Building a Natural Disaster Risk Index for Supply Chain Operations

Building a Natural Disaster Risk Index for Supply Chain Operations

Kun Liao (Department of Finance and SCM, Central Washington University, Lynwood, WA, USA), Ozden Bayazit (Department of Finance and SCM, Central Washington University, Lynwood, WA, USA) and Fang Wang (Department of Finance and SCM, Central Washington University, Des Moines, WA, USA)
DOI: 10.4018/ijisscm.2014100102
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Abstract

Risk for an organization is associated with uncertainties in all areas of its operations. As firms move toward global sourcing, supply chain risk increases dramatically, which is linked to lower financial performance and market value. One major type of supply chain risk is disruptions caused by natural or man-made disasters. In this paper, major factors causing supply chain disruptions are identified based on resource dependency theory and contingency theory. As a result of the study, a comprehensive supply chain risk index for natural disasters is proposed by including two major factors (i.e. location and single source). Actions are suggested for supply chain managers to lower disruption risks within a supply chain when they use the risk index as a measure.
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2. Literature Review

As a result of organizations becoming more engaged in offshore manufacturing and global outsourcing practices, as well as a recent series of natural disasters (hurricanes, powerful earthquakes, floods), supply chain risk management has started taking center stage as a vital priority for many organizations. Those events triggered enormous disruptions to many supply chains. Organizations have come to realize that a resilient supply chain will secure organization’s competiveness whereas fragile supply chains will threaten organization’s position in the market. Researchers have also reacted by focusing on this rapidly-developing field of supply chain risk management. As a result, a large number of researchers have become interested in the area as identified in a recent literature review by Rao & Goldsby (2009). The study revealed that “the recent past has seen a surge in interest of researchers and practitioners in the area of supply chain risk”. In another literature review, Vanany et al. (2009) examined relevant articles published in supply chain risk management field from 2000 to 2007. The authors classified articles according to four basic supply chain areas: supply management, product management, information management, and demand management. Tang & Musa (2011) have also investigated the research tendency of the supply chain risk management area through a comprehensive literature review. Based on the review, they concluded that there is an increasing interest in the field. Additionally, their study focused on major risk issues and risk mitigation techniques based on material, information and financial flows. As a result of their study identifying a gap in the literature, the authors attempted to propose several quantitative techniques that could be used for risk management: (i) robust planning, (ii) revenue management, (iii) agency theory, (iv) option theory, (v) reverse logistics, and (vi) system dynamics.

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