A Framework for Risk Pooling in Business Logistics

Abstract

Demand and lead time uncertainty in business logistics increase, but can be mitigated by risk pooling. Risk pooling can reduce costs for a given service level, which is especially valuable in the current economic downturn. The risk pooling literature is extensive, but fragmented and inconsistent and does not provide a sound comprehensive risk pooling definition or framework. This hampers knowledge generation, transfer, and application. Therefore this paper provides the first (1) comprehensive and concise definition of risk pooling distinguishing between variability, uncertainty, and risk and including both demand and lead time pooling, (2) identification and definition of ten risk pooling methods according to this notion, (3) statistical explanation of risk pooling considering both demand and lead time pooling, and (4) value chain oriented framework for analyzing risk pooling methods.