Supply Chain Risk Sources, Consequences, Drivers and Mitigation

I just stumbled upon one of the articles I already read about a year ago, shortly after I started my research. Beside indication of a future research agenda (see as well here), Jüttner et al. (2003) also explain some fundamental concepts of supply chain risk management.

How to get there?

Jüttner et al. decided to conduct a exploratory study with practitioner interviews and compare these results with a literature review. Four basic concepts for Supply Chain Risk Management evolved from this, namely Risk Sources, Risk Consequences, Risk Drivers and Risk Mitigation Strategies.

Risk Sources

[are] environmental, organisational or supply chain-related variables which cannot be predicted with certainty and which impact on the supply chain outcome variables

So there are three categories for risk sources: Environmental, Network and Organization.

• Environmental risk sources may for example be the result of accidents (eg. fire), socio-political actions (eg. terrorist attacks) or force majeure (like hurricanes or earthquakes)
• Network-related risk sources unfold from interactions between organisations within the supply chain, examples are: Lack of Ownership (unclear responsibilites between supply chain partners eg. due to increased concentration and outsourcing), Chaos can result from missing trust or badly communicated information, finally Inertia describes a lack of flexibility within the supply chain.
  The interviews showed

  a consensus that network-related risks are an important and so far neglected source of risk.

• Organisational risk sources can be found within one of the participants of the supply chain in focus and can be found within the production factors like labour (strikes), machines (failure), etc.

To conclude: From the point of view of the links within the supply chain, environmental and organizational uncertainties can be seen as risks “to” the links in the supply chain whereas network-related uncertainties are risk sources “of” the links.

Risk Consequences

Risk can have consequences can be measured ex post by the performance indicators used. Ex ante they are contained within the variances of the indicators. Three different consequences can be named:

• Financial consequences
• Reputation damage
• Health and safety concerns

Risk Drivers

Risk drivers further increase the risk experienced by the supply chain participants (examples: competition increases the risk indirectly, outsourcing (increased complexity) has a direct effect on risks)

The major drivers for risk are: focus on efficiency rather than effectiveness, globalization of supply chains, focussed factories and centralized distribution, the trend to outsourcing and the reduction of the supplier base.

Risk Mitigating Strategies

… can be defined as

strategic moves organisations deliberately undertake to mitigate the uncertainties identified from the various risk sources (Miller, 1992)

Conclusion

The results of this article experienced a widespread use and are accepted by many researchers. The definitions mentioned can be used as basis for further research in the supply chain risk management field.