Risk management models for supply chain: a scenario analysis of outsourcing to China

Abstract

Purpose -A key process involved in supply chains is a priori evaluation of potential partners, not only in terms of expected cost (which includes exchange rate risk), but also in terms of other risks. These risks can include product failure, producing company failure (such as bankruptcy), and even political risk. This paper aims to compare tools to aid supply chain organizations in measuring, evaluating, and assessing risk in this environment. Design/methodology/approach -The authors demonstrate the use of DEA, followed by a DEA simulation model and also a Monte Carlo simulation using a risk-adjusted cost concept. Once non-dominated partners are identified by DEA, simulation analysis is applied to compare expected performance of vendors, and the range of expected outcomes can be identified, aiding supply chain core organizations to better select producing partners. Findings -The authors consider strategies of outsourcing to China, as well as other nations under various forms of risk. A scenario analysis using risk management models indicates outsourcing to Great China is a good strategy. Originality/value -The authors conducted a thorough review of supply chain risk management and identified criteria and various risk performance measures for outsourcing under risk and uncertainty in a supply chain. The benefit of outsourcing to China is discussed. The authors have designed an international outsourcing problem, where foreign exchange risk, product failure, organizational failure, and political risks are considered.

An analytical framework for supply network risk propagation: A Bayesian network approach

“…The result was delayed cargo for thousands of retailers and manufacturers which, consequently, rendered importers and exporters in fear of long reaching ripple effects to their businesses (Machalaba and Kim, 2002). There are numerous other examples of supply chain disruptions that have occurred which have had devastating impacts not only on a single firm but also on various others in the supply network (Olson and Wu, 2011). Further, it has been suggested that, Supply chain disruptions and the associated operational and financial risks represent the most pressing concern facing firms that compete in todays global marketplace (Craighead et al, 2007).…”

Offshoring Decision Based on a Framework for Risk Identification

“…In the case of Global Sourcing, Christopher et al [12] divided the risks in process, control, demand, supply and environment. Focusing on offshoring Olson et al [13] used a similar classification to the one done by Chopra et al [9], but in the case of Kumar et al [6], the authors introduced cause-effect fishbone diagram to map offshoring risks.…”

An explanatory factor analysis on procurement risk and its multi-dimensional consequences

“…The structured approach can be divided into the phases of risk identification, risk measurement, risk assessment; risk evaluation, risk mitigation contingency plans; risk control and monitoring via data management systems (Tummala & Schoenherr, 2011). A key process involved in supply chains is a priori evaluation of potential partners, not only in terms of expected cost, but also in terms of product failure risk, producing company failure risk, and even political risk (Olson & Wu, 2011). In partnership of buyers and suppliers, researchers have worked on supplier side risks; they enhance the perception of investment in decision-making, and also they investigate risks in buyer-dominating supplier networks (Ojala & Hallikas, 2006).…”