A Framework for Managing Supply Chain Risks

This is an excerpt of the original article. It was written for the July-August 2011 edition of Supply Chain Management Review. The full article is available to current subscribers.

July-August 2011

Winning and winners have a powerful fascination for us. Everyone seems to go crazy when their favorite team wins a championship (think Boston Bruins in the recent Stanley Cup). Individuals bring out the adulation in us, too, whether they are in sports, politics, the community, or religious leaders. And don't forget business. Jack Welch, Bill Gates, and yes, Donald Trump are among the business "winners" who have captivated us. By developing winning ways, supply chain people can put themselves in great position for a long and fulfilling career. We hope that the articles in our July/August issue will accelerate your progress along that…

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Two facts are widely recognized in industry and academia. First, successful supply chain management is a key to competitive advantage. Second, global supply chains are increasingly vulnerable to risks that can have a significant negative impact on a company’s profitability—and even survival. This makes risk management a critical task for any company. Yet what’s missing is a set of guidelines that managers can use to accomplish this task. This article fills that void by offering a framework they can use to address the following essential components in risk management: identifying risks, evaluating the negative consequences of risk factors, preparing for adverse events arising from these risks, reacting to events, and recovering from an event’s negative effects.

Part of this framework is an iterative process with feedback loops for learning and improvement. Another distinguishing feature is a classification scheme that allows managers to identify risks along the dimensions of probability of occurrence, the potential magnitude and cost of an adverse event, and the degree of control a manager can exercise over the factors causing the risk—all of which provide useful inputs into the decision-making process for risk management.

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