ARTICLE IN PRESS
Int. J. Production Economics 103 (2006) 451–488
Review
Perspectives in supply chain risk management
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Christopher S. Tang
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UCLA Anderson School, 110 Westwood Plaza, UCLA, Los Angeles, CA 90095, USA
Received 3 November 2005; accepted 16 December 2005Available online 2 March 2006
Abstract
To gain cost advantage and market share, many firms implemented various initiatives such as outsourced manufacturingand product variety. These initiatives are effective in a stable environment, but they could make a supply chain morevulnerable to various types of disruptions caused by uncertain economic cycles, consumer demands, and natural and man-made disasters. In this paper, we review various quantitative models for managing supply chain risks. We also relatevarious supply chain risk management (SCRM) strategies examined in the research literature with actual practices. Theintent of this paper is three-fold. First, we develop a unified framework for classifying SCRM articles. Second, we hope thisreview can serve as a practical guide for some researchers to navigate through the sea of research articles in this importantarea. Third, by highlighting the gap between theory and practice, we hope to motivate researchers to develop new modelsfor mitigating supply chain disruptions.
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2006 Elsevier B.V. All rights reserved.
Keywords:
Supply chain risk management; Quantitative models; Review
Contents
1. Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4522. Supply management. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4542.1. Supply network design . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4542.2. Supplier relationship. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4552.3. Supplier selection process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4552.3.1. Supplier selection criteria . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4552.3.2. Supplier approval/selection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4562.4. Supplier order allocation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4572.4.1. Uncertain demand . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4572.4.2. Uncertain supply yields. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4582.4.3. Uncertain lead times. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4582.4.4. Uncertain supply capacity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4592.4.5. Uncertain supply cost. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 459
www.elsevier.com/locate/ijpe0925-5273/$-see front matter
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The author is grateful to two anonymous reviewers for their constructive comments on an earlier version of this paper.
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2.5. Supply contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4602.5.1. Uncertain demand . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4612.5.2. Uncertain price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4633. Demand management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4633.1. Shifting demand across time . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4653.2. Shifting demand across markets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4673.3. Shifting demand across products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4683.3.1. Product substitution. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4683.3.2. Product bundling . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4694. Product management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4694.1. Postponement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4704.1.1. Make-to-order systems without forecastupdating . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4714.1.2. Make-to-stock systems without forecastupdating . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4714.1.3. Make-to-stock systems with forecast updating . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4724.2. Process sequencing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4735. Information management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4745.1. Information management strategies for managing fashion products . . . . . . . . . . . . . . . . . . . . . . . . . . 4745.2. Information management strategies for managing functional products . . . . . . . . . . . . . . . . . . . . . . . . 4755.2.1. Information sharing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4765.2.2. Vendor managed inventory. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4775.2.3. Collaborative forecasting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4786. Robust strategies for mitigating operational and disruption risks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4796.1. Properties of robust strategies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4806.2. Robust supply/demand/product/information management strategies . . . . . . . . . . . . . . . . . . . . . . . . . . 4806.2.1. Robust supply management strategies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4806.2.2. Robust demand management strategies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4816.2.3. Robust product management strategies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4816.2.4. Robust information management strategies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4817. Conclusions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 482References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 483
1. Introduction
Over the last 10 years, earthquakes, economic crises,SARS, strikes, terrorist attacks have disrupted supplychain operations repeatedly. Supply chain disruptionscan have significant impact on a firm’s short-termperformance. For example, Ericsson lost 400 millionEuros after their supplier’s semiconductor plant caughton fire in 2000, and Apple lost many customer ordersduring a supply shortage of DRAM chips after anearthquake hit Taiwan in 1999. Supply chain disrup-tions can have long-term negative effects on a firm’sfinancial performance as well. For instance,Hendricksand Singhal (2005)report that companies sufferingfrom supply chain disruptions experienced 33–40%lower stock returns relative to their industry bench-marks. To mitigate supply chain disruptions associatedwith various types of risks (uncertain economic cycles,uncertain consumer demands, and unpredictable nat-ural and man-made disasters), many researchers havedeveloped different strategies/models for managingsupply chain risks. In this paper, we review primarilyquantitative models that deal with supply chain risks.
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Also, we relate various supply chain risk mana-gement (SCRM) strategies examined in the literaturewith actual practices. The intent of this paper is three-fold. First, we develop a unified framework forclassifying SCRM articles. Second, we hope this reviewcan serve as a practical guide for some researchers tonavigate through the sea of research articles in thisimportant area. Third, by highlighting the gap betweentheory and practice, we hope to motivate researchers todevelop new models for mitigating supply chaindisruptions.
ARTICLE IN PRESS
1
To establish a scope for this paper, we shall not review articlesthat address risk management issues such as risk identification, riskassessment, risk avoidance, etc. The reader is referred toChapmanet al. (2002)for a review of various risk management approaches.Instead, we shall limit ourselves to review various quantitativeapproaches for mitigating the impact of supply chain risks.
C.S. Tang / Int. J. Production Economics 103 (2006) 451–488
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We now present a unified framework for classify-ing SCRM articles. In preparation, let us define twoterms: supply chain management, and supply chain‘‘risk’’ management. First, by combining variousdefinitions developed by others (Christopher (1992),Council of Supply Chain Management Professional(www.cscmp.org),Ritchie and Brindley (2001),
etc.), we define supply chain management as ‘‘themanagement of material, information and financialflows through a network of organizations (i.e.,suppliers, manufacturers, logistics providers, whole-salers/distributors, retailers) that aims to produceand deliver products or services for the consumers.It includes the coordination and collaboration of processes and activities across different functionssuch as marketing, sales, production, productdesign, procurement, logistics, finance, and infor-mation technology within the network of organiza-tions.’’ Second, by combining the definitionsdeveloped by others (Christopher (2002), Deloitteand Touche (www.deloitte.com) and others), wedefine SCRM as ‘‘the management of supply chainrisks through coordination or collaboration amongthe supply chain partners so as to ensure profit-ability and continuity.’’ Based on the definitions of supply chain management and SCRM, it appearsthat one can address the issue of SCRM along twodimensions:1. Supply Chain Risk—operational risks or disrup-tion risks.2. Mitigation Approach—supply management,demand management, product management, orinformation management.The first dimension addresses the risk level of certain events. Operational risks are referred to theinherent uncertainties such as uncertain customerdemand, uncertain supply, and uncertain cost.Disruption risks are referred to the major disrup-tions caused by natural and man-made disasterssuch as earthquakes, floods, hurricanes, terroristattacks, etc., or economic crises such as currencyevaluation or strikes. In most cases, the businessimpact associated disruption risks is much greaterthan that of the operational risks.To mitigate the impact of supply chain risks,Fig. 1depicts four basic approaches (supplymanagement, demand management, product man-agement, and information management) that a firmcould deploy through a coordinated/collaborativemechanism. Each of these four basic approaches isintended to improve supply chain operations viacoordination or collaboration as follows. First, afirm can coordinate or collaborate with upstreampartners to ensure efficient supply of materials alongthe supply chain. Second, a firm can coordinate orcollaborate with downstream partners to influencedemand in a beneficial manner. Third, a firm canmodify the product or process design that will makeit is easier to make supply meet demand. Fourth, thesupply chain partners can improve their coordi-nated or collaborative effort if they can accessvarious types of private information that is availableto individual supply chain partners.In this paper, we shall classify the SCRM articlesaccording to these four basic approaches. Inaddition, we shall review the articles in the area of supply chain management according to the issueshighlighted inTable 1.Owing to the fact that there are thousands of articles published in the area of supply chainmanagement, we are unable to review all existingarticles in this paper. In addition, because supplychain management is a multi-disciplinary researcharea, we feel the need to include some marketingand management articles as well. As the scopeexpands, we apologize for any unintended omission.In any event, this paper is not meant to be anexhaustive review; however, it is intended todescribe some key SCRM approaches (supply/demand/product/information management) exam-ined by various researchers recently.The organization of this paper is as follows. FromSections 2 to 5, we first review some of the recentresearch work that addresses the use of supply/demand/product/information management strate-gies for managing supply chain risks (operationalor disruption). In Section 6, we relate the researcharticles reviewed between Sections 2 and 5 with
ARTICLE IN PRESS
Supply ChainRisksSupplyManagementDemandManagementProductManagementInformationManagement
Fig. 1. Four basic approaches for managing supply chain risks.
C.S. Tang / Int. J. Production Economics 103 (2006) 451–488
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