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Assessing and managing risks using the Supply Chain Risk Management Process (SCRMP)
Rao Tummala Tobias Schoenherr
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To cite this document:
Rao Tummala Tobias Schoenherr, (2011),"Assessing and managing risks using the Supply Chain Risk Management Process
(SCRMP)", Supply Chain Management: An International Journal, Vol. 16 Iss 6 pp. 474 - 483
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Research note
Tobias Schoenherr
Department of Supply Chain Management, The Eli Broad Graduate School of Management, Michigan State University, East Lansing,
Michigan, USA
Abstract
Purpose The purpose of this paper is to propose a comprehensive and coherent approach for managing risks in supply chains.
Design/methodology/approach Building on Tummala et al.s Risk Management Process (RMP), this paper develops a structured and ready-to-use
approach for managers to assess and manage risks in supply chains.
Findings Supply chain risks can be managed more effectively when applying the Supply Chain Risk Management Process (SCRMP). The structured
approach can be divided into the phases of risk identification, risk measurement and risk assessment; risk evaluation, and risk mitigation and
contingency plans; and risk control and monitoring via data management systems. Specific techniques for conducting this process are suggested.
Originality/value While supply chain risk management is an emerging and important topic in our dynamic and interconnected world, conceptual
frameworks providing a clear meaning and normative guidance are scarce (Manuj and Mentzer, 2008). This paper presents such a framework, offering
structure and decision support for managers.
Keywords Supply chain management, Risk management process, Supply chain risk, Risk management
Paper type Research paper
The authors are grateful to Guest Editor Dr Charlene Xie and two
anonymous reviewers for the valuable feedback and comments received on
earlier versions of this paper.
474
Risk triggers
Demand risks
Delay risks
Disruption risks
Inventory risks
Manufacturing
(process)
breakdown risks
Physical plant
(capacity) risks
Supply
(procurement)
risks
System risks
Sovereign risks
Transportation
risks
477
Qualitative description
Catastrophic
Plant shut down for more than a month due to lack of components with
zero safety stock levels
Slow down of process or plant shut down for one week due to lack of
components with zero safety stock levels
Decreased service levels with depleting safety stocks
Service levels not impacted due to sufficient safety stock levels
Critical
Marginal
Negligible
Risk Consequence
Index
HTP Code
3
2
1
B
C
D
Qualitative description
The identified risk factor could occur on an average of . . .
Probability Index
HTP Code
4
3
2
1
J
K
L
M
478
Catastrophic (Index 5 4)
Critical (Index 5 3)
Marginal (Index 5 2)
Negligible (Index 5 1)
Often (Index 5 4)
Probability
Infrequent (Index 5 3)
Rare (Index 5 2)
16
12
8
4
12
9
6
3
8
6
4
2
not received. The risks for which the risk-exposure values fall
between these two levels may be considered tolerable with no
immediate action required. However, they should be
monitored continuously and further improvement should be
sought if resources are available. Continuing with the example
from above, tolerable risks could be tardy deliveries from
suppliers that do not shut down the assembly line. While
certainly not desired, these late deliveries do not interrupt the
flow of products, but the potential for doing so may be
increased. Contracts developed between customers, suppliers,
logistics providers and manufacturers may aid in the
determination of these acceptability levels. Overall, mapping
risks along their magnitudes, as illustrated in Figure 2, can
provide a useful overview of all risks involved in a particular
supply chain, and can help determine on which riskpreventive actions should be performed. The triangular
shape of Figure 2 implies that most risks will be acceptable
and tolerable, while only few risks will be completely
unacceptable, for which therefore mitigation strategies
should definitely be developed. The next section elaborates
on this aspect.
479
Implementation costs
Substantial
High
Low
Trivial
Cost
Index
HTP
Code
1
2
3
4
S
R
Q
P
480
3. Conclusion
The proposed supply chain risk management process is a tool
to provide management with useful and strategic information
concerning the SC risk profiles associated with a given
situation. This is in contrast to the traditional approach based
on single point estimates. The SCRMP ensures SC managers
adopt strategic thinking and strategic decision making in
evaluating options to improve supply chain performance. The
analysis can be used not only for evaluating progress but also
for selecting alternative courses of action, based on their
respective SC risk profiles. Ultimately the SCRMP provides
insight into how to make the most appropriate decision.
The SCRMP methodology proposed here is a
comprehensive and coherent approach for managing risks
and uncertainties associated with a given problem. The
SCRMP methodology is practitioner-oriented in evaluating
projects. Supply chain managers can apply it as an audit
framework, in much the same way as the ISO 9000 quality
system, in coping with risks and uncertainties, as well as in
accomplishing the desired supply chain performance. It is
important to recognize though that the approach cannot be
applied blindly. As noted above, the SCRMP is a suggested
aid that can help in making decisions, however, it does not
make the decisions for the supply chain manager. It can
merely serve as a tool to help in decision making. It is then
always the intuitive judgment, tacit knowledge, and the
481
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482
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483
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