Accounting Beyond Disruption: Risk Work for Sustainable and Resilient Global Supply Chains

Introduction

Over the past decade, supply chains have experienced unprecedented challenges and disruptions from many sources, including but not limited to the COVID-19 pandemic, geopolitical tensions such as the trade war between the US and China, the Russian invasion of Ukraine, and the growing demand for transparency and accountability over social and environmental impacts. The financial implications of disruptions since 2020 and uncertainties are projected to be roughly 6-10% of annual revenues[1]. These disruptions have made it increasingly challenging to oversee and manage the dependencies in production systems, mainly when they are distributed over large geographical areas.

These disruptions have exposed areas for improvement in organisations' traditional supply chain risk identification, representation, management and reporting methods. While extensive research is carried out on supply chains and inter-organisational accounting supporting them (Agndal & Nilsson, 2009; Baker & Schaltegger, 2015; Cooper & Slagmulder, 2004; Håkansson & Lind 2004; Mouritsen et al., 2001; Seal et al., 2004; Seal et al., 1999; van der Meer-Kooistra & Vosselman, 2000), much of this work has focused on cost-related aspects (Velayutham et al., 2021). Less is known about the riskwork firms undertake in supply chains to manage risks. Velayutham et al. (2021) examined how companies can mitigate risks by providing managers with relevant accounting information to identify strategic uncertainty areas and the extent of the financial impact and create scenario planning. The authors argue that accounting information is vital for managing external stakeholders, especially when financing supply chains is needed. In a similar manner, Crovini et al. (2021) argue that reporting to external stakeholders is essential. They suggest that organisations may not be aware of the benefits of risk reporting systems, particularly ad hoc disclosures, for improving legitimacy and accountability during periods of uncertainty. They also argue that risk disclosures should be tied to the organisation's business model.

From a critical point of view, Free and Hecimovic (2021) argue that many risks in global supply chains result from neoliberal ideas to integrate markets while extracting value to maximise profits. The authors suggest that a neoliberal policy has contributed to companies' dependence on global supply chains and made them fragile when disruptions occur. Accounting rhetoric and technologies, like cost minimisation and lean management, have provided information supporting the view that profits can be optimised if components are purchased from low-wage economies. They propose that these accounting technologies will be subject to greater scrutiny because of how exposed supply chains are when disruptive situations occur. The authors suggest that COVID-19 made companies aware of their supply chain is vulnerability and highlighted the lack of transparency across an extended value chain. Companies may have visibility into Tier 1 operations but more difficulty managing risks throughout complex supply chains.

Parallel to this, we see an increased focus on endogenous sustainability risks (e.g., environmental and social risks) in global supply chains. Transition risks (and other types of risks) are potentially huge for long and complex supply chains, where environmental and social uncertainties are difficult to manage (O'Dwyer & Unerman, 2020). There is a growing debate at the regulatory level to reform the way companies report the sustainability of their business model. As an example, in 2022, the ISSB (International Sustainable Standard Board) made Scope 3 emissions mandatory to report. These changes will make accounting central for managing risks in the global supply chain. More "innovative" accounting tools can enable companies to increase their sustainability and resilience, including risk management tools like scenario planning (Velayutham et al., 2021). Adopting alternative or novel risk technologies also raises questions about the role of accounting in influencing the dynamics of interactions between networked companies (Mouritsen & Thrane, 2006).

Companies with a business model that involves outsourcing from countries and regions categorized by low labor standards, weak law enforcement and regulations, and a generally 'weak government,' run the risk of sourcing from suppliers where modern slavery is a reality and the workforce is exploited in various ways (Christ et al. 2020). Modern slavery can manifest in different forms, such as forced labor, trafficking, and various forms of debt schemes (Crance 2013). Addressing modern slavery is critical to global supply chain risk management, where legitimacy and accountability play important roles. Organisations are increasingly required to demonstrate due diligence in identifying, preventing, and mitigating human rights violations within their supply chains. In this respect, accounting practices are crucial in promoting accountability. Rigorous accounting and control measures can provide detailed insights into supplier operations and reveal the potential human rights risks, quantifying the financial impact of human rights risks and thus inform holistic risk management. However, detecting instances of human rights violation is complex, and calling for integrating financial and non-financial metrics is required. Implementing accounting disclosures on human rights risks can further increase accountability, strengthen stakeholder trust and promote ethical practices. As the regulatory landscape continues to evolve, the emphasis on integrating human rights considerations into supply chain risk management will likely increase. Therefore, research focusing on developing strategies and accounting/control practices to improve accountability in addressing human rights risks within global supply chains is fundamental.

This AAAJ special issue invites empirical and theoretical contributions focused on the role of accounting and the impact on the accountability of the organisational work undertaken to identify and manage supply chain risk. Understanding risk work can support organisations in capitalising on opportunities and improving supply chain sustainability and resilience. We encourage various empirical studies using qualitative methodologies. Potential avenues of investigation might include research addressing, among other things, the following questions:

• What new accounting processes and structures like scenario planning have organisations developed to identify and monitor supplier-related risks and culture, and how do they work? For instance, what measures are used to mitigate performance and relational risk issues and help stabilise them?
• How do new measures impact trust and the flow and dynamics of interaction in the network?
• How do different accounting tools impact organisations’ ability to mitigate supply chain disruption risks?
• What are the limitations in conventional performance measurement systems, and what innovations have been developed and used to ensure readiness for future disruptions?
• What is the role of accounting in helping organisations understand and communicate their supply chain risk appetite?
• Have organisations changed their supply chain procurement processes? What is the accountant’s role in such processes?
• What new practices are being introduced to improve whole-of-operation visibility? Are open book accounting agreements beneficial or a constraint? For instance, is it more challenging to agree between suppliers on the materiality of various risks?
• How are management control mechanisms designed/used to make the supply chain resilient and sustainable?
• How does emerging technology support/constrain accounting for the risks in the supply chain? How can data analytics and visualisation tools and technologies support supply chain risk management decisions?
• How do organisations embed supply chain risk management capabilities in business decision-making?
• What is the role of the management accountant and business controller in detecting and controlling risks in supply chains?
• To what extent do organisations model different supply chain scenarios and develop contingency plans?
• How will the recent developments in sustainability reporting regulations impact companies’ perspectives and work with suppliers to mitigate risk?
• Will green accounting or sustainable finance trickle down into supply chains and make some suppliers riskier than before?
• In what way are social dimensions of sustainability, such as “modern slavery” and human rights violations, incorporated in companies' risk management practices for managing their supply chains?
• Transition and reputational risks in global supply chains may prompt companies to re-evaluate their supplier relationships and management control practices, allowing suppliers to assume greater responsibility than previously. How are these extra responsibilities orchestrated?