Supply Chain Risks
Identification, Assessment, and Mitigation (diss.)
Researcher:
Financed by:
The Professorship’s own resources
Motivation:
Today’s supply chains face high uncertainty due to shorter product life cycles, volatile demand, fluctuating raw material prices, and several other reasons. On the other hand, companies reduce buffers, like the number of alternative suppliers for purchasing items and inventory in their supply chains, without considering the related risks. Altogether, supply chains become more vulnerable to unexpected events in a more uncertain environment. Therefore, the number of industrial cases where companies have experienced a highly negative financial impact due to unexpected events in their supply chains has risen in recent years. For example, severe failures of key suppliers led to interruptions of their own operations and thus to low capacity utilization as well as high market losses. Unexpected drops in demand resulted in high inventory levels and obsolete material. To prevent these negative financial impacts and to fulfill legal regulations, there is a strong industrial need for a systematic approach to coping with supply chain risks. Due to a lack of appropriate techniques and measures to identify, assess, and mitigate supply chain risks, the area is of increasing research interest.
Objectives:
The objective of the dissertation project is to develop a systematic approach to identify, assess, and mitigate risks in supply chains. The approach will help operations managers to lower the negative influence of uncertainty in their value chain and thus enhance their supply chain performance. Industrial applications will demonstrate the feasibility of the approach. Moreover, an inclusion of the methodology developed in the SCOR (Supply Chain Operations Reference) model will be proposed and discussed.
Project results:
By defining a terminology and systematically structuring supply chain risks, based on the SCOR model as a process model as well as the performance attributes of the supply chain, a reference framework is created. Based on the industrial requirements resulting from a survey, an applicationoriented methodology to identify, assess, and mitigate risks in existing supply chains is developed. Whereas existing methodologies are mostly very theoretical and imprecise, the developed methodology is attractive due to its intuitive and systematic structure with a clearly arranged proceeding and a simple IT-support. Besides numerous practical hints and case studies, the methodology is integrated in the SCOR model to standardize and distribute among practitioners.
For every single step of the methodology, appropriate techniques are presented and applied in industrial supply chains. Techniques of classical risk and quality management are transferred to the supply chain, and SCM techniques are extended by risk aspects: the SCOR model is used to describe the supply chain and to identify the related risks. A Failure Modes and Effect Analysis (FMEA) that is adjusted to supply chain aspects is perfectly suited for the qualitative assessment and efficient prioritization of risks, whereas a mathematical model, fault tree analysis, and event tree analysis are appropriate to assess risks in more detail and quantitatively. The supply chain risk portfolio visualizes the existing risks along the dimensions “probability of occurrence” and “business impact,” so that the most severe risks that should be mitigated could be identified.
Besides systematizing risk mitigation measures to support the evaluation of measures, three planning measures with IT support are developed that are successfully applied in industry to cope with supply chain risks: The “Scenario-Based Demand Forecast” effectively reduces the risk caused by fluctuating demand of product variants in a supply chain for construction components. The “Inventory Optimizer” – software to analyze the materials management – helps to decrease the planning & control risk in another supply chain. The implementation of a concept to assess and choose appropriate suppliers supports a semiconductor equipment manufacturer to prevent supply chain risks already in the supply chain design.
To conclude, the regular application of the developed methodology leads to supply chains that are robust against potential unexpected events. Application experiences in industrial supply chains showed that the utilization of qualitative techniques to identify, assess, and mitigate of supply chain risks effectively and efficiently delivers appropriate results, so that they are preferred to quantitative techniques, especially in SME. Furthermore, the experiences revealed that planning measures are the
preferred option for mitigating supply chain risks due to its efficiency.