The Impact of Trade and Industry Regulations on Supply Chain Design and Performance

Previous studies on business regulation have focused on topical areas of financial services, environmental protection, public utilities, retail trade, and consumer protection regulations. However, there have been few studies from the operations management perspective. It is common knowledge that regulations affect industries, but sometimes, what matters is not only the phenomenon experienced but how it is experienced. This study examines from the supply chain management perspective, what happens behind the curtain, inside the business as a result of regulation. A qualitative case study approach is used to examine regulatory impact on the supply chain operations of four UK-based manufacturers in the pharmaceutical and food industries — with a focus on their international operations between the UK and US markets, and how they are affected by relevant UK/EU, US, and international regulations. Data was mainly sourced through semi-structured interviews with staff in all sub-units of the supply chain in the organisations, i.e. planning, procurements, production planning, and logistics. Questions were asked about the participants’ regulatory experience in the period 1994–2014. Data was analysed to identify regulation-induced changes in key performance attributes including agility, reliability, cost, responsiveness, and asset efficiency; as well as changes in key design attributes including supply chain configuration (i.e. facility and supply network), and the value chain area of focus. Findings show that while public and researcher attention to business regulation has focused on other areas (the finance sector, public utilities and at the corporate level of industries), regulatory compliance management is inspiring new business models and shaping business strategies in and at the supply chain management level as they counter regulatory risks and costs and exploit emergent related opportunities. Key findings indicate that regulatory stringency causes supply chains to put voluntary redundancies in place so as to avoid the risk of non-compliance. Regulation can effectively confine sourcing to a market even without prohibiting its access to others. Outsourcing can be a strategic option for minimising regulatory obligations, regulatory risk exposure, and compliance costs. Supply chains can create for themselves duty-free ‘highways’ to target markets by aligning their material sourcing and production network to country of origin qualifications. The study is important because it shines the spotlight on a critical area of management that is deserving of serious attention in regulation studies and debate. The inquiry has many managerial implications, including the need to add regulatory criteria in their performance management systems. The research provides significant insight into how regulations drive industry behaviour and in so doing, exposes areas of supply chain vulnerability and an emerging habit of creative compliance. The research also abounds in policy implications, not least the need to improve on current practice in regulatory impact assessment with a more balanced view of the cost of regulation quantitatively and qualitatively from both government and business perspectives