Supply chain risk modeling by AHP and Fuzzy AHP methods

Abstract

Supply chain management is a discipline dealing with organization, coordination, and optimization of relations within supply chains. Complexity and dynamics of supply chains are not always proportional to their reliability, and supply chain risk management becomes a very important tool in minimizing risk and uncertainties caused by, or impacting on, logistics-related activities or resources in the supply chain. Because risk modeling presents a very important segment of risk management, the paper includes a description of the main characteristics of supply chains and a model for risk assessment based on the Analytic Hierarchy Process (AHP) and Fuzzy Analytic Hierarchy Process (FAHP) methods. The main intention of the research presented here is to propose approaches based on application of the AHP and FAHP methods which are used as a tool for ranking supply chain risk categories, determining its share in total risk, and as a method for the supply chain risk assessment. The proposed approach is based on the experience and the knowledge of experts from insurance companies which are professionally engaged in the process of risk assessment, and possibility of its application is tested on a numerical example.