Analysis of supply
risk assessment
techniques
Vikas Bhaskar (1804034)
Krishnakant Verma (1804016)
George A. Zsidisin, Lisa M.
Ellram, Joseph R. Carter,
Joseph L. Cavinato, (2004)
International Journal of
Physical Distribution &
Logistics Management, Vol.
34
Issue: 5, pp.397-413
 • The potential occurrence of an incident
associated with inbound supply from
individual supplier failures or the supply
market, in which its outcomes result in the
inability of the purchasing firm to meet
customer demand or cause threats to
customer life and safety
What is supply
risk?? Two concepts in inbound supply risk-
• Probability, within a supply management
context, is a measure of how often a
detrimental event that results in a loss
occurs.
• Impact, on the other hand, refers to the
significance of that loss to the organization.
 • Agency theory applies to the study of problems
arising when one party, the principal, delegates
Supply risk work to another party, the agent .
• The purchasing organization serves as the
assessment principal and the supplier as the agent.
and agency • Variables that influence the “contract” or
relationship between the buyer and supplier
theory include information systems, outcome
uncertainty, goal conflict, relationship length,
adverse selection and moral hazard
 Agency
theory
variables-
Supply Risk
Assesement
techniques-
 There are 13 categories that are evaluated within the supply risk assessment and
measurement process:
(1) Additional costs for cancellation due to lack of planning.
(2) Additional costs for transportation due to lack of planning.
(3) Additional costs for material obsolescence.
(4) Unexpected material price increase due to allocation.
Formal risk (5) Unexpected material price increase due to yield problems.

assessment (6) Unexpected material price increase due to change of specification.

(7) Missing parts due to late delivery.

technique by (8) Missing parts due to supplier quality defects.

(9) Missing parts due to instability of supplier’s country.

CELL (10) Additional material costs due to single sourcing during ramp-up phase.
(11) Contractual risk.
(12) Investing in supplier improvement.
(13) Currency risk.
 Each supply risk category is assessed using an 11-step process:
(1) What is the impact on EBIT in millions (before management implementation)for the current
fiscal year?
(2) What is the probability of occurrence before risk management implementation(in %) during
the current fiscal year?
(3) What is the impact on EBIT in millions for the next fiscal year?
(4) What is the probability of occurrence before risk management implementation (in %) for the
Formal risk next fiscal year?
(5) Insert explanations for the key risk factors.

assessment (6) List risk handling measures to avoid the risk.

(7) Rate the implementation status of risk management: 1 ¼ very low (0-20 %); 2 ¼ low (20-40
technique by %); 3 ¼ medium (40-60 %); 4 ¼ high (60-80 %); 5 ¼ very high (80-100 %).
(8) What is the impact on EBIT in e millions (after risk management implementation) for the

CELL current fiscal year?

(9) What is the probability of occurrence after risk management implementation (in %) during
the current fiscal year?
(10) What is the impact on EBIT in e millions for the next fiscal year?
(11) What is the probability of occurrence after risk management implementation (in %) for the
next fiscal year?
 The risk assessment process involves a detailed, ten-step procedure:
(1) Identify the materials/services to be assessed.
(2) Identify the owner of the material/service who will be responsible for
the risk assessment
(3) Start the risk assessment scorecard.
Formal risk (4) Review success criteria for each of the risk factors.

assessment (5) Collect data.

(6) Determine risk level by comparing data to criteria on the risk
technique by assessment scorecard.
(7) Conduct impact analysis.
CHIP 1 (8) Document risk level analysis and risk reduction plans.
(9) Track progress.
(10) Determine when to cease performing risk assessments.
 The risk assessment process measures eight factors that
are deemed critical to having a reliable, predictable, cost
effective supply of materials and services. These factors
are:
(1) Design.
Formal risk (2) Cost.

assessment (3) Legal.

(4) Availability.
technique by (5) Manufacturability.
CHIP 1 (6) Quality.
(7) Supply base.
(8) Environmental, health and safety impacts.
 (1) Using the Malcolm Baldrige National Quality Award
(MBNQA) criteria.
(2) Creating supplier interlock matrices.
Supplier quality (3) Completing supplier scorecards.
(4) Having suppliers conduct self-assessments.
issues- (5) Certifying designated quality representatives.
(6) Conducting supplier self-release audits.
 • Communicating with suppliers
Supplier • Conducting process maturity path analysis

improvement • Developing ad certifying suppliers

 • Creating business intelligence plan
Supply • Developing demand forecast

interruptions • Modelling supply processes

Thanks