Modeling Supply Chain Sustainability-Related Risks and Vulnerability: Insights from the Textile Sector of Pakistan

The textile sector is considered the backbone of the Pakistan economy as it is the most important industrial sector in terms of raw material import and export of finished goods. This sector is facing tough competition from regional competitors such as Bangladesh, Vietnam, India, China, and Turkey. The supply chain cost of doing business in Pakistan is high as compared to other regional competitors. Based on these reasons, the Pakistan textile industry is passing through a crucial stage [5]. The industries are using different types of chemicals in their production process which severely cause environmental emissions and occupational health problems. The textile industry is also associated with water pollution which is caused by the discharge of untreated effluents because of the use of toxic chemicals, especially, during processing. Therefore, sustainability related-risks are directly associated with the textile industry of Pakistan [2]. With increasing worldwide awareness regarding the domain of sustainability issues such as environment and pollution, economic conditions and social stability have become major factors in the dynamics of the world markets and sustainable businesses around the world. Consequently, these problems are addressed in this research study to help fill this gap in the textile perspective. Therefore, the study is aimed to investigate the risk factors of the external and internal environment which affect the firm’s performance. Recently, organizations are concerned to find out ways to mitigate or reduce the effect of sustainability-related risks. The present study primarily focused on the sustainability aspects of supply chain risk and vulnerability management. Based on these problematic scenarios, this study raises three research questions (1) what types of risks are tied in the context of supply chain sustainability? (2) how are the sustainability-related risks analyzed? and (3) what are steps taken by the managers of industries to mitigate risk and vulnerability?

To address the above-mentioned research questions, this work has the following objectives:

To investigate and mitigate the risks related to TSC sustainability

This research study bridges the gap to mitigate the key risks in a sustainable supply chain. The mitigation of the risks is very important but not easy to tackle all the endogenous and exogenous risks at the same time. The mitigation of sustainability-related risk is not a common phenomenon in the textile sector of Pakistan. Some vertically oriented textile industries are trying to adopt sustainable practices which are not implemented properly. The literature on MSRSC is not well-established and it is a new approach in the context of the textile industry of Pakistan. This research would assist the companies to improve the business performance in local as well as in the global market. The proposed framework of sustainability-related activities would be helpful for practitioners and industrial experts to adopt sustainable activities in their business environment.

The rest of this paper is organized as follows. Section 2 briefly identifies the literature in a sustainable supply chain context. The proposed model for mitigation of risks is described in Section 3. The research findings and discussion of the proposed model are elaborated in Section 4. Finally, the concluding remarks along with policy implications and unique contributions are discussed in the last section.

The data has been collected from the experts of SCs and academia members with relevant experience, knowledge, and education. The experts hail from from the relevant fields, such as spinning, knitting, dyeing and finishing, apparel manufacturing, and garments and have more than 10 years’ experience. The data was collected through a structured questionnaire communicated via e-mail and physical meetings with experts from the period 17 March 2019 to 15 December 2019. For risk recognition, this study used extensive literature review and the list was finalized by consent of experts from the textile industry to detect whether sustainability risks are evident or not in the supply chains of their organizations. Research objective 1 (risks related to sustainability) was explored through a comprehensive study from the literature review. In this phase, we approached 71 experts from different textile industries located in different industrial cities of Pakistan. Similarly, at the second phase, to develop a risk management framework (Research Objective 2), data was collected via a structured questionnaire survey from 29 textile industrial professionals (Director of Operations, General manager, Supply Chain Manager, Deputy general manager, logistics, Deputy general operations, Supply chain manager) who are involved in operations and SCM activities of different textile industries of Pakistan. The simple random sampling and convenient snowball sampling technique were employed for contacting industrial professionals.

The presented study is examined from industrial expert’s opinions that are involved in operations and SCM activities. The sample size of responses of persons influences the quality of results, and decision-making becomes unrealistic. Furthermore, it also leads to a high level of inconsistency. The industrial-experts team consisting of 30 experts was organized based on their professional expertise in the leading textile industries of the country and two experts from the academia side. The average experience of industrial experts was between 24 and 30 years and academia professionals (Assistant Professor of operations and SCM) was 7 and 8 years respectively.

To evaluate the risks, the FMEA technique was used for risk assessment and risk analysis. Following the FMEA technique, “the survey participants were asked to evaluate the level of severity (S), the probability of occurrence (P) and ease of detection (D)” of each risk factor [18] on a 7-point Likert scale. The managers were assigned a probability level to identify risk causes and effects. After the recognition of risks, they were asked to evaluate the key causes and effects using Pareto analysis to find out the most important risk factors. Data was analyzed through the FMEA technique, and for each possible key risk, this technique calculates risk priority numbers (RPN). RPN number is calculated when the severity, event occurrence, and detectability were multiplied for each respondent and then the responses of the respondents were averaged out. The RPN calculated (by multiplying the risk severity, chances of an event occurrence, and ease of risk detection factor) is shown in Table 1.

The Pareto analysis technique is used for highlighting the most critical and risky factors (Figure 2). It is a very helpful tool for prioritizing potential causes of a research issue and identifying improvement opportunities. The experts from different textile industries who took part in this research made more valuable results related to sustainability-related risks and increase the importance of the selected risks. Social instability is ranked as the most weighing social risk, mainly due to its severity, and frequency of occurrence, rather than its difficulty in detection. This shows the difficulty to manage the sustainable processes of the supply chain at the domestic and global level as well and also point out the need to make serious consideration for improving supply chain processes. Concerns about social risks, such as social instability, unfair wages, excessive working time demographic changes, discrimination, and inhuman treatment prevail the most important perceived risk factors. Among the economic risks, energy prices volatility, tax avoidance/evasion are perceived as almost close to equally impactful as financial crises, “reflecting both an economic as well as a social phenomenon; the rising awareness of the social responsibility of businesses in light of the increasing socio-economic equality that is experienced in developed as well as developing economies” [7]. Among the financial risks, tax avoidance and energy price volatility are perceived as close to equally impactful as social and environmental risks. The current Government is very concerned about the taxation factor and trying to take the business persons into the tax circle.

Figure 2

Cause and effect analysis is used for exploring the root causes of high ranking factors with the help of data collected from industrial exports. The interviewed experts were asked to share the information of key causes and effects of each factor related to sustainability. The analysis results are presented in Table 1. The findings of the research depict the environmental (endogenous) risk factors as a group risk related to sustainability perceived as the potential risk have major impacts on organizations with (mean = 4.54), risk occurring occasionally have mean value (mean = 4.46) and risk with moderate effect have mean value (mean = 4.44). These findings indicate that social risk factors i.e., social instability have higher RPN numbers as compared to the other risk factors, which indicates that social instability needs to consider as the first preference level by the policymakers.

The findings in Table 1 show that social risk factors (endogenous) as a group risk related to sustainability perceived as the risk have major impacts on organizations with (mean = 4.47), risk occurs occasionally have mean value (mean = 4.09) and risk with moderate effect have mean value (mean = 3.46). These findings indicate that social risk factors having RPN number for most of the risk factors is less than a hundred, which indicates that social risks are a minor risk for organizations. While in case of social risk factor (exogenous) as a group related to sustainability perceived as a risk have major impacts on organizations with (mean = 4.01), risk occurring occasionally have mean value (mean = 3.91) and risk with moderate effect have mean value (mean = 3.64).

In Table 1 The findings show that financial economic (endogenous) risk factors as a group risk related to sustainability perceived as the risk have major impacts on organizations with (mean = 4.42), risk occurring occasionally have mean value (mean = 4.42) and risk with moderate effect have mean value (mean = 4.29). These findings indicate that economic risk factors having RPN number for most of the risk factors is less than a hundred, which indicates that social risks are a minor risk for organizations. While in case of financial-economic (exogenous) risk with severity (mean = 3.87), occurrence (mean = 4.19) and risk with moderate effect have (mean = 4.11)

The findings indicate that social risk is supposed as considerably minor risks as compared to financial or environmental risks because their RPN number is less than a hundred for most of the factors. Though the environmental (exogenous) and social risks have higher exposure to media, the result of the survey indicates that the perceived high priority number for risks type such as economic and environmental risk (endogenous) is high as compared to social risk factors. The results provide an interesting insight regarding risk factors such as endogenous risk considered as more “important” than exogenous risks. The endogenous risks usually originated from the action or lack of actions by organizations and suppliers. These actions have direct responsibility for the control or mitigation of risks. The last step of the risk mitigation process recommended as a strategy to reduce or mitigate the factors of risk. The study also discusses uncontrollable risks or risks with lesser control. Finally, the results suggest that the organization needs to develop strategies of risk mitigation for tackling the issues related to sustainability in the supply chain environment. Organizations should focus on sustainable manufacturing and the implementation of lean thinking for reducing operational risks. The proposed model can lead the industry for overcoming the highlighted issues which are identified in the cause and effect diagram, and recommendations in Table A1 in Appendix.

The study supports textile industries with environmental, social, and economic operations and recommendations for supply chain risk and vulnerability evaluation. Textile and apparel industries, in particular, can utilize the proposed model as a way forward to improve their supply chain sustainability efforts. It is difficult to control external risks and develop risk mitigation strategies. Sinha et al. [40] discuss that organization has no benefit with an attempt to deal with exogenous risks without mitigating the endogenous risks because the organizations have no control over the outside risks. However various strategies for identified risks are proposed and mention in Table A1 in Appendix. Each defines diverse strategies based on their high or low impact on the organization. In this context, sustainable strategies should be designed through an identification process and assess them relating to sustainability and after that analyze their effect in terms of financial, social, and environmental risks. This tactic helped as a springboard to recommend an alternate theorizing of the economic activities of the textile firm which helps in the resource allocation to the supply chain process. However efficient treatment and appreciation for various types of risks that lead to economic or financial uncertainty should be addressed.

The perceived most important nine key risk factors explored by the research survey like social instability, energy consumption, tax avoidance, financial crises, pollution, heat droughts, unfair wages, excessive working time, and energy price volatility (See Figure 2). The analysis of this study reflects the environmental, social, economic, and regulative contexts that exist in the scenario of Pakistan. Therefore, risk factors such as child labor, product waste, demographic challenges, non-compliance with laws, water scarcity, patent infringements, antitrust claims, and bribery allegations are ranked at a low level, and subsequently, these factors are not perceived as sensitive issues for the textile industries operating in Pakistani geography. The detailed managerial implications are tabulated in Table A1 in Appendix and briefly outlined here.

The three key risks like energy consumption, pollution, and heat and drought fall into the environmental domain of sustainability. For overcoming these key risks and vulnerability the industrialists and the Government can play a very important role by investing in a cheap source of energy such as wind and solar technologies, and environmentally friendly processes and products should be adopted by the industries and work with ISO certified supplier.

The three key risks like unfair wages, excessive working time, and social instability or unrest fall into the social domain of sustainability. For overcoming these key risks and vulnerability, there is a need to create a strong relation between Government and industry stakeholders for gaining the trust of industrial stakeholders and implementing the long-time textile policies in true letters. In this scenario, social instability is a serious issue in Pakistan and considered a big hurdle for capturing more investment and achieving sustainable supply chain performance.

The three key risks like Tax avoidance, energy prices, and financial crises fall into the economic domain of sustainability. For overcoming these risks and vulnerability, the Government has to pay intention and support the industries for future growth. It can be done by introducing an easy and online way of tax payments, motivate the industrialist to come into the taxation circle, encourage the exports by decrease export duties, control the energy prices and engage the financial institution to jointly support liquidity.