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The impact of operational risk on Impact of

operational
performance in supply chains and risk on
performance
the moderating role of integration
Hai Thanh Pham, Raffaele Testorelli and Chiara Verbano 207
Department of Management and Engineering, University of Padova, Padova, Italy
Received 29 October 2021
Revised 18 May 2022
Abstract 2 August 2022
3 October 2022
Purpose – This study aims to empirically investigate the impact of operational risk (i.e. supply, manufacturing 27 December 2022
and demand risks) on supply chain performance and the moderating role of integration (i.e. supplier, internal Accepted 9 January 2023
and customer integrations) in mitigating the impact of these risks, respectively.
Design/methodology/approach – A research framework of hypotheses is tested by structural equation
modeling with data collected from the fourth round of the high-performance manufacturing project.
Findings – It is revealed that manufacturing and demand risks negatively impact operational performance,
and more importantly, internal and customer integrations help to reduce the impact of these two risks.
Additionally, the effects of both supply risk and supplier integration are only significant for large firms.
Practical implications – Supply chain managers need to appropriately develop the levels of integration to
mitigate the adverse impact of operational risk.
Originality/value – Operational performance is always threatened by different types of risk that adversely
affect the supply, production and demand sides of manufacturing firms. Despite this fact, large-scale
data-based empirical research on the impact of operational risk on the performance of supply chains has been
scarce. This study aims to fill this literature gap.
Keywords Operational performance, Supply chain management, Operational risk, Supply chain integration
Paper type Research paper

1. Introduction
The current globalization has provided firms not only with opportunities but also with
numerous challenges as well. At the global level, firms have built geographically distributed
factories, distribution centers and warehouse facilities for many reasons, for example, cost
advantage, specialist skills and access to raw material sources (Choi et al., 2012). Despite such
benefits, this globalization also brings a plethora of challenges to supply chains, such as
increasing complexity and associated risks. Supply chain risk could be defined 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 (Ho et al., 2015). In particular, supply chain operational risks
refer to relatively recurrent events that stem directly from internal activities or partnerships
in the whole supply chain and are categorized as follows:
(1) Supply risks reside in purchasing, suppliers, supplier relationships and supply
networks. These include supplier business risks, production capacity constraints on
the supply market, quality problems and changes in technology and product design
(Wagner and Bode, 2008).
(2) Demand risks, following Wagner and Bode (2008), result from disruptions emerging,
on the one hand, from the physical distribution of products to the end customer (e.g. a
truck driver strike) and the distribution network (e.g. a delay in a distribution center),
and on the other hand, from the uncertainty caused by customers’ unforeseeable Baltic Journal of Management
Vol. 18 No. 2, 2023
pp. 207-225
© Emerald Publishing Limited
1746-5265
This research was funded by the University of Padova, grant number VERB_SID19_01. DOI 10.1108/BJM-10-2021-0385
BJM demands. The consequences of such disruptions are costly shortages, obsolescence
18,2 and inefficient capacity utilization.
(3) Manufacturing risk is any adverse event within companies that impacts their internal
ability to achieve the timeliness and quality of production, profitability and good
services (Wu et al., 2006).
Kilubi (2016) stressed that there are two main types of supply chain risk mitigation strategies:
208 reactive and proactive. In this regard, supply chain members need to integrate and align their
strategy with other members to be more responsive to changes in the environment and to
remain competitive. Supply chain integration could be defined as the degree to which a
manufacturer strategically collaborates with its supply chain partners and collaboratively
manages intra- and inter-organization processes. The goal is to achieve effective and efficient
flows of products and services, information, money and decisions, to provide maximum value
to the customer at low cost and high speed. Motivated by the Dynamic Capabilities View, Jajja
et al. (2018) posited that firms should develop integration as an important capability to face
supply chain risks.
Research on the interactions between risk, integration and operational performance in
supply chains has attracted the attention of scholars, mainly over the past five years. Two
remarkable studies were carried out by Zhao et al. (2013) and Munir et al. (2020). In the
following years, some similar works have been published, whose aims usually focus on two
main issues. The first issue is to determine the direction of the relationship and the type of
impact (i.e. positive or negative) from risk to integration (Jajja et al., 2018). The second issue is
associated with investigating the moderating effect of risk on the link between integration
and performance (Kauppi et al., 2016; Brusset and Teller, 2017). Although these studies have
made significant contributions to research on the relationships between risk, integration
(i.e. a risk mitigation strategy) and performance, they do not analyze the direct impact of
operational risk on performance since their main focus is on the integration–performance
relationship rather than the risk–performance relationship.
The improvement of operational performance can help manufacturers in enhancing
competitive advantage in risk environments, as documented by Zhao et al. (2013). Operational
performance is measured by the following dimensions, which reflect the capabilities of a company,
namely quality, delivery, flexibility, cost, customer service and product innovation, as outlined by
previous works on manufacturing (Wagner and Bode, 2008; Zhao et al., 2013; Kauppi et al., 2016).
For example, Zhao et al. (2013) and Jajja et al. (2018) concluded that risk can either impede or
motivate firms to integrate their supply chain, presenting a direct relationship between risk
and integration. In another situation, studies by Brusset and Teller (2017), Kauppi et al. (2016)
and Wiengarten et al. (2016) were carried out to examine whether the risk can be a moderator in
the relationship between integration and performance. Although the above studies have made
significant contributions to research on the relationships between risk, integration (i.e. a risk
mitigation strategy) and performance, they do not analyze the direct impact of operational risk
on performance. In addition, there is no evidence of whether integration may moderate the
relationship between operational risk and performance. It is necessary to understand and
discover which types of integration (i.e. supplier, internal or customer integration) can reduce
the impact of operational risk through empirical investigations based on large-scale data.
Therefore, this study attempts to fill these gaps, and it is performed with two main
objectives: (1) to investigate the impact of operational risk on operational performance in
supply chains and (2) to investigate the moderating effect of integration on the relationship
between operational risk and operational performance. The interactions between operational
risk, integration and operational performance will be explored in a global context using data
obtained from the high-performance manufacturing project (HPMP), which includes both
developed and developing countries. Structural equation modeling is employed for testing Impact of
hypotheses of the research model. The findings can offer useful managerial and practical operational
implications for manufacturing firms.
risk on
performance
2. Literature review
Research on proactive risk mitigation strategies highlights the role of integration and
information sharing in reducing the impact of risk. Information sharing within and between 209
firms will improve the transparency and visibility of supply chains, hence mitigating
uncertainty and risk (Munir et al., 2020). Recent studies have emphasized the importance of
information aspects of risk management by applying the lens of information processing
theory; see, for instance, Kauppi et al. (2016). In doing so, supply chain integration should be
considered as one of the more proactive risk mitigation strategies. Examining the impact of
supply chain risk along with integration will contribute to enhancing the theorization of
integration. However, some works (e.g. Zhao et al., 2013) have noted that research on the link
between integration and risk is still scarce.
In the literature, there are three conflicting views on how risk impacts the relationship
between integration and performance. The first view states that risk negatively impacts
integration. Indeed, Zhao et al. (2013) concluded that demand risk negatively impacts
customer integration, while supply risk has strong negative influences on all aspects of
integration. The second view supports a positive effect of risk on integration, namely, Jajja
et al. (2018). Jajja et al. (2018) stated that risk is a factor that drives organizational actions and
strategies to manage risks.
The third view, finally, argues that risk moderates the relationship between
integration and performance (e.g. Brusset and Teller, 2017; Kauppi et al., 2016;
Wiengarten et al., 2016). Based on the relational view, Wiengarten et al. (2016) explored
differences in integration efficacy in the business risk environment (i.e. the law rule of a
country). These scholars admitted that the influence of integration on performance can be
sustained and improved even in risky environments. Brusset and Teller (2017)
hypothesized that three capabilities, namely, external, integration and flexibility
capabilities, help supply chains achieve resilience, depending on various risk factors.
They affirmed that perception of external risk can reduce the effort of deploying external
capabilities to achieve resilience, while the perception of supply risk motivates managers
to enhance integration capabilities to obtain higher resilience. Furthermore, Kauppi et al.
(2016) investigate how country disruption risk is associated with the implementation of
combined risk management and external integration and how these combinations are
associated with operational performance.
It emerges from the literature that there are inappropriate evaluations of the role of
integration in dealing with supply chain risk. Some researchers (see, e.g. Jajja et al., 2018) believe
that integration is only established after the appearance of risk. Meanwhile, Zhao et al. (2013)
considered a risk as a barrier to integration. Other studies (e.g. Brusset and Teller, 2017;
Wiengarten et al., 2016; Kauppi et al., 2016) considering the interactions between risk,
integration and performance also failed to establish the direct negative effect of operational risk
on performance, as operational risk is not a major focus in these studies. This study offers a new
view different from the three ones above by focusing on the relationship between operational
risk and operational performance, and the moderating role of integration in this relationship.

3. Hypotheses development
Many researchers (see e.g. Ho et al., 2015) have concluded that there are two main types of
supply chain risk: disruption risk and operational risk. Disruption risk is derived from
BJM natural or man-made disasters, for example, a flood, an earthquake or a terrorist attack.
18,2 Operational risk is associated with supply-demand coordination and failed systems, people
and processes, and it is relatively more controllable and can be reduced by effective supply
chain management, while disruption risk is less controllable. Most risks to supply chains are
still controllable risks that are related to the activities of partners. Hence, this study
concentrates on operational risk in the supply chain context. Ho et al. (2015) also affirmed that
risks arise mainly from three sources: upstream from suppliers, internally from
210 manufacturing processes and downstream from customers. Therefore, operational risk
refers to supply, manufacturing and demand risks.
Supply chain can be integrated internally and externally (referred to as customer and
supplier integrations). Internal integration is regarded as the extent to which the focal firm
structures its organizational practices, behaviors and strategies into manageable and
collaborative processes to meet customer requirements. Supplier integration is a process by
which firms leverage supplier competencies to generate close relationships. Customer
integration enables firms to better understand customer needs and leverage customer
capabilities to strengthen their own capabilities. It also offers opportunities for firms to build
relationships with customers and helps the production system produce more innovative
products.
Manufacturers increasingly realize competitive advantages that can be obtained through
partnerships with supply chain partners. Using the resources and knowledge of partners
allow manufacturers to improve their capabilities. To attain such advantages, integrated
partners need to synchronize processes, establish higher levels of coordination and share
updated information. The literature consistently concludes that the high level of integration
will improve the operational performance of supply chains because the use of communication
channels enables parties to better coordinate activities. The improvement of operational
performance (e.g. manufacturing cost, product innovation, on-time delivery and quality) can
help manufacturing firms enhance their competitive advantage in high-risk environments by
establishing integration, as concluded by Zhao et al. (2013).

3.1 Interactions between supply chain operational risks

Supply risks and demand risks arise from external operations of a focal firm while
manufacturing risk arises internally. However, as implied by a system perspective,
manufacturing risk can also result from external risks (e.g. supply risk). In fact, unexpected
changes in supply induce fluctuations in the production process and increase manufacturing
risk. Therefore, the variability that originates in one firm can increase the variability of
another firm along the supply chain.
Risk is not only limited to operations of a single firm but often expands to relationship-
related aspects. Under partnerships, risk actually affects the operation of all partners; for
instance, if the operation of suppliers is delayed due to strikes in their firms, this probably
jeopardizes the operation of manufacturers and, in turn, adversely impacts the downstream
operation (Zeng and Yen, 2017). The following hypotheses are proposed:
H1. A higher supply risk leads to a higher manufacturing risk.
H2. A higher supply risk leads to a higher demand risk.
H3. A higher manufacturing risk leads to a higher demand risk.

3.2 Operational risk and operational performance

3.2.1 Supply risk and operational performance. Among many types of risk, supply risk may be
the most crucial because manufacturers usually expect suppliers to make just-in-time
or on-time deliveries. If suppliers fail to do this, it can lead to multiple problems for Impact of
manufacturers with respect to sales, inventory and manufacturing activities (Zhao et al., operational
2013). According to Zsidisin (2003), supply risk often consists of delivery failure, irregular
supply and the inability to meet quantity or quality needs. Inconsistency in the performance
risk on
of suppliers definitely makes their performance unpredictable, which, in turn, increases performance
supply risk. For example, following Zhao et al. (2013), many firms are adopting just-in-time
purchasing practices and do not usually have many inventories for materials. When
supply delivery is unreliable, it is difficult for internal functions, the firm as a whole and its 211
downstream customers to work together. In contrast, firms usually set buffers to reduce
the influences of demand variation, such as product inventories based on “make to
stock” policies and postponement practices based on “make/assembly to order” policies.
In this way, firms can still cooperate internally among functions and externally with
upstream suppliers.
Under the high level of supply risk, manufacturers may not share accurate inventory
information and immediate customer orders with suppliers due to long lead time and unstable
delivery. Manufacturers may also not invest in product development and process
improvement with suppliers if suppliers cannot provide reliable delivery. It is hard for
manufacturing firms to establish strategic relationships with suppliers due to failures of
delivery (Zhao et al., 2013). Therefore, the fourth hypothesis is the following:
H4. A higher supply risk negatively impacts operational performance.
3.2.2 Manufacturing risk and operational performance. Manufacturing or internal process
risk is the potential deviation from producing the desired quantity and quality at the right
time (Kumar et al., 2018). Variation can exist in all of the production activities of
manufacturers. Hopp and Spearman (2000) noted that, in essence, there are two major types of
variability in a manufacturing system: flow variability and process variability. The former is
caused by the movement between stations. The latter are called detractors, such as operator
unavailability, setup and machine downtime. Such causes can lead to low product quality and
process yield and inconsistency in throughput time, making production performance
unpredictable and causing manufacturing risk.
Furthermore, changes in manufacturing technology may lead firms to inability to satisfy
customer delivery requirements (Kumar et al., 2018). Manufacturing risk involves events or
factors that influence the ability of manufacturers to produce goods and services and meet the
timeline and quality of production. Many researchers (see e.g. Li et al., 2015) have also
concentrated on the assessment and management of manufacturing risk and have posited
that manufacturing risk negatively impacts operational performance.
H5. A higher manufacturing risk negatively impacts operational performance.
3.2.3 Demand risk and operational performance. The main purpose of the supply chain is to
match supply with demand, but unexpected changes in demand reduce forecast accuracy
and, hence, it is hard to attain this purpose. The mismatch between the actual and forecast
orders will compromise the effectiveness and efficiency of the supply chain. Consequently,
demand risk is a real threat to the supply chain in serving its customers. Chen and Paulraj
(2004) noted that demand risk is often related to a turbulent environment and particularly
unstable demand, which is one of the biggest challenges for manufacturers. This can lead to
unreliable delivery, low customer service and increased inventory cost. Inaccurate demand
information may also cause mistakes among manufacturers’ departments. In a high-demand
risk environment, it is more difficult to predict customer needs because customer preferences
quickly change (Zhao et al., 2013).
H6. A higher demand risk negatively impacts operational performance.
BJM 3.3 Moderating effect of supply chain integration
18,2 3.3.1 Moderating effect of supplier integration. Collaborative buyers (i.e. manufacturers) can
attract the main suppliers in developing processes/products and aligning capabilities.
Suppliers will realize the value of this relationship and, in turn, give them the power to
affect the buying firm. It is concluded that engaging in mutually beneficial relationships
with manufacturers can promote suppliers to extend cooperation even in disruptive events.
Such relationships enable the focal firm to reconfigure the capabilities and resources of
212 suppliers to reduce supply chain risk (Lau et al., 2010). Chaudhuri et al. (2018) stressed that
supplier integration mechanisms can help mitigate the impact of supply risk. These
mechanisms can include joint decision-making about the process and product
modifications and designs, cost control and quality improvement; collaboration with
suppliers, such as long-term agreements, risk/revenue sharing and supplier development;
and sharing information about delivery status, order tracking, production plan and
forecast.
Through supplier integration, manufacturers can share inventory and order information
with the supply side; this helps the supply side deliver services and materials on time.
Supplier integration through the sharing of information and communication can mitigate the
upstream complexity that adversely impacts the attainment of the focal firm’s schedule (Zhao
et al., 2013). Furthermore, supplier integration through sharing information on demand
forecasts and manufacturing plans can help firms reduce the bullwhip effect.
H7. Supplier integration mitigates the negative effect of supply risk on operational
performance.
3.3.2 Moderating effect of internal integration. Lack of internal integration (e.g. poor
communication, conflicting objectives) can make it difficult to determine, evaluate and reduce
risks (Duhamel et al., 2016). An effective internal environment can help firms strengthen their
ability to identify risks early and shorten the duration of consequences. Teece (2007) realized
that in a dynamic environment, firms constantly scan the supply chain environment and
share information among the main functional units of their firm. Environmental uncertainty
will lead to a greater need for environmental scanning, particularly, through human
interaction. These interacting and scanning routines can build close coordination and
specialized knowledge within the firm.
H8. Internal integration mitigates the negative effect of manufacturing risk on
operational performance.
3.3.3 Moderating effect of customer integration. As firms work closely with customers, their
manufacturing schedule will be more accurate; this can mitigate the risk of frequent schedule
changes. Additionally, the risk of the bullwhip effect is reduced by effective cooperation and
information sharing between customers and manufacturers. Customer communication of
order information assists firms in adjusting their manufacturing capacity and schedule.
Customers and manufacturing firms can collaborate to develop a joint understanding of
demand, followed by the creation of mutually agreed replenishment plans to efficiently meet
customer requirements. By engaging in system coupling with customers through vendor-
managed inventory and direct access to information on customer demands (Tang, 2006),
manufacturing firms can mitigate the risk of bullwhip effects. Lau et al. (2010) found that
manufacturers attempt to integrate activities with the customer side since understanding
delivery mechanisms and customer demands help them predict customer behaviors and
potential delivery challenges in unusual situations. This mutual understanding enables the
focal firm to reconfigure its external and internal resources to adapt to changes in the
environment. Therefore, it is hypothesized that customer integration helps firms cope with
demand risks as they occur.
 H9. Customer integration mitigates the negative effect of demand risk on operational Impact of
performance. operational
risk on
3.4 Mediating effect of operational risk performance
Since manufacturing firms rely on suppliers to maintain production processes, a supplier’s
inability to deliver components and materials seriously affects the ability of firms to serve
customers. The success of a supply chain strongly depends on seamless linkages between 213
various supply chain activities, namely, outbound and inbound logistics. Therefore, supply
risk always has detrimental effects on outbound logistics, which ultimately influences
operational performance. Similarly, Zhao et al. (2013) affirmed that cooperation and trust
between manufacturers and customers are negatively affected by missed shipments or
disruptions caused by supply risk. Manufacturers may not deliver products to the demand
side on time if the supply side cannot deliver materials to the manufacturers on time.
The consequences of supply risk can result in the inability of manufacturing firms to meet
customer requirements or pose threats to customer safety and life (Zsidisin, 2003). Therefore,
supply risk indirectly impacts operational performance through manufacturing risk and
demand risk (that is, there is a cascading effect of upstream risk on the downstream supply
chain of firms), while manufacturing risk indirectly impacts operational performance
through demand risk. Failures in distributing goods and products from suppliers will lead to
failures of the focal firm in delivering products to customers. In other words, manufacturing
risk and demand risk act as mediators in the relationships between supply risk and
operational performance, while demand risk acts as a mediator in the relationship between
manufacturing risk and operational performance. The following hypotheses are proposed:
H10. Supply risk amplifies its effects on operational performance through
manufacturing risk.
H11. Supply risk amplifies its effects on operational performance through demand risk.
H12. Manufacturing risk amplifies its effects on operational performance through
demand risk.
Figure 1 illustrates all the hypotheses of the research model.

4. Research methodology
4.1 Data collection and measures
The data of this study was collected from the fourth round of the HPMP Detailed information
on data collection is provided in the file “Supplementary Material Appendix 1.”
In order to develop scales representing all constructs, a literature review was first
performed to find construct measures in the framework. After that, these measures were
adapted to the database of HPMP to identify items that accurately described the nature of the
items found in the literature. The integration constructs have been well verified in previous
studies since it is one of the main research directions in supply chain management. This study
applied integration items that are widely used by previous scholars, for example, Zhao et al.
(2015), and Qi et al. (2017). The construct of operational performance was operationalized by
items adopted by Zhao et al. (2013) and Kim (2009). In the present study, three constructs of
operational risk were newly developed. Various items are collected from many studies that
examine the effect of operational risk. Chen (2018) and Vanalle et al. (2020) also use this
approach to develop risk scales (e.g. demand, manufacturing and supply risks). The reversed
scale was also applied to the three constructs of operational risk, as suggested by Zhao et al.
(2013). A complete list of the measures of operational risk, supply chain integration and
BJM Supplier
Internal integration
18,2 integration

H7: –0.05 H8: –0.23

p > 0.1 p < 0.01

H4: –0.07
214 p > 0.1
Supply risk
H1: 0.47 H2: 0.40
p < 0.01 p < 0.01
H5: –0.22
p < 0.01 Operational
Manufacturing risk
performance
H3: 0.30
p < 0.01

Demand risk H6: –0.14 H9: –0.16

p < 0.05 p < 0.05 Control variables:
Firm size
Industry type

Customer
integration

Figure 1. H10: supply risk manufacturing risk operational performance

The model and the
result of the H11: supply risk demand risk operational performance
hypotheses testing
H12: manufacturing risk demand risk operational performance

operational performance is provided in the file “Supplementary Material Appendix 1.” From a
theoretical point of view, the items used in this research are sufficient to evaluate the content
validity of the seven constructs, namely, supply risk, manufacturing risk, demand risk,
supplier integration, internal integration, customer integration and operational performance.
The content validity of these constructs has been checked by considering the following
criteria. First, the items cover at a high level the main aspects of each construct. Second, each
item falls within the theoretical domain of the concept. Third, the set of items captures the
different facets of a construct in a balanced way (Forza, 2016).
In terms of operational risk, its constructs are newly developed by this study, since the
HPMP was not primarily built to analyze supply chain risk and therefore we use it as a
secondary database. Various items were gathered from works that studied the impact of
various types of operational risk. This approach has also been applied in previous studies for
the development of risk scales; for example, Chen (2018) and Vanalle et al. (2020) measured
risk constructs (supply, manufacturing or demand risk) based on separate items gathered
from different studies. The reversed scale was also applied to the three constructs of
operational risk, as suggested by Zhao et al. (2013). Supply chain integration is one of the
major research directions in supply chain management, so its constructs are well-verified in
the literature. The current study used items of integration that are commonly applied in many
studies, such as Wong and Boon-Itt (2008), Zhao et al. (2015) and Qi et al. (2017). The
operational performance construct was operationalized by items proposed by Kim (2009) and
Zhao et al. (2013).
Firm size and industry were used as control variables to ensure the contextual validity of
the findings, as many authors (Cheng et al., 2016) have concluded that firm performance can
be affected by its size and industrial dynamics. The employee number can represent the firm Impact of
size, for example, for small medium enterprises (SMEs) and large enterprises. operational
risk on
4.2 Validation of scales performance
A strict process for scale validation was applied since the database of HPMP is collected from
various countries with different environments and cultures. All analyses were conducted
using SPSS Statistics. To test hypotheses, structural equation modeling was implemented 215
in AMOS.
In the measurement model, confirmatory factor analysis was employed to verify the
construct validity, including the convergent and discriminant validity. The items of the
constructs were eliminated if the loading was below 0.5 or the items did not load on the factor
they intended to measure. The loadings of items greater than 0.5 are shown in the file
“Supplementary Material Appendix 1.” The result showed that all the constructs had high
internal consistency because Cronbach’s alpha coefficients exceeded the value of 0.6 (from
0.71 to 0.86), as suggested by Zhao et al. (2013). Moreover, values of composite reliability (CR)
were mainly higher than 0.7 (from 0.79 to 0.91) and values of average variance extracted
(AVE) were mostly equal to or greater than 0.5 (from 0.50 to 0.66). Thus, the convergent
validity of the model constructs was ensured (additional details are provided in the file
“Supplementary Material Appendix 1”).
With regard to discriminant validity, the square root of AVEs was higher than the
correlations between constructs, thus confirming the discriminant validity of the constructs
(Fornell and Larcker, 1981). GOF (good of fitness) indicators of the measurement model were
greater than the acceptable threshold: CMIN/df < 3 (1.19); GFI > 0.9 (0.90); CFI, IFI, TLI > 0.95
(0.96–0.97); and RMSEA < 0.05 (0.025) (additional details are provided in the file “Supplementary
Material Appendix 1”).
In the structural model, the result showed that all GOF indicators of the structural model
were higher than the acceptable thresholds, namely: CMIN/df < 3 (2.9); GFI, CFI, IFI,
TLI > 0.95 (0.98–0.99); and RMSEA of approximately 0.05.

5. Results
The resulting model with path coefficients and the significance of the relationships is
reported in Figure 1. The paths from supply risk to manufacturing risk (β 5 0.47, p < 0.01)
and demand risk (β 5 0.40, p < 0.01) are significant; also, the path between manufacturing
risk and demand risk is significant (β 5 0.30, p < 0.01). Therefore, H1, H2 and H3 are
supported.
Regarding the impacts of operational risk on operational performance, the result indicates
negative and significant paths from manufacturing risk (β 5 0.22, p < 0.01) and demand
risk (β 5 0.14, p < 0.05) to operational performance, so H5 and H6 are supported. However,
H4 is not supported because the path between supply risk and operational performance is
statistically insignificant (β 5 0.07, p > 0.1). The findings indicate that the presence of
supply risk does not immediately negatively affect operational performance, but supply risk
amplifies its effects on operational performance through manufacturing and demand risks
throughout the supply chain. This explains why hypothesis H4 is not supported by the
results. Furthermore, it is seen that there is an indirect effect of manufacturing risk on
operational performance through demand risk. Lastly, the path coefficients of the interaction
terms between internal integration and manufacturing risk (β 5 0.23, p < 0.01), as well as
between customer integration and demand risk (β 5 0.16, p < 0.05), are significant, so H8
and H9 are supported. However, H7 is not supported since the interaction term between
supplier integration and supply risk is insignificant (β 5 0.05, p > 0.1). The findings indicate
BJM that internal integration and customer integration moderate the relationships between the
18,2 corresponding operational risks (i.e. manufacturing and demand risks) and operational
performance, thus demonstrating internal and customer integrations as the two main
proactive risk mitigation strategies. The positive influences of internal and customer
integrations also reduced the indirect influence of supply risk on operational performance.
Mediating effects were also tested using the bootstrapping approach which can
accommodate many mediation hypotheses in a model and is suitable for data analysis of
216 large sample sizes (Rungtusanatham et al., 2014). This study created 5,000 resamples to
estimate indirect effects. The result shows that the indirect effects of supply risk on
operational performance (mediated by manufacturing risk), supply risk on operational
performance (mediated by demand risk) and manufacturing risk on operational performance
(mediated by demand risk) are all significant (p-value < 0.05 or 0.1) with coefficients of 0.11,
0.06 and 0.04, respectively (“Supplementary Material Appendix 1”); therefore H10, H11
and H12 are supported. The findings indicate that the presence of supply risk does not
immediately negatively affect operational performance, but supply risk amplifies its effects
on operational performance through manufacturing and demand risks throughout the
supply chain. This explains why hypothesis H4 is not supported by the results. Furthermore,
it is seen that there is an indirect effect of manufacturing risk on operational performance
through demand risk (additional details are provided in the file “Supplementary Material
Appendix 1”).
With respect to the influence of control variables, the type of industry is found to be
insignificant in explaining the operational performance of supply chains. Regarding firm size,
Caniato et al. (2013) affirmed that large firms usually have a lot of resources to invest in the
supply chain, so this study performs a further analysis to examine whether there are different
effects of supply risk and supplier integration on operational performance between SMEs and
large firms. Firm size is classified according to the number of employees as micro (employees
< 10), small (10 ≤ employees < 50), medium (50 ≤ employees < 250) and large
(employees ≥ 250) (European Commission, 2015).
However, the number of SMEs (n 5 81) in the HPMP is too small because the plant size
considered is more than 100 employees. Hence, structural equation modeling was only
conducted for the group of large firms (n 5 222). The result shows that the effects of both
supply risk and supplier integration are significant for large firms with path coefficients of
0.10 and 0.11, respectively (p < 0.1) (“Supplementary Material Appendix 1”). This is an
interesting finding since previous studies (e.g. Jajja et al., 2018) that assess the impact of risk
on performance in supply chains often conclude that there are no differences in risk impacts
between different firm sizes (i.e. SMEs and large firms). However, large firms at the global
level often expand their supply chain networks by building manufacturing plants, warehouse
facilities and distribution centers across countries; therefore, manufacturers are also exposed
to more risks in this globalization (Choi et al., 2012). Furthermore, because large firms have
more resources, they will establish integrated practices with supply chain partners, especially
suppliers, to minimize the impact of risks. Therefore, our finding further explains why the
two hypotheses of H1 and H7 are supported for large firms. It is concluded that large firms
that have efforts to establish supplier integration can decrease the impact of supply risk and
then sustain the operational performance of their supply chain.

6. Discussion
This study makes two significant contributions to research on the impacts of operational
risk on operational performance in supply chains. Regarding the first contribution, the
study investigated the negative effects of supply risk, manufacturing risk and demand risk
on operational performance, as research on such effects in relation to integration based on
large-scale data is still limited in the literature. Several studies have examined the effects of Impact of
operational risk on operational performance, such as Zhao et al. (2013) and Jajja et al. (2018), operational
but most of them are narrow in scope (i.e. the specific context of a country/industry) or focus
only on some aspects of operational risk. Additionally, since data were collected from
risk on
the HPMP that involves many manufacturers around the world, this study provides a more performance
comprehensive assessment of the impact of operational risk. The findings show that there
is no direct connection between supply risk and operational performance. This is very
surprising since operational performance is always affected by the appearance of supply 217
risk. However, it is interesting to discover that supply risk indirectly impacts operational
performance through manufacturing and demand risks. This is also confirmed by Sreedevi
and Saranga’s (2017) conclusion that supply risk could cause both manufacturing and
demand risks. In other words, there is a cascading effect of upstream risk on the
downstream supply chain of companies, so companies that focus on reducing supply risk
are able to mitigate manufacturing and demand risks. As observed in Figure 1, supply risk
will amplify its effect on manufacturing and demand risks, so failure to distribute goods
and suppliers’ products will lead to failure of the focal firm in delivering products to
customers. Therefore, the findings indicate that the presence of supply risk does not
immediately negatively affect operational performance, but supply risk amplifies its effects
on operational performance through manufacturing and demand risks throughout the
supply chain. This explains why hypothesis H4 is not supported by the results.
Furthermore, it is seen that there is an indirect effect of manufacturing risk on operational
performance through demand risk.
The second contribution is also the most important one of this study. Although many
researchers have identified the adverse effects of operational risk, they have mostly failed to
come up with strategies to minimize the impact of risk. Assessing the impact of operational
risk is really important, but proposing mitigation strategies is even more important. Zhao
et al. (2013), Kauppi et al. (2016), Wiengarten et al. (2016), Brusset and Teller (2df017) and Jajja
et al. (2018) have studied the interactions between supply chain risk, integration and
performance but cannot prove the direct negative effect of operational risk. Furthermore, the
studies by Zhao et al. (2013) and Brusset and Teller (2017) did not consider all aspects of
operational risk, ignoring the importance of manufacturing risk, while Wiengarten et al.
(2016) focused on external risk (weak law rule of a country). This study considers integration
as a proactive risk mitigation strategy, instead of a reactive mitigation strategy, as in Jajja
et al. (2018). Their work argued that a risk is an inevitable event in the business and advocated
that integration is an organizational response to risk, meaning that risk motivates firms to
establish integration. Many researchers have also posited that increasing risk requires robust
and agile supply chains in which collaborative and integrative practices are adopted
(Martinez-Sanchez and Lahoz-Leo, 2018). Jajja et al. (2018) even concluded that, in the absence
of high-risk potential, risk management is not imperative; therefore, firms just develop
integration practices if facing high risk. This is an inappropriate strategy because
manufacturers need to develop integration with other supply chain members even before the
occurrence of risks. Thus, a proactive risk mitigation strategy is very important to minimize
the consequences of risks once they occur. Therefore, this study considers integration as a
supportive environment (moderating factor) in which the negative effects of operational risk
on operational performance can be weakened.
The findings conclude that not all dimensions of integration can mitigate the impact of
operational risk. While manufacturers are more vulnerable to manufacturing and demand
risks, appropriate integration strategies (i.e. internal and customer integrations) can reduce
the impacts of these risks. Specifically, it is found that internal integration and customer
integration moderate the relationships between the corresponding operational risks
(i.e. manufacturing and demand risks) and operational performance, thus demonstrating
BJM internal and customer integrations as the two main proactive risk mitigation strategies.
18,2 Therefore, firms that develop internal and customer integrations to prevent risk
consequences can maintain and improve operational performance better than firms that
do not establish integration. Customer demands always change over time; therefore,
manufacturers are required to adopt downstream risk management strategies to reduce the
probability of a mismatch between supply and demand (Zeng and Yen, 2017). While this
study also expects that supplier integration can moderate the effect of supply risk on
218 operational performance, no evidence for such a moderating effect is seen. This leads to a lack
of empirical support for the moderating role of supplier integration. However, the positive
influences of internal and customer integrations also reduced the indirect influence of supply
risk on operational performance.
Hypotheses H4 and H7 were not supported by the findings of this study. There are several
possible explanations for this: the HPMP database involves a huge number of plants from
three industries (automobile, machinery and electronics) in Europe, the United States and
Asia; these industries face different competitive environments, so they may have different
assessments on the impacts of supply risk and supplier integration. Furthermore, del Mar
Miras-Rodriguez et al. (2018) posited that differences in practices, contextual factors and
performance can be observed between plants, even if they operate in the same industry or
country. With current globalization and vertical integration of organizational processes,
minimizing risk in supply chains has become a very important issue. Through empirical
investigations based on large-scale data, this study concludes that it is necessary to
understand and discover which types of integration can reduce the consequences of
operational risk in supply chains.

7. Theoretical and practical implications

In the presence of environmental uncertainty, companies should have a strategy in order to
decrease the risk impacts and unexpected outcomes and achieve stability of business
operations (Bode et al., 2011). One such strategy should be integration. In this regard, supply
chain managers need to apply this strategy to reduce the impacts of risk. This study
develops a framework to present the interactions between operational risk, integration and
operational performance in which integration acts as a moderator in the relationship
between operational risk and operational performance. In this context, the study has
considered integration as a proactive risk mitigation strategy, which means that
manufacturers should establish integrative relationships with suppliers and customers
even before the appearance of risk.
The second theoretical contribution relates to the operationalization of operational risk
constructs. In previous studies that examine the interactions between supply chain risk,
integration and performance, such as Zhao et al. (2013), the measures of risk constructs are
primarily related to lead time and on-time delivery of suppliers or stable product demand of
customers. Meanwhile, other works (e.g. Jajja et al., 2018; Brusset and Teller, 2017) measure
risk in a very general way; it is even unclear what measures constitute risk aspects. In a more
comprehensive theoretical framework, the operational risk aspects of this study are closely
related to the knowledge and capabilities of supply chain members (e.g. understanding of the
entire supply chain goals and manufacturing strategy) rather than to the physical movement
of goods from suppliers, as in the works of Zhao et al. (2013) and Jajja et al. (2018).
The findings help managers understand that not all types of operational risk can be
immediately minimized. The effect of supply risk will spread throughout supply chains,
making manufacturing and demand risks more serious; thus, the effect of supply risk on
operational performance can only be reduced in the long term after its appearance through
internal and customer integrations.
8. Conclusion, limitations and future research opportunities Impact of
Although many studies have examined the impact of various supply chain risks on operational
performance based on large-scale data, they are mostly narrow in scope or solely focused on a
few types of operational risk. With more comprehensive data collected from the HPMP, this
risk on
study investigates the impact of the three aspects of operational risk (i.e. supply, performance
manufacturing and demand risks) on operational performance. The findings provide
evidence for the direct effects of manufacturing and demand risks; although supply risk does
not have a direct effect on operational performance, its influence spreads across supply 219
chains and makes manufacturing and demand risk more serious. This has motivated us to
develop and test hypotheses on the roles of supplier, internal and customer integrations in
mitigating the effects of the corresponding operational risks. The study finds that internal
and customer integrations play a very important role in minimizing the effects of
manufacturing and demand risks, respectively. In addition, the effects of supply risk and
supplier integration are significant for large firms.
Despite its efforts, this study still has some limitations. First, cross-sectional data was
used, so the impact of long-term integration with suppliers and customers was not
examined. Further work may conduct longitudinal research to capture the effect of
integration development, as well as its moderating effect on the relationship between
operational risk and operational performance over time. Second, there may be other factors
in addition to integration that moderate the adverse effect of operational risk on
operational performance. Future research could investigate other risk mitigation
strategies as moderating factors. Third, in the supply chain risk management literature,
there are a multitude of different operational risk factors. At the same time, this study
cannot assess the impact of all operational risks; only some risks were considered in this
context (the file “Supplementary Material Appendix 1”). Therefore, further research may
examine the impact of other operational risks (see Ho et al., 2015 for a more complete
understanding of operational risks). Fourth, the database is made up of medium and large
firms’ and the dimension of the firm’s dimension is considered when analyzing the
differences between these two categories. Future research could investigate the topic also
considering small companies. Fifth, this study only considers (external) operational
performances (e.g. conformance to product specifications, on-time delivery), while the
relation of supply risk on these downstream performances is mediated by many different
aspects (e.g. inbound/outbound materials inventory, WIP). Therefore, future research
should examine separately performances at the different stages: suppliers’ performances
(e.g. suppliers’ conformance, suppliers’ on-time delivery), manufacturing performances
(e.g. in-house conformance, lead time) and delivery performances (e.g. in field
conformance, on-time delivery). Finally, the data for the present study was collected
from the fourth round of the HPMP, which is a secondary database. In the future, a primary
database could be realized in order to provide a more refined measure of supply
chain risks.

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Supplementary Material Appendix 1

Further Details on Data Collection

Data were collected from the fourth round of the high–performance manufacturing project. Data
collection was ended in 2016, with the support of various research teams from universities in 13
countries in Asia, Europe and America.
The unit of analysis in this project is the manufacturing plant, and the size of the plant considered is
more than 100 employees.
Plants were randomly selected with 10 plants from each industry, resulting in nearly 30 plants in
each country. Finally, 303 plants from the three industries were surveyed in 16 countries, namely,
automobile (n 5 79), machinery (n 5 110) and electronic (n 5 114). Plants are either world-class
manufacturers or traditional manufacturers (Morita and Machuca, 2018).

Composite
Variance Cronbach’s reliability
Construct Description Loading explained KMO alpha (CR)

Supply risk Our suppliers 0.65 57% 0.749 0.747 0.79

(reversed scale) understand our goals
for supply chain
management
Our suppliers 0.66
understand that we
expect them to
continuously improve
their supply chain
practices and
operations
Our suppliers have 0.72
clearly defined goals
within our supply chain
We all know which 0.60
suppliers are
responsible for
Table A1. particular goals with
Measurement of our supply chains
operational risk
constructs (continued )
 Composite
Impact of
Variance Cronbach’s reliability operational
Construct Description Loading explained KMO alpha (CR) risk on
Manufacturing The improvement 0.64 59.4% 0.751 0.749 0.85 performance
risk (reversed programs that we
scale) pursue to improve
operations are based on 223
our manufacturing
strategy
Changes to the 0.64
manufacturing strategy
are deployed to the
entire manufacturing
area
Performance measures 0.56
clearly reflect the
manufacturing strategy
Manufacturing 0.61
engineers are often on
the shop floor to assist
with production
problems
Once the production 0.59
process is working, we
leave it alone
There are no 0.65
substitutes for our
production technology
Demand risk Our customers receive 0.71 57% 0.728 0.716 0.81
(reversed scale) just-in-time deliveries
from us
Our customers provide 0.65
us with valuable
information on product
innovation
We can adapt our 0.55
production schedule to
sudden production
stoppages by our
customers
Our customers have a 0.50
pull-type link with us
Our customers are 0.50
linked with us via JIT
systems Table A1.
BJM Variance Cronbach’s
18,2 Construct Description Loading explained KMO alpha

Supplier We provide our suppliers with 0.60 57% 0.871 0.811

integration sufficient technical assistance
We hold regular meetings to exchange 0.55
improvement ideas with our suppliers
224 We encourage our suppliers to 0.65
continuously improve their
production processes
If necessary, we ask our suppliers to 0.57
invest in significant process
improvement
We offer the necessary training to our 0.70
suppliers
We share our vision and supply chain 0.66
policy with our key suppliers
As our suppliers strive to improve 0.65
their processes, we provide assistance
Internal The functions in our plant are well 0.71 64.2% 0.770 0.804
integration integrated
Problems between functions are 0.76
solved easily, in this plant
Functional coordination works well in 0.78
our plant
Our business strategy is implemented 0.65
without conflicts between functions
Customer We are concerned about the needs of 0.64 57.2% 0.718 0.744
integration both our immediate customers and
our ultimate consumers
We understand the marketing 0.78
strategies of our customers
We are very familiar with our 0.60
customers’ product characteristics
We have a very good understanding 0.62
of our customers’ distribution
processes
Operational Conformance to product 0.66 56.15% 0.879 0.869
performance specifications
Table A2. On-time delivery performance 0.74
Measurement of On-time new product launch 0.70
integration and Product innovativeness 0.77
operational Customer support and service 0.73
performance Unit cost of manufacturing 0.63
constructs Flexibility to change volume 0.75

GOF Indicators Required Value Measurement Model Structural Model

Table A3. CMIN/df <3 1.19 2.90

Validation of the GFI > 0.90 0.90 0.99
framework by CFI > 0.95 0.97 0.99
structural equation IFI > 0.95 0.97 0.99
modeling TLI > 0.95 0.96 0.98
Bootstrapping for mediating effects
Impact of
Independent Direct Indirect operational
Hypothesis variable Mediating variable Dependent variable effect effect risk on
H10 Supply risk Manufacturing risk Operational n.s. 0.11** performance
performance
H11 Supply risk Demand risk Operational n.s. 0.06*
performance 225
H12 Manufacturing Demand risk Operational 0.22*** 0.04*
risk performance

Testing hypotheses H1 and H7 for large firms

Hypothesis Relationship Path coefficient Result

H4 Supply risk → Operational performance 0.10*

Supported
H7 Supplier integration 3 Supply risk 0.11* Supported Table A4.
Note(s): n.s. not supported Bootstrapping for
*p < 0.1 mediating effects, and
**p < 0.05 testing hypotheses H1
***p < 0.01 and H7 for large firms

About the authors

Hai Thanh Pham received his PhD in Management Engineering and Real Estate Economics at the
Department of Management and Engineering, University of Padova, Italy. His interests of research
include risk management and supply chain management. He has participated in international research
projects and published in journals such as Sustainable Production and Consumption; Engineering,
Construction and Architectural Management; Environment, Development and Sustainability; and
Construction Innovation.
Raffaele Testorelli is C-level Manager and Management and Business Advisor with more than
20 years of professional experience. He is also a PhD candidate in Management Engineering and Real
Estate Economics at the University of Padova. His major research interests include innovation
management, program and project management and risk management in an industrial context. In these
fields, he participated in various national and international industrial projects, across multiple business
sectors, with leadership roles.
Chiara Verbano is Associate Professor of Business and Engineering Economics at the Department of
Management and Engineering of the University of Padova (Italy). Her major research interests include
R&D management and organization, risk management both in industrial and clinical contexts and
healthcare operations management. In these fields, she participated in various national and international
research projects, funded by public and private organizations. She has regularly contributed to scientific
journals as a reviewer and she is the author and co-author of more than 100 scientific publications.
Chiara Verbano is the corresponding author and can be contacted at: chiara.verbano@unipd.it

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