۱- Introduction

۲- Literature review

۳- Expected utility and decision making under uncertainty

۴- Existing SCRM process and concept of utility indifference curves based risk matrix

۵- Proposed risk matrix driven supply chain risk management process

۶- Simulation study

۷- Second approach for selecting optimal strategies (without using the risk matrix)

۸- Discussion

۹- Conclusions

References

Abstract

There is a major research gap of developing a supply chain risk management process integrating the risk appetite of a decision maker and all stages of the risk management process within an interdependent network of systemic risks. We introduce an iterative process, namely risk matrix driven supply chain risk management, to bridge this gap. We make use of the recently introduced concept of utility indifference curves based risk matrix to capture the risk attitude of a decision maker. We also present algorithms for assessing and mitigating interdependent risks for risk-neutral and risk-averse/seeking decision makers and demonstrate the application of our proposed process through a simulation study. Utilising the method of cost-benefit analysis within an interdependent setting of interacting risks and risk mitigation strategies, we also propose a second approach that can help a decision maker to determine a set of Pareto-optimal risk mitigation strategies and select optimal solutions subject to the budget constraint and specific risk appetite.

Introduction

Risk management is a continuous process comprising sequential stages of risk identification, risk analysis, risk evaluation, risk treatment and risk monitoring (SA, 2009). Supply chain risk management (SCRM) is the “implementation of strategies to manage both everyday and exceptional risks along the supply chain based on continuous risk assessment with the objective of reducing vulnerability and ensuring continuity” (Wieland & Wallenburg, 2012, pp. 890-891). Adapting the established risk management framework (SA, 2009), researchers have been proposing various SCRM frameworks (Tummala & Schoenherr, 2011; Heckmann et al., 2015; Ho et al., 2015). Besides these frameworks, a number of models and tools have been developed focusing on different stages of the SCRM process (Fahimnia et al., 2015). Supply chain risks have been generally classified into independent categories (Rao & Goldsby, 2009) like physical, financial, information, relational and innovation (Cavinato, 2004; Spekman & Davis, 2004). The same independent categories of risks are adopted and reflected in the conventional risk matrix based tools used by the practitioners (Norrman & Jansson, 2004; Khan et al., 2008).