Robust Supply Chain Risk Management

Supply Chain Disruption Risks

In this section we revise the concept of supply chain risk management (SCRM) and the different approaches for classification of risks in supply chains. Tang (2006 a) has defined SCRM as the coordination between the supply chain members in order to guarantee profitability and continuity.

There are different supply chain risk classifications. For example, Chopra and Sodhi (2004) have categorized supply chain risks into disruptions, delays, systems, forecast intellectual property, procurement, receivables, inventory, and capacity. In their definition, disruption risks include natural disasters, labour disputes, supplier bankruptcy, war and terrorism, and dependency on a single source of supply. Tang (2006 a) has categorized supply chains risks in two types: operational and disruption risks. Operational risks are related to the existing problems such as uncertain demand, uncertain supply, and uncertain cost. On the other hand, disruption risks concern the major disruptions caused by natural and man-made disasters such as earthquakes, floods, hurricanes, terrorist attacks, and economic crises such as currency devaluation or strikes. In addition, he mentions that the business impact associated with disruption risks is much larger than the operational risks.

Furthermore, as shown in Figure 1, typically, the risk assessment and management process follows several steps. First the risk analyst needs to assess the frequency and consequences of the risk factors; then he needs to decide on the risks that are not acceptable and take the required measures to improve them. Finally, there is always a residual level of risk that the manager accepts to live with as it may be more expensive to tackle than its perceived consequences.

Figure 1.

The risk assessment and management process