Strategy evaluation and selection in managing supply risk

Abstract

An effective risk management strategy should ensure supply continuity by creating resilience. Resilience can be achieved by creating redundancy or increasing flexibility. These concepts have been investigated in literature mainly considering the company’s point of view, while this research moves the focus of resilience to the supply side. Furthermore, flexibility and redundancy are generally investigated as two different and unrelated strategies; in particular, authors studying redundancy practices usually perform quantitative studies in order to identify the optimal quantity to be buffered, while researches on flexibility are more qualitative and descriptive, providing insights into their actual employment and perceived benefits. Consequently, the main research question is: how to jointly evaluate the available strategies to deal with supply risk and make the right decisions that improve supply chain performance? To answer these questions and fill the literature gaps, this research, stemming from a typical risk management framework, proposes an enhanced methodology to deal with the risk related to strategic suppliers, composed of the following four steps: (i) analysis of supply risk, (ii) evaluation of available strategies, (iii) selection of the most suitable strategies and (iv) monitoring and feedback. In particular, the main contributions are in step ii where a descriptive model, that supports the analysis of conjoint effects produced by redundancy and supply flexibility simultaneously adopted, has been developed, and in step iii that proposes a quantitative model that, starting from the relationships identified in the previous step, supports the selection of the most suitable strategy for ensuring supply continuity considering inbound disruptions. The current financial crisis that has been slowing down the global economy and the increasing complexity of supply chains have drawn the attention to supply failure and have increased the awareness among professionals that risk assessment and mitigation play a crucial role in successfully managing supply chains.