Risk management models for supply chain: a scenario analysis of outsourcing to China

Risk management models for supply chain: a scenario analysis of outsourcing to China Purpose – A key process involved in supply chains is a priori evaluation of potential partners, not only in terms of expected cost (which includes exchange rate risk), but also in terms of other risks. These risks can include product failure, producing company failure (such as bankruptcy), and even political risk. This paper aims to compare tools to aid supply chain organizations in measuring, evaluating, and assessing risk in this environment. Design/methodology/approach – The authors demonstrate the use of DEA, followed by a DEA simulation model and also a Monte Carlo simulation using a risk‐adjusted cost concept. Once non‐dominated partners are identified by DEA, simulation analysis is applied to compare expected performance of vendors, and the range of expected outcomes can be identified, aiding supply chain core organizations to better select producing partners. Findings – The authors consider strategies of outsourcing to China, as well as other nations under various forms of risk. A scenario analysis using risk management models indicates outsourcing to Great China is a good strategy. Originality/value – The authors conducted a thorough review of supply chain risk management and identified criteria and various risk performance measures for outsourcing under risk and uncertainty in a supply chain. The benefit of outsourcing to China is discussed. The authors have designed an international outsourcing problem, where foreign exchange risk, product failure, organizational failure, and political risks are considered. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Supply Chain Management: An International Journal Emerald Publishing

Risk management models for supply chain: a scenario analysis of outsourcing to China

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Publisher
Emerald Publishing
Copyright
Copyright © 2011 Emerald Group Publishing Limited. All rights reserved.
ISSN
1359-8546
DOI
10.1108/13598541111171110
Publisher site
See Article on Publisher Site

Abstract

Purpose – A key process involved in supply chains is a priori evaluation of potential partners, not only in terms of expected cost (which includes exchange rate risk), but also in terms of other risks. These risks can include product failure, producing company failure (such as bankruptcy), and even political risk. This paper aims to compare tools to aid supply chain organizations in measuring, evaluating, and assessing risk in this environment. Design/methodology/approach – The authors demonstrate the use of DEA, followed by a DEA simulation model and also a Monte Carlo simulation using a risk‐adjusted cost concept. Once non‐dominated partners are identified by DEA, simulation analysis is applied to compare expected performance of vendors, and the range of expected outcomes can be identified, aiding supply chain core organizations to better select producing partners. Findings – The authors consider strategies of outsourcing to China, as well as other nations under various forms of risk. A scenario analysis using risk management models indicates outsourcing to Great China is a good strategy. Originality/value – The authors conducted a thorough review of supply chain risk management and identified criteria and various risk performance measures for outsourcing under risk and uncertainty in a supply chain. The benefit of outsourcing to China is discussed. The authors have designed an international outsourcing problem, where foreign exchange risk, product failure, organizational failure, and political risks are considered.

Journal

Supply Chain Management: An International JournalEmerald Publishing

Published: Sep 27, 2011

Keywords: Supply chain outsourcing; Recall risk; Data envelopment analysis; Monte Carlo simulation; Supply chain management; Product recall

References

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