Managing Financially Distressed Suppliers : An Exploratory Study

The early anticipation and proactive management of financially distressed suppliers have become crucial for buying firms in order to protect themselves against supplier default risk. To this end, firms need to be able to read the early warning signals from suppliers that are running into financial distress, to take appropriate remedial actions, and to gather such experiences in repositories of organizational knowledge for future actions. The objective of this study is to explore how and why firms differ in these behaviors and capabilities. We use the organizational information-processing perspective as a guiding theoretical framework and analyze qualitative data obtained from interviews conducted with 14 global, case study manufacturing firms. By comparing these firms' behaviors in terms of scanning and interpreting warning signals, reacting to distressed or defaulting suppliers, and learning from such experiences, we are able to isolate several risk management archetypes and develop four sets of propositions that describe the occurrence of these archetypes