The effects of supply chain diversification during the COVID-19 crisis: Evidence from Chinese manufacturers

Yongjia Lin; Di Fan; Xuanyi Shi; Maggie Fu

doi:10.1016/j.tre.2021.102493

The effects of supply chain diversification during the COVID-19 crisis: Evidence from Chinese manufacturers

Transp Res E Logist Transp Rev. 2021 Nov:155:102493. doi: 10.1016/j.tre.2021.102493. Epub 2021 Sep 27.

Authors

Yongjia Lin¹, Di Fan², Xuanyi Shi³, Maggie Fu⁴

Affiliations

¹ School of Business, Macau University of Science and Technology, Avenida Wai Long, Taipa, Macao, China.
² Institute of Textiles and Clothing, The Hong Kong Polytechnic University, Hong Kong, China.
³ School of Economics and Management, Xiamen University of Technology, Xiamen, China.
⁴ Faculty of Business Administration, University of Macau, Avenida da Universidade, Taipa, Macao, China.

Abstract

Resilience amidst a crisis is vital to survival in the turbulent contemporary business environment. Diversifying the supply chain has been proposed as an important means to build this capability. However, there is insufficient empirical evidence demonstrating the merits of supply chain diversification during a crisis. Sampling 1434 Chinese manufacturing firms amidst the COVID-19 crisis, our two-stage least squares (2SLS) regression analyses show that firms with a diversified supply base are associated with a larger supply stream (increased abnormal inventory) and increased profitability during the COVID-19 crisis, including both the disruption and recovery periods. In addition, firms with a diversified customer base are associated with a larger demand stream (reduced abnormal inventory) during the COVID-19 crisis (both disruption and recovery periods) but show increased profitability only during the recovery period. Our study contributes to the literature on supply chain risk, disruption, diversification, and inventory management. We also discuss the practical implications of supply chain structure design in building resilience.

Keywords: COVID-19; Customer base diversification; Regression; Secondary data; Supply base diversification; Supply chain disruption.