A Behavioural View of Supply Chain Risk Management

Abstract

The field of supply chain risk management (SCRM) has provided academics and managers with a range of useful models and frameworks to identify, assess and mitigate potential disruptions. At the core of these frameworks are implicit assumptions of rational decision-making, consistent preferences and optimal choice. Empirical evidence has, however, questioned the validity of making such assumptions and has shown that environmental uncertainty and managerial illusions create deviations from rational decision-making. Moreover, studies have found that managers may have individual goals that are not related to risk and cost minimisation but that reflect their risk preferences, status-seeking or the history of their relationships with exchange partners. Failure to account for behavioural factors, such as risk perception and social preferences, may therefore lead to inaccurate risk management models and sub-optimal decision-making. In this chapter, we draw from advances in behavioural research to highlight the importance of incorporating such factors into supply chain risk management models. In particular, we challenge the underlying assumptions—i.e. objective risk assessment and rational decision rules—and review behavioural factors relevant in the risk management context. Based on our discussion, we provide potential avenues for future research.