed that the cost rate generally decreases over the simulation period, reflecting a
situation with a weak global dairy market. This is a limitation of this model, which does not
identify all situations appearing over the long term.
The simulation results conform to reality. The test was performed on indicators such as
the corruption score, which changed from 6 (scenario 1) to 3 (scenario 2). Figure 8 displays the
impact of corruption on the expected order and profit. A higher corruption score stands for a
less corrupt situation. The following two figures show that the expected order and profit are
generally less in a more corrupt situation. This conforms to reality.
The extreme conditions test was performed on customer orders. Figure 9 shows the
performance of profit, order fulfillment ratio and expected order when the customer order is
zero. In this model, raw milk comes in regardless of the demand. Therefore, profit reduces
steadily.
3.5 Scenario analysis and simulation results
3.5.1 Scenario analysis. The probabilities of risk factors, and impacts of risk events, determine
the level of disturbance on the normal supply chain operations. After mitigating certain risks,
the supply chain becomes least sensitive to corruption. This creates a supply chain that is
robust against corruption. Risk mitigation efforts cost the organization differently depending
on the current levels of risks. It becomes important to identify which risks and how much

Variable types Variable names Initial values (Unit)

Stock Raw milk production 0 (lbs)

Raw milk collection 0 (lbs)
Dairy product inventory 35,000,000 (lbs)
Expected order 4,160,000 (lbs/week)
Milk solids price 2.5 (USD/lbs)
Raw material price 2 (USD/lbs)
Product price 5.3 (USD/lbs)
Profit 40,000,000 (USD)
Constant Normal production 60,000,000 (lbs/week)
Table 2. Probability of adverse weather 1/364 (Unitless)
Initial values in Impact on production 0.2 (Unitless)
the model Dairy product inventory adjustment time 8 (weeks)

Pairs Scenarios

Pair 1 (Scenarios 1 and 5) Risk (original level) þ low corruption level and risk (original level) þ high
corruption level
Pair 2 (Scenarios 2 and 6) Risk (10%) þ low corruption level and risk (10%) þ high corruption level
Table 3. Pair 3 (Scenarios 3 and 7) Risk (20%) þ low corruption level and risk (20%) þ high corruption level
Four pair of scenarios Pair 4 (Scenarios 4 and 8) Risk (30%) þ low corruption level and risk (30%) þ high corruption level
mitigation effort needs to be applied in the selected risks to obtain the best value for the risk Leverage risks
mitigation efforts. For this purpose, we define a leverage risk as: for supply
A risk is called a leverage risk. In the case with minimum change in its level, the difference in the chain
SCPs, at high and low levels of corruption, becomes as small as possible. robustness
The term leverage risk is proposed in analyzing supply chain robustness against plausible
corruption. It refers to the specific risks the mitigation of which can minimize the impact of
corruption on SCP. All the risk factors and effects of risk events need to be simulated. The
most sensitive risks are targeted as leverage risks.

Risk mitigation level Corruption (less) Corruption (more) Absolute relative change of performance

0 P11 P12 jPrc1j

10% P21 P22 jPrc2j Table 4.
20% P31 P32 jPrc3j Identification of
30% P41 P42 jPrc4j leverage risks

Risks Value Mitigation level

Probability of contamination 1/182 0

Impact on raw milk quality 0.3 10%
Probability of raw milk quality audit inaccuracy 1/364 0
Impact on raw milk quality to the site 0.2 0
Probability of adverse weather 1/364 30%
Impact on production 0.2 20%
Probability of human errors 1/728 0
Probability of plant downtimes 1/364 10%
Probability of out of specifications 1/91 20%
Probability of raw material quality audit inaccuracy 1/364 0
Impact on raw material quality 0.3 20%
Impact on raw material quality to the site 0.2 30%
Probability of natural disasters 3/364 30%
Process instability impact on processing 0.1 20%
Impact on collection 0.1 10%
Probability of wrong specification within process instability 0.3 0
Specification impact on product quality 0.3 0
Probability of product contamination 0.005 10%
Contamination impact on product quality 0.3 30%
Impact on quality to distribution 0.2 20%
Probability of product quality audit inaccuracy 1/728 0
Quality impact factor on delivery time 1 0
Accident impact on delivery time 1 0
Probability of accident 0.02 30%
Technology innovations factor on price 0.04 20%
Technology innovations factor on order 0.2 0
Pulse factor 2 0.01 30%
Pulse factor 4 0.31 10%
Probability of noncompliance 1/300 0
Noncompliance impact 0.25 10%
Probability of economic conditions 0.008 0
Economic conditions impact 0.35 0 Table 5.
Basic probability of legal and political issues 1/180 30% Scenario analysis
Legal and political issues impact 0.3 20% results
IMDS Expected order: 1 - 2 -
1: 4300000

1 1 1
1

1: 3992500 2
2
2

1: 3685000
1.00 65.75 130.50 195.25 260.00
Page 3 Weeks
Untitled

Profit: 1 - 2 -
1: 180000000

1
1
1: 36900000 1
2

2
2
Figure 8.
1: -106200000
Expected order and 1.00 65.75 130.50 195.25 260.00
profit under different Page 4 Weeks
corruption levels
Untitled

Eight scenarios were formed, which represent different states of risks and corruption.
Transparency International ranks corruption in different countries regarding public
sectors. Scores are used to measure corruption ranging from 0 (most corrupt) to 100 (least
corrupt). In this research, corruption is set to scale from 0 to 10, where 0 represents the
highest corruption level, and 10 represents the lowest corruption level. According to the
scores of corruption perceptions index for 176 countries (Transparency International,
2017), the countries ranking from 1 to 88 and 89 to 176 are averagely scored as 58.24 and
27.66 respectively in 2016. In consulting this average data, corruption is assumed to be six
and three for low and high corruption levels. Therefore, four pairs can be generated from
these scenarios (see Table 3).
SCP is measured by indicators such as profit and expected order. The overall SCP takes
into account all the performance indicators, and a simulation curve can be generated for each
 1: Prof it 2: Order f ulf ilment ratio 3: Expected order Leverage risks
1: 1e+009 for supply
2: 1
3: 5000000 chain
1 robustness

1
1: -2e+009
2: 0 2 2 2 2
3: 2500000
1

1: -5e+009 Figure 9.
2: -1 3 3 3 3 Profit, order fulfilment
3: 0
1.00 65.75 130.50 195.25 260.00
ratio and expected
Page 5 Weeks order under extreme
conditions
Untitled

scenario. The curves indicate various performance values within the simulation period, and a
mean value is calculated to represent the performance value for each curve.
Table 4 indicates how to identify leverage risks. The risk mitigation level represents the
mitigation magnitude of risk probability or impact. Pij (i 5 1, 2, 3, 4; j 5 1, 2) represents SCP
under different risk mitigation levels and corruption levels. ΔSCP mentioned in Liu et al.
(2019) is the performance difference between less and more corruption, for example, the
difference between P11 and P12. Four ΔSCPs are generated in these four risk levels.
Considering SCP is measured by indicators with various dimensions, this model adopts the
relative change rather than absolute change (ΔSCP) to measure the performance difference.
The relative change of performance is denoted as Prc (Prc 5 (Pi2  Pi1) / Pi1, i 5 1, 2, 3, 4). Prc’s
absolute value (that is, jPrcj) is used to eliminate the confusion in description caused by
negative numbers. The least value of jPrcj represents the situation where corruption has the
least impact on SCP, signifying that supply chain robustness against corruption achieves the
maximum value. Such robustness is achieved when a particular risk is mitigated at a
particular level, as demonstrated in Table 4. To efficiently enhance supply chain robustness
against corruption, the mitigation level needs to be considered, and the concept of leverage
risk is therefore proposed.
Identification of leverage risks is described as follows:
(1) If jPrc2j is the minimum for risk mitigation level (10%), this risk can be regarded as a
leverage risk. This corresponds with the key issues highlighted in the concept of
leverage risk: (a) minimum change in risk mitigation level; and (b) the smallest
performance difference between high and low levels of corruption;
(2) If jPrc3j or jPrc4j is minimum for risk mitigation level (20 or 30%), this risk is not
leveraged because it requires more mitigation efforts; and
(3) When jPrc1j is minimum for risk mitigation level zero, no risk mitigation is needed,
and thus this is not a leverage risk.
IMDS The table in Appendix shows an excerpt from the simulation results. Prc represents values in
the last column for each SCP indicator, which is the relative changes’ mean values.
3.5.2 Simulation results. As there is randomness due to the probable occurrence of risk
events, five replications are performed in model simulation to reduce randomness. For each
performance indicator, Prc’s value for risk at a particular level is established after averaging
the relative changes in five replications. As there are four different risk levels, four Prc values
would be generated.
By finding the largest number in the column count, we can identify the minimum jPrcj
value considering all seven performance indicators, where corruption’s impact on SCP
achieves the least value. This aids in identifying the level in mitigating a specific risk
indicator, under which situation corruption has the least impact on supply chains. If two
mitigation levels are simultaneously identified (only as 0 and 30%), the level with a smaller
absolute value is selected after considering effectiveness and efficiency.
The scenario analysis results are listed in Table 5. Per Section 3.5.1, the risk indicators
with the mitigation level (10%) meet the criteria of leverage risks. Thus, the identified risk
indicators are “impact on raw milk quality,” “probability of plant downtimes,” “impact on the
collection,” “probability of product contamination,” “pulse factor 4” and “noncompliance
impact.”
Risk indicators refer to indicators associated with risk events (for example, the probability
of contamination being related to poor raw milk quality). The indicators identified are
summarized as relevant risks. The corresponding leverage risks are raw milk quality risk,
process stability risk, raw milk volume risk, product quality risk, dairy product price risk, and
customer order risk. Measures should be taken to take these into account so that corruption’s
impact on the supply chain can be notably minimized. However, in this research, the selection
of leverage risks only considers the mitigation level of risks, ignoring the mitigation cost. The
mitigation cost is associated with the particular mitigation strategy. Each strategy has its
specific cost because of the different resources needed in implementing strategies.
The results have two implications: first, mitigating SCRs, which seem unrelated to
corruption, can mitigate corruption’s impact as a result of risk interactions; second,
mitigating some risks outperforms mitigating the others in the effectiveness of mitigating
corruption’s impact.

4. Discussion
This research is novel in analyzing corruption’s impact on supply chains and proposing
approaches to mitigate the effects using the concept of robustness. There is little systematic
research about corruption from the perspective of operations and supply chain management.
This research defines leverage risk and finds that mitigating leverage risks can effectively
enhance supply chain robustness against corruption. This is in line with Wieland and
Wallenburg (2012), who proposed that SCRM contributes to supply chain robustness.
However, as they studied the relationships among SCRM, supply chain agility and
robustness, and SCP, their research does not focus on strategies to improve robustness.
Sawik (2014) focused on a problem with robust decision-making under disruptions and
attempted to optimize the average-case performance and worst-case performance equitably
and to maintain good performance under various situations. For our research, corruption is a
type of external disruption to affect a supply chain. Mitigating the impact of corruption on
supply chains is to maintain the SCP under various corruption levels. In Sawik’s (2014) study,
there are two conflicting objective functions with equal importance. An equitable solution is
to be identified, which means the normalized objective function values have the smallest gap.
In our research, there are also conflicting objectives among the performance indicators.
Considering the equality of those objectives, we identified the closest values for most
performance indicators under different corruption levels. Yang et al. (2011) employed the Leverage risks
Taguchi method to investigate the signal-to-noise ratios of two performance indicators for the for supply
various information-sharing strategies. Based on the ratios, the strategies are evaluated
regarding the robustness of performance within uncertain circumstances. This study also
chain
attempts to identify suitable strategies for enhancing supply chain robustness. Differing robustness
from Yang et al. (2011), this research aims to improve the robustness against external
uncertainty. They focus on the whole structure of the supply chain, while this research is
novel in studying supply chain robustness via factors acting between external uncertainties
and internal performances. The external uncertainty in this research is corruption. Leverage
risks are identified as the factors that fundamentally affect supply chain robustness against
corruption. Hereafter, mitigation strategies can be developed in the light of the leverage risks
identified. This expands the theory of robustness by providing a new perspective in studying
robustness.
Our study addresses the need to study dairy SCRM. The SD model’s adoption is employed
to analyze the underlying dynamics among various variables in a system. Prakash et al.
(2017b) emphasized the importance of exploring mutual risk relationships to develop
effective management strategies. However, they did not identify the detailed interactions
between risk variables. System dynamics modeling has the advantage of analyzing risk
interactions through feedback loops. An uncertain future environment can be simulated by
predefining risk parameters such as the probability of risk factors. Risk mitigation strategies
can be tested regarding their various impacts on SCP. The SD approach was also underlined
by scholars such as Wu et al. (2010), and Wang et al. (2005), because of its advantage in
analyzing risk interactions through feedback loops. It is among the various approaches
which are applied in the field of SCRM. Li et al. (2016) managed transportation risks in
chemical supply chains by simulating an SD model. They summarized risks from extant
literature and defined variables in differential equations to describe the risk-affected system.
To the best of our knowledge, no research focuses on SCRM in dairy supply chains by using
SD modelling. Similar to Li et al. (2016), this research also quantifies risks for describing the
uncertain system. By applying this method, the mutual relationships between risks can
express the internal cause of the directions between risks, which indeed complement Prakash
et al.’s (2017b) research in terms of exploring risk relationships while deepening the
understanding of dairy SCR interactions.

5. Managerial implications
This research has implications for management. First, this research illustrates how to mitigate
corruption’s impact on SCP proactively. In addition to the public sector, corruption is also
pervasive in the private sector. Taking NZ as an example, Transparency International has
ranked it as having the least corrupt public sectors in 2016, together with Denmark. Deloitte
Australia and NZ surveyed enterprises within various sectors. They found that 20% of
respondents experienced foreign corruption, and the same percentage for domestic corruption
over the last five years (Deloitte, 2017). Corruption in the private sector could damage a
company’s reputation, profitability, and even consumer health. Business managers need to
pay attention to this particular issue. A wide range of measures needs to be taken for anti-
corruption activities, by which to reduce the occurrence probability of corruption. However, it
is costly to carry out the overall prevention of corruption. Our study offers a proactive method
to mitigate corruption’s impact and improve the robustness of performance in the presence of
corruption. The dynamic modeling provides supply chain managers with a clear impression of
risk structure, interactions, and corruption’s impact on supply chains. This research is crucial
to supply chain managers in reshaping their awareness of fighting corruption in supply
chains. As the study demonstrates that mitigating specific SCRs that seem unrelated to
IMDS corruption can effectively mitigate corruption’s impact, managers can view the mitigation of
corruption’s impact from this innovative perspective and effectively allocate resources.
Second, as this research is employed in the NZ dairy industry, it could offer insightful
implications for industrial practice. The NZ dairy industry faces challenges from both
international variations and domestic responsibility (Shadbolt and Apparao, 2016). Shadbolt
et al. (2017) claimed that NZ’s resilient dairy farming systems contribute advantageously to its
dairy industry. The future environment is uncertain and volatile, and a company is exposed to
various risks within the supply chains it belongs to. This research focuses on the disruption of
corruption which affects dairy supply chains by modifying the effect of SCRs. Although this
study concerns the modified impact of corruption (i.e., an external variable), it is meaningful in
exploration of supply chain robustness against corruption in NZ dairy industry.

6. Conclusions
Corruption, regarded as an external factor in this research, has not been thoroughly examined
in the areas of supply chain management. This study focuses primarily on how to mitigate
SCRs in the improvement of supply chain robustness against corruption, based on the
empirical investigation of NZ’s dairy industry. Building SD models by conducting systemic
analysis helps identify relevant factors and reveal the corruption-impacted system’s
underlying dynamics. This paper proposes the concept of leverage risk, demonstrates its
rationale and identifies these specific risks based on simulation results. We find that
mitigating SCRs that appear irrelevant to corruption may reduce corruption’s impact on
supply chains, because of risk interactions. Mitigating particular risks outperforms
mitigating the others in the effectiveness of mitigating corruption’s impact.
First, this research is a pioneering study exploring measures to minimize corruption’s
impact by examining risk interactions. Based on empirical data from the dairy industry, we
delve into corruption’s impact from the supply chains’ perspective, in terms of both direct and
indirect impact throughout supply chains. Extant literature reflects the significance of applying
SD modelling to investigate corruption-impacted supply chains from a systemic perspective.
Our simulation results proved the feasibility of indirectly mitigating corruption’s impact by
reducing specific risks, based on the rationale of robustness proposed by Liu et al. (2019). They
identified specific risks that could vary in terms of different supply chains or industries;
however, the approach can be applied in various contexts to gain corresponding insights.
Second, this research defines leverage risk and elaborates the identifying process to
effectively mitigate corruption’s impact on supply chains, expanding the body of knowledge
against corruption in supply chains. This concept is defined for enlightening studies in other
fields, as Wacker (2004) suggested that vague definitions can result in confusion and inhibit
theory development. Mitigation of SCRs to minimize the negative effect of corruption is studied
in consideration of supply chain robustness. In the research, risks such as raw milk quality
risk, process stability risk, and raw milk volume risk are recognized as leverage risks;
mitigating these the SCP could achieve the least variation in the presence of corruption. This
was theoretically validated by an interviewee, who suggested that “corruption’s impact will be
large if it came through” and accepted the idea that mitigating some risks would be different
from mitigating the others in the effectiveness of mitigating corruption’s impact on SCP.
Third, this work demonstrates risks in a random and detailed form in the model. Risk
factors and risk impacts are analyzed in connection to risk interactions. This contributes to
the demonstration of dairy SCR interactions as this research is employed in the dairy
industry. A supply chain model in the presence of corruption is displayed. The proposed SD
model is validated using a series of tests, including dimensional consistency, behavior
reproduction, and extreme conditions. The model is simulated to reveal SCP under various
scenarios of levels of corruption and risk. This facilitates the exploration of leverage risks Leverage risks
that effectively mitigate the impact of corruption on supply chains. for supply
Fourth, an explicit limitation for this research is that we do not, at this stage, have a
method to identify leverage risks directly from what we know from the literature or the logical
chain
causal connections. In future studies, we could use the handle for any leverage risk to change robustness
the level and see whether the predicted robustness is achieved. Furthermore, as some input
data are established based on interviewees’ descriptions, there would be subjective
interference that is hard to avoid.
Last, our study contributes to the dairy industry by examining SCR variables from a
holistic perspective. The managers can identify the current and potential SCRs and take
appropriate strategies to reduce the negative effect of supply chain corruption by effectively
using various resources.

Note
1. This paper uses “raw materials” to refer to raw materials other than raw milk.

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Appendix Leverage risks
for supply
chain
robustness

Table A1.
An excerpt from the
simulation results
IMDS About the authors
Xiaojing Liu is a Faculty Member at the School of Economics and Management in Zhejiang High-tech
University. She has received her PhD from Department of Information Systems and Operations
Management at the University of Auckland Business School, New Zealand. She has obtained a Bachelor
of Management (2010) and Master of Management (2013) in China. Her research interests include:
operations management, supply chain risk management and system dynamics modelling.
Tiru Arthanari is an Associate Professor at the Department of ISOM in the University of Auckland
Business School, New Zealand. He has a PhD in Operations Research, a Diploma in Operations Research
and a Masters in Statistics with specialisation in operations research. He has over 30 years of research
and applied research experience in Quality and Optimization in industries and business. His current
research includes alternative approaches to difficult combinatorial problems arising in supply chain
management, navigating in benchmarking spaces, and interface between operations management and
information systems.
Yangyan Shi had several years of industrial experiences in logistics and supply chain management
in China, UK and New Zealand. He has been actively publishing his academic research in leading
international journals including International Journal of Production Economics, Supply Chain
Management: An International, Applied Economics, International Journal of Operations & Production
Management, International Journal of Logistics Management, International Journal of Production
Research, Journal of Cleaner Production, Production, Planning & Control, etc. His research interests
include operations management, logistics, supply chain management, procurement and third-party
logistics. Yangyan Shi is the corresponding author and can be contacted at: ys102@hotmail.com

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