Selecting the right supply chain based on risks

Abstract

Purpose The purpose of this paper is to propose a model that enables a company to select the supply chain strategy based on risk probability p (measure of how likely/often a detrimental event occurs) and risk impact i (expression of the significance of a loss when that event occurs). Design/methodology/approach This paper discusses four supply chain strategies: agility, robustness, resilience and rigidity. Mathematical models are used for the strategies' cost functions, which reveal optimal solutions and break‐even points in dependence of p and i. Findings This paper proposes that resilience is appropriate in the case of high supply chain risk probability and impact, and rigidity if both values are low. When only risk impact is low, robustness is optimal, whereas agility is optimal when only risk probability is low. Research limitations/implications This research extends existing models for selecting the appropriate supply chain strategy. Practical implications Knowledge of the interplay between the strategies' cost functions and risk probability and risk impact is vital for companies. This may encourage managers to become more familiar with their strategy costs and supply chain risks. Originality/value To the author's knowledge, no corresponding model exists so far that links risk impact and risk probability to the four supply chain strategies.

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