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The Main Tools Used in Supply Chain Risk Management

Arman Rajabinasr1, Mohammadreza Nourbakhshian2, Alireza Hooman3, Seyedeh Zahra Seyedabrishami4
1

MBA finance student, faculty of management (FOM), Multimedia University, Cyberjaya, Mala ysia (MMU), 2 Master of business administration, Graduate school of management (GSM), MMU, 3 DBA Student, Faculty of Management, Multimedia University, Malaysia, 4 Department of Management, Faculty of Economics and Management, University Putra Malaysia,

Abstract Current paper reviews different studies in order to highlight the available tools applied for supply chain risk management. Accordingly, recognizing and evaluating the existence risk, exerting the provided solutions by risk management and control it are defined as applied tools in supply chain risk management. Keywords: Supply Chain Risk Management, TQM, Risk, FEMA, and Pareto Diagrams 1. Overview Regarding to different studies management of supply chain faces huge risks (Towill and Christopher, 2002), while in his study Blackhurst (2005) has declared that problems comes up when companies are dealing with risks of their supply chain. In other study Zidisin (2005) has found problems and their negative impacts related to the supply chains risks. On the other hand globalization of the market has reduced products life cycle, unpredictable demand, expenses, complicated global network, supply chain uncertainty and necessity of speediness as well as increasing the level of outsourcing by providing trusts on suppliers who create contributive factors in order to deal with this situation situations (Craighead et al. 2007; Harland et al., 2003, Hillman, 2006; Hult et al. 2004; Jiang et al. 2009; Mason et al. 2000 ; Narasimhan & Talluri, 2009; Thun & Hoenig, 2009). 2. Definition of risk in supply chain management March and Shapira (1987) have defined the risk in supply chain management as a variation in the distribution of possible supply chain outcomes, their likelihood, and their subjective values. Therefore, the risk can be refers to the fail of the supply chain flow among its different factors and parties. Indeed, changes can influence the flow of materials, products,
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information and also change the employment of labor and equipment resources. In other study Sitkin and Pablo (1992) have defined the risk of supply chain management as the extent to which there is uncertainty about whether potentially significant and/or disappointing outcomes of decisions will be realized. Through this study SCRM defined as risk management that implies both strategic and operational aspects for long-term and short term evaluation. In fact SCRM refers to the risks which affect the movement of efficient process of information, materials and products among different parts of the supply chain in an organization or in a global supply chain. The advancement of the quick reaction is relates to the risk management initiative that empower an organization to respond rapidly to changes of the market as well as responding the potential and present disconnection in supply chain. Therefore, quick reaction is an important factor for both risk reduction and responding to its affects. Some studies (Blackhurst et al. 2005; Jiang, 2009; Thun and Hoenig, 2009; Wagner et al. 2009; Zsidisin et al 1999) have investigated the approaches in order to minimize and manage the risk of supply chain, while some others have observe the attitudes of supply chain managers toward the generated risks. 3. The stages of the risk management process Risk management is the process of making decisions regarding to the risks and their potential influence which results from estimation and evaluation of the risk (The Royal Society, 1992, p. 3). Indeed, risk management is process of detecting the risk and reducing their influence by evaluating their probability and impacts. Difference of the risk management process relates to the difference of risk identification caused by risk evaluation to vary approaches of risk management. While the risk management is the issue of reducing the negative impact of an unpredictable accident it deals with the way by which eliminate its business impact. Indeed, this aspect refers to the business continuity management (BCM) and managerial disciplines, processes and techniques, which explore to develop a mean for maintain the operational of essential process in all situations (Hiles and Barnes, 2001, p. 379). In other words BCM has been developed for dealing with interrupted businesses restarted. Risk management and BCM are
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common in different ways, while regarding to some studies maintenance of business developing plans is the risk management actions to apply for risks of low probability with potential influence on business failure. 4. Risk management Risk management can be defined as process of decision making regarding to evaluating a risk and applying a solution in order to reduce its influence and probability. In other words applied actions of risk management are for preventing, reducing, transferring even take the risk. Preventing refers to elimination of risky actions. For reducing the probability and influence of risks applies would be reduced. Providing an extra inventory, numerous sources, back-up identied resources, implementation of risk managers and emergency teams appointed, parallel systems or diversifying are some instance for reducing the effect of risks. Also the risk probability could be reduced by development of risky operational process in both internal and external aspects that relates to the assist with the suppliers. And it can be transferred by interposition of insurance companies, out sourcing policies and supply chain parties (persuade inventory liability, changing delivery times (just-in-time deliveries) and make-to-order manufacturing policy regarding to the costumers. Also commercial risks can be transferred by agreements. And finally sharing the risk can be applied both by contractual mechanisms (e.g. Tsay et al. (1998) or Cachon (2002), for a review on supply chain agreements) or improved collaboration. 5. Tools used in SCRM According to prior studies SCRM practices are defined as follow; recognizing and evaluating the existence risk, exerting the provided solutions by risk management and control it(Hallikas, 2004; T. Wu, et al 2007; Zsidisin et al., 2005). While these tools are applied regarding to the existent and identified risks a five phase model has been developed by Sinha(2004) which includes detecting and evaluating the potential risks, developing and employing the solutions, estimating and analyzing the results and the impact of FEMA model and its development. Further studies have developed several tools as total quality management (TQM) that includes Pareto charts, graphs and run charts, cause and effect diagram, flow charts, histograms, R control charts and X bar and diagrams of scatter (Tari & Sabater, 2004). According to Tari & Sabater (2004), graphs have been developed which represent available tools in this area.
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While cause and effect diagrams, graphics, FEMA, problem solving methodology, histograms, SPC, bench marking, quality costs, flow chart, and Pareto diagrams have been recognized as the most common tools, Pareto Curves and cause and effect and correlation diagrams are less popularity among them (Sabater & Tari, 2004). 6. Concerning Failure Mode, Effects, and Criticality Analysis (FMECA) Failure Mode, Effects, and Criticality Analysis (FEMECA) as the developed model of FMEA is an evaluating process which can respectively classify the defined risks. By this approach defined risks are assessed by Risk Priority Number (RPN). Through this method probability, severity and difficulty are considered as indicators of risk detection. Flynn (2005) has investigated the relationship between attitudes of supply chain management and quality management. Regarding to this study the significant relationship has been found which affect the performance of business. According to the results of the Flynns study (2005) while they refers to the SCRM they can be applied in this field. Through this study considered managers were former managers and accordingly further studies have defined seven managerial tools that are represented in Table 1. Table 1: Tools used in risk management Risk Management Tools Question positioning Methods (What if?) Internal and External Processes mapping (Value Stream Mapping) Score method (a measure intensity by aggregation) Pareto Diagrams, ABC Ranking FMECA (Failure Mode, Effects, and Criticality Analysis) Ishikawa Diagram, Brainstorming PDCA Cycle, Deming cycle, 6 sigma, Permanent Improvement Sources: O. Lavastre et al. (2012)
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7. Conclusion

Supply chain is one the most important and critical factors within different industries such as manufacturing therefore, investigating its risks in supply chain risk management (SCRM) has been considered as the important subjects. On the other hand ABC Ranking, Ishikawa Diagram, Brainstorming, Score method, and Value Stream Mapping are some kinds of common and popular practices that are employed in SCRM.

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