Theorizing Critical Locus of Supply: A Material Flow Perspective

ABSTRACT Taking a material flow perspective, this article introduces a new network measure—the critical locus of supply (CLS)—that is particularly useful for identifying critical locations for supply chain continuity. Conventional social network analysis (SNA) approaches to supply risks focus on well‐linked, central nodes. In these approaches, all nodes are treated (weighed) equally, even in directed networks, and are rarely situated vis‐à‐vis network anchors. However, real supply chains have a directed “flow” network structure with distinct sources and sinks of material flows. In that context, the authors argue that the nodes should be weighted differently depending on their involvement in network flows. Consequently, traditional SNA measures of centrality fall short in identifying true supply risks. The CLS measure differentiates individual nodes in a supply network (SN) based on the degree to which network content (i.e., materials) flowing through each node is reroutable or substitutable. In this regard, the CLS measure emphasizes each upstream node's (supplier) connection with other low‐degree, scantily‐linked nodes in the SN. The measure was tested against a set of SNA measures on 12 actual pharmaceutical SNs (six in the United States and six in Europe). The results demonstrate that the CLS measure outperforms SNA measures in identifying nodes critical to material flows (i.e., nodes whose removal disrupts a greater portion of the original material flow structure of each sample SN). Based on these results, the authors discuss implications at the individual firm, supply chain and industry levels. Combined, these findings lend support to the greater efficacy and applicability of CLS, compared with SNA measures, in identifying and managing supply continuity risks in material‐flow SNs.