Same wine in two different bottles?

When I say that I am not sure which article comes first, it is because they are written by the same authors, published in the same year, deal with the same topic, published in two different journals, while at the same time taking similar, but different approaches. Nonetheless, each article stands out in its way and by its own right. The aims of this paper are to 1) explore the interaction between risk and performance in a supply chain context, 2) articulate the main strands of risk management within supply chain management, and 3) develop a framework encapsulating these strands and demonstrate its application in two empirical settings.

Risk

Ritchie and Brindley conclude that while there are many definitions of risk, what they have in common is related to

• the likelihood of occurrence of a particular event or outcome
• the consequences of the particular event or outcome occurring
• the causal pathway leading to the event

All three dimensions are important in risk management:

Risk management seeks to address all three dimensions of the risk construct by analyzing the sources, seeking to understand the forces that may drive a particular sequence of events and how these might be managed to improve the chances of positive outcomes in terms of performance and, by corollary, avoid negative consequences.

Supply chain risk management framework

Building on earlier research, risk is defined as a function of environmental variables E_R, industry variables I_R, organizational strategy variables O_R, problem specific variables P _R, and decision-maker related variables DM_R.

R = f (E_R I_R O_R P_R DM_R)

This formulation provides the basis for their supply chain risk management framework, where each part contributes to and influences the next step:

• Risk Sources and Profile
• Risk & Performance Drivers
• Risk & performance Consequences
• Risk Management Responses
• Risk & Performance Outcomes

The supply chain risk management framework centers around these two questions:

Is it possible to prescribe risk management responses to address particular risk drivers or combinations of these? Will particular risk management responses reduce, ameliorate or ultimately eliminate exposure to particular risks and their consequences?

How do risk and performance drivers interact? Can risk reduction only effectively be achieved by the deterioration in some aspects of performance?

Risk sources

Ritchie and Brindley identify seven sources of risk

• Environment Characteristics
• Industry Characteristics
• Supply Chain Configuration
• Supply Chain Members
• Organizational Strategy
• Problem-specific Variables
• Decision-making Variables

The list implies that there can be no generally valid risk for all types of supply chains, but risks must be defined from within the context of the supply chain that is the subject of analysis. No supply chain is equal to any other supply chain, and each supply chain has its own and unique set of risks.

Risk performance and drivers

Ritchie and Brindley do not mention particular drivers, besides stating that

There are potentially an infinite number of factors exposing the business to undesirable consequences in terms of performance and risk.

and mentioning that the drivers need to be related to the sources, such that a generalization is practically impossible, and thus omitted in this paper. And admittedly, for the supply chain risk management framework, identifying all drivers is not important. After all, this is a framework, a framework that must be adapted to the individual situation, as indicated by the risk definition above.

Risk Performance Consequences, Risk Management Responses and Risk and Performance Outcomes

This is one of the shortcomings of the paper.  Risk Performance Consequences, Risk Management Responses and Risk and Performance Outcomes are receive only a cursory treatment in the paper, and while discussed in the two cases at the end of the paper, the case discussion appears to deviate from the main framework for supply chain risk management. The discussion also highlights a framework mentioned in an early figure in the paper, namely the relationship between perceived risk and performance outcome, indicating that risk awareness and risk perception play an important role in risk management:

Conclusion

The article establishes a generic framework for supply chain risk management. It is prosaic and conceptual in its approach, and it leaves much unanswered while raising some fundamental issues for future consideration. These are the conclusion I have drawn from this article:

• Supply Chain Risk Management cannot be defined once and for all, it is unique to every supply chain and must be assessed for each supply chain individually.
• Supply Chain Risk Management is an intricately interwoven concept. It  involves not only the whole supply chain, but the whole organization and the wider relationships with other organizations and supply chains.
• Supply Chain Risk Management involves expenditures that do not seem to relate to the overall performance of a business, and thus, there is a need to develop metrics that can link risk and performance.

While published as two separate papers, both An emergent framework for supply chain risk management and performance measurement and Supply chain risk management and performance: A guiding framework for future development should be read together, since they both complement each other.

Reference

Ritchie, B., & Brindley, C. (2007). Supply chain risk management and performance: A guiding framework for future development International Journal of Operations & Production Management, 27 (3), 303-322 DOI: 10.1108/01443570710725563

Links

• ntu.ac.uk: Professor Clare Brindley
• uclan.ac.uk: Professor Bob Ritchie

Related

• husdal.com:
• Measuring supply chain risk management and performance (JORS)
• husdal.com:
  Risk assessment and relationship management: practical approach to supply chain risk management.
• husdal.com:
  Risk in supply networks – a tale of principals and agents

Supply Chain Risk Management Framework

Supply chain risk and supply chain risk management are not new problems, and have, along with risk and risk management, become dominant features in management. Managers are continuously being challenged,  because

There are many unexpected and unpredictable disruptions that add to the risks of a supply chain.

and thus,

An important measure of management performance is the ability to successfully manage such risks.

and hence, Ritchie and Brindley make a very good attempt at providing a framework for supply chain risk management, and its components:

• Risk Context and Drivers
• Risk Management Influences
• Decision Makers
• Risk Management Responses
• Performance Outcomes

Much of the groundwork for this article has already been laid out in another article by Ritchie and Brindley, previously reviewed on this blog: Risk assessment and relationship management: practical approach to supply chain risk management.

Supply chains or networks?

Members of the supply chain are becoming increasingly inter-dependent, suggesting an inter-locking of interests. At the same time, each individual supply chain is unique in certain respects and this uniqueness may require unique approaches to the management of the risks involved. But what is a supply chain (or network?) really:

- they involve a chain of decision nodes, networked together;
- each node plays some role in adding value to the performance of every member of the chain, although this may be indirect and often minimal;
- each node has the potential to contribute to the risk profile of the decision to be taken, both positively and negatively; and correspondingly,
- each node exerts some influence on the successful, or otherwise, implementation of the management decisions and risk resolution.

This is an interesting perspective, because it clearly illustrates that decisions taken at the individual node has potentially chain-wide implications, more often than not these implications are unseen in the immediate vicinity of the node, but may resurface further up or down the supply chain. This is similar to risk  factors, dynamics and impacts in A conceptual framework for analyzing risk in supply networks by Cheng and Kam (2008).

Supply Chain Risk Management

In defining supply chain risk and its components, six propositions are made:

Supply Chain Risk Drivers

Aggregate Supply Chain Risk = f { (External Environment) * (Industry Specific Factors) * (Supply Chain Configuration) * (Partner Specific) * (Node Specific) }

Supply Chain Risk Management – Decision Makers

Aggregate Supply Chain Risk = f { (Individual) and/or (Groups) } * { (Perceptions) * (Attitudes) * (Experiences) * (Rewards) * (Penalties) }

Components of Business Performance

Aggregate Business Performance = f { (Profit) * (Risk) * (Time) }

Supply Chain Risks

Aggregate Risk = f { (Node Concentric Risk) * (Chain Diversified Risk) }

Supply Chain Risk and Risk Management

Aggregate Risk = f  { [ (Node Concentric Risk) * (Risk Management Responses)] * [ ( Chain Diversified Risk) * (Risk Management Responses) ] }

Supply Chain Risk Management Portfolio

Aggregate Risk = Σ { f  [ (Node Concentric Risk) * (Risk Management Activities)] * [ ( Chain Diversified Risk) * (Risk Management Activities) ] } + { f  [ (Node Concentric Risk) * …

With this, the task of Supply Chain Risk Management is to balance the aggregate portfolio of risks within an acceptable level while seeking to ensure the generation of an acceptable level of reward or return on investment. The picture couldn’t be more complete than this.

Reference

Ritchie, B., & Brindley, C. (2007). An emergent framework for supply chain risk management and performance measurement Journal of the Operational Research Society, 58 (11), 1398-1411 DOI: 10.1057/palgrave.jors.2602412

Links

• ntu.ac.uk: Professor Clare Brindley
• uclan.ac.uk: Professor Bob Ritchie

Related

• husdal.com:
  Risk assessment and relationship management: practical approach to supply chain risk management.
• husdal.com:
  Risk in supply networks – a tale of principals and agents

Confusion, confusion, confusion

Supply Chain Risk Management (SCRM) is still in its infancy and there is still some, or rather, much divergence as to a common theme in the academic literature. More recently, SCRM appears to be moving away from the more mundane day-to-day tasks of  operations and logistics and towards strategies, corporate management and relationships. Finally, a holistic management aspect of SCRM appears to be gaining the upper hand, and today’s article is a perfect example of that.

The risk portfolio

Already in the introduction the authors set out a new direction for SCRM:

Supply Chain Risk Management is crucially viewed as a portfolio of decisions, recognizing that supply chain decision makers manage simultaneously a multiple set of risk encounters, rather than serially addressing single dyadic interfaces.

Why is this important? Because SCRM needs to address the whole supply chain, since risk can emanate from any part of the supply chain and potentially affect the performance of the entire supply chain.

Three dimensions of risk

The authors define risk as a function of

• The likelihood of the occurrence of a particular event
• The consequences of the particular event
• The sources and causal pathways leading up to the event

Many other authors have used the same or similar definitions of risk, e.g. Jüttner, Peck and Christopher (2003)in  Supply Chain Risk Management: Outlining an Agenda for Future Research, or Paulsson in The DRISC Model, recognizing that risk is not something that is either present or not, but needs a catalyst (a source) and an impact (consequence) in order to be fully described.

The Supply Chain Risk Management Framework

Each dyadic relationship is fed into the portfolio as follows:

• Dyadic Supply Chain Interface
  • Mapping the Supply Chain
  • Identifying the Risk Source
  • Develop a Risk/Performance Measurement
  • Assess the Risk
  • Negotiate and Agree on how the risk is shared
• Portfolio of Supply Chain Interfaces
  • Build a Risk Portfolio
  • Manage the Risk Portfolio
  • Evaluate Risk/Performance for the Portfolio
  • Feed this back into Organizational Learning

I’m not sure whether the aggregation of individual dyadic risks into a portfolio can under-emphasize  (read: neglect or ignore) certain dyadic risks.

Nonetheless, the overall balance is what is important here. Besides, the crucial part of this framework is actually the feedback loop into the organization.

Principals’ and agents’ perspectives

Based on their research, the authors develop seven propositions, three for principal and agent respectively and and one shared for both:

1. The principal needs to plan and manage the performance/risk portfolio in aggregate, while balancing the distribution of risk/performance and keeping in mind both the short term and the long-term perspective.
2. The governance of the supply chain relationship requires continuous monitoring of the individual risk seen against the overall risk in the portfolio.
3. As the relationship matures, performance measuring is replaced by relationship nurturing.
4. The agents in managing their own performance and risk need to recognize the general needs of the principal and the approaches he employs as to monitoring and measuring their performance.
5. Success in managing supply chain performance and risk is dependent on the ability to reach a common shared position on expected performance, risk and risk sharing.
6. Supply chain management operates in a highly dynamic environment which must be reflected by the management structures, processes and systems.
7. Developing sound supply chain interfaces can lessen the complexity of the supply chain and reduce the uncertainty of unpredictable risk/performance outcomes.

Conclusion

The authors are right in pointing out that SCRM must address the supply chain as a whole, and not only operations and/or individual supplier-buyer relationships, but must address the full portfolio of risks. That is only possible if principal and agent engage in building and maintaining an intimate relationship.

Reference

Bob Ritchie, Clare S. Brindley, & Nick Armstrong (2008). Risk assessment and relationship management: practical approach to supply chain risk management International Journal of Agile Systems and Management , 3 (3-4), 228-247 DOI: 10.1504/IJASM.2008.021211

Links

• ntu.ac.uk: Professor Clare Brindley
• uclan.ac.uk: Professor Bob Ritchie

Related

• husdal.com: Risks in Supply Networks

Three dimensions

Supply chain risks can include a number of different issues, and the article structures these issues along three dimensions. The first dimension addresses the unit of analysis, ranging from single logistic activities, internally or externally, to the whole supply chain or network. The second dimension deals with the type of risks; these can be different in nature and may not be suitable for analysis within the same study. The third dimension addresses the level of risk management activities, starting with risk identification and ending with business continuity management.

Copyright note: The figure above is taken from the article.

Risk management = Business continuity management?

It is interesting to see that the article makes a link between risk management and business continuity management (BCM). BCM deals with the development of strategies, plans and actions which provide protection or alternative modes of operation for those activities which, if interrupted, might bring a seriously damaging impact or fatal loss to the company. And true, these days, in the era of globalization and supply chains stretched around the globe, a well-functioning supply chain more often than not is such an integral part of a companies business that in fact Supply Chain Risk Management (SCRM) can be equated with Business Continuity Management.

Types of risk

Personally I do not subscribe to the three-level categorization of types of risk as seen in the figure above. However, if seen as an example only, this dimension can hold many types of risks and be divided according to the purpose of the analysis, for example (Hiles and Barnes, 2001):

• Strategic risk
  failure or success
• Financial risk
  lack of financial control
• Operational risk
  human error, mistakes in design
• Commercial risk
  failure of business relationships
• Technical risk
  equipment breakdown

Or, another example (Deloach, 2000):

• Externally-driven or environmental risk
  external factors, competitors, customers, regulations
• Internally-driven or process risk
  operations and processing
• Decision-driven or information risk
  insufficient or erroneous decision support

Supply Chain Risk Management

Whichever categorization you prefer, this framework  is an invaluable tool for SCRM, which the authors define as

to collaboratively with partners in the supply chain apply risk management process tools to deal with risk and uncertainties caused by, or impacting on, logistics related activities or resources.

Conclusion

What I enjoyed in this definition is the emphasis on the word collaboratively. No company is an island, and no company can apply SCRM on their own. The whole network must be included. Supply Chain Risk Management is a holistic activity. Only then can it succeed.

Reference:

Norrman, A and Lindroth R (2004) Categorization of Supply chain Risk and Risk Management. In: Supply Chain Risk. Ed. Brindley, C. , Ashgate Publishing, pp. 14-27

Author links

• lth.se: Andreas Norrman
• lu.se: Robert Lindroth

Related

• husdal.com: Supply Chain Risk Management and Business Continuity Management

Supply Chain Risk fram A to Z

Difference in opinions aside, the key issue of the texts is the exposure to risk and structures and processes aimed at handling this exposure. The book fully shows that supply chain risk management is a wide field, and thus empirically challenging, with many concepts to be explored.  Nonetheless, this field also offers many research opportunities, as this books shows. I for one, despite the confusion, definitely felt inspired to continue my own research alley into this broad and multi-disciplinary field.

Reference

Brindley, C. (Ed.) (2004). Supply Chain Risk. Aldershot: Ashgate.

Buy this book

• amazon.com: Supply Chain Risk

Read online

• books.google.com: Supply Chain Risk

Author link

• ntu.ac.uk: Clare Brindley

Related posts

• husdal.com: ISCRiM
• husdal.com: Supply Chain Risk Management – a relationship approach