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Use of Flexibility in Supply Chain Risk Management

Use of Flexibility in Supply Chain Risk Management. Yasemin Kahyaoglu Ahmet Satir. Outline. The Concept of Risk The Concept of Flexibility as it relates to Risk/Uncertainty Risks in Supply Chains Risk Management Strategies in Supply Chains Supply Chain Risk Management Framework

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Use of Flexibility in Supply Chain Risk Management

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  1. Use of Flexibility in Supply Chain Risk Management Yasemin Kahyaoglu Ahmet Satir

  2. Outline • The Concept of Risk • The Concept of Flexibility as it relates to Risk/Uncertainty • Risks in Supply Chains • Risk Management Strategies in Supply Chains • Supply Chain Risk Management Framework • Examples of Using Flexibility as a Risk Mitigation Strategy in Supply Chains

  3. Certainty/Risk/Uncertainty • No element of chance between decisions and outcomes • The link between decisions and outcomes is governed by probability distributions • Impossible to assign probabilities to outcomes of a decision • Randomness-random variables related to business as usual operations • Hazards-low probability/high impact unusual events • Deep Uncertainty-lack of information on plausible future extreme events Source: Klibi et al. (2010)

  4. Flexibility vs Uncertainty

  5. Various Conceptualizations of Flexibility • Operational Definition of Flexibility: Flexibility of a system is the outcome of the dynamic interaction of uncertainty, capabilities associated with system configuration and performance components (Kahyaoglu, Kayaligil and Buzacott, 2002) • Value Chain Flexibility: Flexibilities in product development/manufacturing/logistics/spanning as they relate to uncertainties with respect to customers, suppliers, technology and competitors (Zhang et al. (2002), Nair (2005)) • Supply Chain Flexibility: Lummus et al. (2005), Tan (2002), Olhager and Seldin (2004)

  6. Risks in Supply Chains

  7. Risk Management Strategies in Supply Chains • Avoidance Strategy – eliminate or significantly reduce the company’s exposure to particular (extreme) risks • Prevention Strategy – reduce the occurrence probability of a risky event • Mitigation Strategy – eliminate or minimize the negative impact of a risky event

  8. Supply Chain Risk Management Framework Internal Operations Environment Marketplace External Stakeholders Source of Risk Identified Risk 1 Identified Risk 2 Identified Risk 3 Identified Risk 4 Avoidance Approaches Responsible Functional Areas/Supply Chain Stakeholders Prevention Approaches Mitigation Approaches Bandaly et al. 8

  9. Example of Using Flexibility as a Supply Chain Risk Mitigation Strategy – with respect to Marketplace Uncertainties Bandaly et al. 9

  10. Example of Using Flexibility as a Supply Chain Risk Mitigation Strategy – with respect to Uncertainties Originating from Internal Operations Bandaly et al. 10

  11. Example of Using Flexibility as a Supply Chain Risk Mitigation Strategy – with respect to Uncertainties Originating from External Stakeholders Bandaly et al. 11

  12. Example of Using Flexibility as a Supply Chain Risk Mitigation Strategy – with respect to Environmental Uncertainties Bandaly et al. 12

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