An agile and diversified supply chain: reducing operational risks

Abstract

PurposeRecent trends of outsourcing in global competition make the firms vulnerable to operational risks. The purpose of this paper is to illustrate how firms implement supply chain strategies to reduce operational risks, especially risk exposure involving catastrophic events.Design/methodology/approachDrawn on risk management and supply chain research, the concepts of operational risk and the underlying demand and supply uncertainties are delineated. Then, based on literature review and numerical demonstrations, the authors evaluate the effectiveness of supply chain strategies in reducing operational risks. The paper examines the benefit of these strategies and illustrate how to setup risk pooling and dual sourcing programs.FindingsEmploying the strategies of risk pooling and dual sourcing, an agile and diversified supply chain can be built to cope with the demand or supply uncertainties and in turn reduce the operational risks.Practical implicationsLeaders in any organization should consider operational and supply risk critically when planning their competitive strategy. They could foster creative solutions in supply chain strategies and essentially enhance competitiveness.Originality/valueThe paper highlights the tension between outsourcing trend in pursuit of competitive advantage and risk exposure to catastrophic events. This paper fulfils a practical need for better understanding of how supply chain strategies could be implemented to reduce operational risks.