Introduction
Risk is one of the concepts that continuously attract the attention of business administrators and scholars. This paper is aimed at discussing this notion within the context of supply chain management. In particular, it is necessary to examine the theories and models that can be used to manage risks and increase organizational resilience to internal and external threats. This report will consist of several sections.
First, one should provide the definitions of main concepts such as internal and external risk. Furthermore, this paper will include a review of research articles that can be used to identify different theoretical frameworks or models of supply chain risk management. Overall, one can say that the current research is oriented toward two aspects of risks, namely probability and impact on the sustainability.
It should be noted that existing approaches to supply chain risk management cannot be universally applied. As a rule, they were designed to respond to the problems faced by certain types of companies or industries. This is one of the limitations that should be considered.
Definitions of the main concepts
Overall, the notion of risk can be interpreted as the possibility of loss, hazard, or any other undesirable event. However, researchers, who examine this term from an organizational perspective, describe it as a “variation in the distribution of possible outcomes, their likelihoods, and their subjective values” (Christopher & Peck 2004, p. 4). Therefore, risk is closely connected with the deviation from the established norm.
It should be noted that there are two types of risks, namely internal and external. Internal risks take their origins in the inside operations of an organization, in particular, the decisions of the management, structure, R&D policies, planning, and so forth (Lin & Zhou 2011, p. 164).
Each of these aspects lies within the scope of managerial responsibilities. This is one of the details that should be considered. In turn, external risks can be attributed to the factors cannot be controlled or eliminated by the management. For example, one can speak about such threats as natural disasters, political upheavals, or technological catastrophes that can produce detrimental effects on a company.
Additionally, it is important to examine such a concept as supply chain management (SCM). Certainly, one can offer several definitions of this term. Yet, researchers usually describe it as the way to control the flow of goods from the suppliers of raw materials to the end users of a product (Sinha, Whitman & Malzahn 2004, p. 154). This term is important for understanding the questions that will be discussed.
Overall, supply chain risk management (SCRM) can be described as a set of activities that are aimed at identifying various risks and minimizing their probability or influence on an organization. To a great extent, it is a set of activities that are supposed to make a company less vulnerable or susceptible to various threats.
For example, the development of a contingency plan is one of the activities included in SCRM. This plan is supposed to give step-by-step instructions that should be carried out provided that a certain event takes place (Christopher & Peck 2004). In particular, many companies develop contingency plans to reduce the impact of disruptions. This is one of the possible problems that should be addressed.
There are different types of supply chain risks, for instance, one can mention delays, disruptions, forecast risks, procurement risk, the failure to collect receivables, and many other threats (Chopra & Sodhi 2004, p. 54). These risks can be attributed to be internal and external factors. These are the main details that can be identified.
Literature review
It is possible to single out various sources that can throw light on different theories and models that can be helpful for identifying, assessing, or mitigating supply chain risks. On the whole, one can argue that various authors do not always explicitly identify a theory or model that they follow while conducting their research. Yet, it is possible to understand what kind of frameworks they rely on.
For example, it is possible to discuss the article written by Martin Christopher and Helen Peck (2004) who discuss the methods of constructing a resilient supply chain. The authors focus on the strategies adopted in various industries such as food retailing, automotive manufacturing, food packaging, and so forth (Christopher & Peck 2004, p. 2).The scholars attempt to answer several research questions.
First, they try to determine how organizations can reduce the impact of external threats on their business processes (Christopher & Peck 2004, p. 1). Secondly, researchers want to reduce the costs associated with SCRM. These scholars attempt to develop a model of a resilient supply chain.
To a great extent, it is based on the contingency theory according to which the management should concentrate on the environment in which the business operates. This theoretical framework implies that one cannot fully eliminate the probability of a certain risk. However, business administrators can develop strategies that can help a company withstand the influence of these environmental factors. This approach can be distinguished because it can enable an organization to remain sustainable at the time of crisis.
In their article, Omera Khan and Marting Christopher (2008) discuss the relevance of product design to SCRM. They study this question within the context of such industries as fashion retail and clothing manufacturing (Khan & Christopher 2008, p. 412). These authors show how companies can improve their SCRM by viewing design as a component of supply chain. Moreover, they demonstrate how this partnership can be established.
These are the main questions that these researchers examine. One of their arguments is that designers and suppliers should closely interact with one another in order to reduce the probability of supply chain risks (Khan & Christopher 2008, p. 418). This study illustrates the application of the stakeholder theory which is used for the management of risks. According to this approach, the stakeholders, who may have various interests, can represent the supply chain.
More importantly, different problems can be addressed or avoided if various participants are able to cooperate with one another in order to resolve conflicts and misunderstandings. This is the main principles that should be followed. This framework should be disregarded because in many cases, supply chain problems can be attributed to miscommunication or lack of coordination. It can be a valuable tool for reducing the probability of risk.
The importance of design is examined Yong Lin and Li Zhou (2011). In particular, these scholars explore the impact of changes in design on various supply chain risks (Lin & Zhou, 2011, p. 162). They look at the way in which this issue manifests itself in the special-purpose vehicle industry.
There are several questions which these researchers discuss. First, they try to determine whether a certain risks can occur due to design changes requested by clients (Lin & Zhou, 2011, p. 164). Secondly, they focus on the impact of such requests on the functioning of the supply chain. Overall, their findings suggest that such changes in design often lead to external and internal supply chain risks that can be related to production process or delivery of goods to clients. This study is also based on the stakeholder theory of risk.
Additionally, it is possible to review the article written by Sunil Chopra and ManMohan Sodhi (2004) who study the ways of avoiding supply-chain breakdowns. These scholars discuss a variety of supply chain risks to which a business can be exposed.
Overall, they do not test a certain hypothesis or answer research questions. Instead, they survey a set of methods that can mitigate various risks. One can say these scholars present a model of a resilient supply chain that is able to withstand the impact of environmental factors. Such an approach is useful for reducing the impact or risks.
One can also speak about the work of Pankai Sinha, Larry Whitman, and Don Malzahn (2004). These researchers strive to develop techniques for the mitigation of risks that can affect the supply chain in the aerospace industry. They scholars do not discuss a specific research question or a hypothesis. They are more interested in identifying techniques which enable the managers to reduce the probability and impact of risks.
This article illustrates the so-called IDEFO model of managing risk (Sinha, Whitman, & Malzahn 2004, p. 166). The model is premised on the idea that supply chain managers should be ready for the worst-case scenarios.
By relying on stress testing, they can identify the strengths and weaknesses of the organization. Furthermore, these professionals should adopt the policy of continuous improvement (Sinha, Whitman, & Malzahn 2004, p. 166). This model can be singled out because it is a useful technique for evaluating the resilience of the supply chain.
The article written by Steen Christiansen and Jesper Jensen (2009) is also worth attention because it illustrates the application of such a model as the fishbone diagram as a method of improving the work of the supply chain. This study is aimed at discussing packaging performance qualification (Christiansen & Jensen 2009, p. 77).
In particular, the scholars want to determine “the minimum performance qualification batch size for assembly and packaging processes” (Christiansen & Jensen 2009, p. 77).
These processes can be viewed as important elements of the supply chain. The writers show how a fishbone diagram can be used to identify the causes of various problems or variations in the functioning of the supply chain (Christiansen & Jensen 2009, p. 83). This model is helpful for understanding the pinpointing the weaknesses in the supply chain. This is why it should not be overlooked.
This use of this model is also described in the article by Angela Tidwell and Scott Sutterfield (2012). The main goal of their study is to discuss the selection of suppliers with the help of such a tool as Quality Function Deployment (2012, p. 284).
They researchers focus on the needs of businesses that are engaged in toothpaste packaging (Tidwell & Sutterfield 2012, p. 284). The main task is to exemplify the common challenges that companies face when choosing among various suppliers. These authors also illustrate the application of the fishbone diagram.
Apart from that, it is possible to look at the article written by Craig Carter and Dale Rogers (2008). To some degree, it can throw light on the use of resource dependence theory. These authors carry out a survey of scholarly articles illustrating theoretical perspectives on the causes of supply chain risks and ways of mitigating them. In this way, they attempt to single out the most relevant approaches to SCRM.
For instance, large manufacturers prefer vertical integration. In other words, they prefer to take complete control of their suppliers (Carter & Rogers 2008, p. 272).
This strategy is consistent with the principles of resource dependence theory according to which organizations strive to maximize their control of resources such as labor, technologies or raw materials (Carter & Rogers 2008). In turn, vertical integration of the supply chain is a way of reducing the probability of risk. Overall, this perspective is useful for explaining the long-term strategies of large manufacturers.
Furthermore, one can look the article written by Anthony Paulrai and Chen Injaazz (2011). These authors discuss such a phenomenon as environmental uncertainty and its impact on SCM of various businesses.
They want to show how organizations try to become more self-sufficient and reduce the threats to its supply chain. This is the main research question that they focus on. In their opinion, the main trend in SCRM is the integration of supply partners (Paulrai & Injaazz 2011, p. 37). This study is also based on the use of resource dependence theory.
The peculiarities of vertical integration are examined in the study carried out by Wei Guan and Jacob (2012). These researchers examine the use of this approach by timber manufacturers (Guan & Rehme 2012). The scholars intend to understand the factors that prompt various businesses to adopt this approach.
This is the main issue that they are interested in. Overall, timber manufacturers focus on vertical integration because it is critical for responding to the needs of clients (Guan & Rehme 2012). In order to do it, they need to make sure that suppliers are effectively managed. So, this way of removing risks takes its origins in the resource dependency theory. These are the most important aspects that can be identified in these articles.
Conclusion
This analysis indicates that there are different models of supply chain risk management, and each of them has its strengths and weaknesses. First of all, one can say that some of the existing models and theories are mostly aimed at improving organizational capacity to respond to risks or threats. For instance, a contingency theory of risk implies that a company should be ready to respond to the changes in external environment.
Therefore, their main purpose is to mitigate the impact of risks. In turn, other frameworks show how the probability of risks can be reduced. It seems that an organization should combine these approaches in order to become more effective. However, one should critically evaluate the applicability of different models and theories. Many of them have been tested only within the context of some specific industries or organizations. These are the main arguments that can be put forward.
References
Carter, C. & Rogers, D 2008, ‘A framework of sustainable supply chain management: moving toward new theory’, International Journal of Physical Distribution & Logistics Management, vol. 38, no. 5, pp. 360-387.
Chopra, S & Sodhi, M 2004, ‘Managing Risk To Avoid Supply-Chain Breakdown’, MIT Sloan Management Review, vol. 46, no. 1, pp. 53-61.
Christiansen, S.H. & Jensen, J.B.T. 2009, “Packaging Performance Qualification-A Risk-Based Approach”, Journal of Validation Technology, vol. 15, no. 2, pp. 77-85.
Christopher, M & Peck, H 2004, ‘Building the resilient supply chain’, International Journal of Logistics Management, vol. 15, no. 2, pp. 1-13.
Guan, W. & Rehme, J. 2012, ‘Vertical integration in supply chains: driving forces and consequences for a manufacturer’s downstream integration’, Supply Chain Management, vol. 17, no. 2, pp. 187-201.
Khan, O & Kristopher, M 2008, ‘The impact of product design on supply chain risk: a case study’, International Journal of Physical Distribution & Logistics Management, vol. 38, no. 5, pp. 412-432.
Lin, Y & Zhou, L 2011, ‘The impacts of product design changes on supply chain risk: a case study’, International Journal of Physical Distribution & Logistics Management, vol. 41, no. 2, pp. 162-186.
Paulraj, A. & Chen, I.J. 2007, “Environmental Uncertainty and Strategic Supply Management: A Resource Dependence Perspective and Performance Implications”, Journal of Supply Chain Management, vol. 43, no. 3, pp. 29-42.
Sinha, P., Whitman, L., & Malzahn, D 2004, ‘Methodology to mitigate supplier risk in an aerospace supply chain’, Supply Chain Management: An International Journal, vol. 9, no. 2, pp. 154-168.
Tidwell, A. & Sutterfield, S 2012, “Supplier selection using QFD: a consumer products case study”, The International Journal of Quality & Reliability Management, vol. 29, no. 3, pp. 284-294.