Is operational flexibility a viable strategy during major supply chain disruptions? Evidence from the COVID-19 pandemic

Abstract

In this increasingly highly turbulent environment, firms are facing demand changes, many of which are unpredictable. Furthermore, the magnitude of such uncertainties is unpredictable. Thus, firms have limited options as to how to prepare for such uncertainties. A viable strategy that firms may employ to cope with uncertainties effectively is operational flexibility. Firms’ operational flexibility is the ability of the operational system of a firm including processes and people, to cope with uncertainty without expending new resources or enlarging the range of operating costs. Studies have examined the role of operational flexibility as a mechanism for mitigating mundane supply chain risks; however, the effectiveness of operational flexibility in sustaining firms’ performance when facing a global and major disruptions to supply chains remains underexamined. This paper contributes to the supply chain resilience and risk management literature by examining the effectiveness of operational flexibility as a mitigation strategy for major supply chain disruptions. Against the backdrop of the COVID-19 pandemic, we found that U.S. manufacturing firms with higher operational flexibility exhibited higher abnormal inventory growth, fewer employment reductions, and higher operational efficiency during the global major supply chain disruptions caused by the COVID-19 pandemic. In addition, we found that smaller firms gain more from operational flexibility in inventory management, while those with strong adaptive capacity benefit more from retaining human resources to enhance operational efficiency during major disruptions. Our study contributes to the importance and effectiveness of operational flexibility in enabling manufacturing firms to thrive during major supply chain disruptions.