Evaluating A Company s Overall Risk Management Strategy

Mitigating supply chain risk is a critical component of a company’s overall risk management strategy. According to the Contingency Theory, the appropriateness and effectiveness of risk mitigation strategies are contingent on the internal and external environments and that there is no one-size-fits-all strategy (Talluri, Kull, Yildiz, Yoon, 2013, p. 253). New information technologies make it possible to extend supply chains to global markets (Sahin and Robinson 2002, cited by Talluri, Kull, Yildiz, Yoon, 2013, p.253). This increases the dependence on outside resources and makes firms vulnerable to failures affecting all partners within the supply chain (Craighead et al. 2007). Uncertainties in factors such as market conditions, supply†¦show more content†¦3039). A failure of any one element in a supply chain potentially causes disruptions for all partnering companies upstream and downstream (Yang and Yang 2010, cited by Diabat et al, 2012, p. 3039). Although many risks exist in business, three have applicability to the supply chain, namely supply risks, operations risks and demand risks. Supply risks reside in the course of movement of materials from suppliers to the firm and include the reliability of suppliers, and considerations such as single versus multiple sourcing and centralized versus decentralized sourcing. Operational risks affect the firm’s internal ability to produce goods and services, ultimately affecting the profitability of the company, and may result from a breakdown in manufacturing or processing capability and/or changes in technology. Demand risks reside in the movement of goods from the firm to the customers, and include the risk of obsolescence, stock-outs, and over-inventory. The development of effective strategies for managing risk depends on understanding the sources of risk and their relationships (Diabat, Govindan, Panicker, 2012, p. 3039). Tang (2006, cited by Diabat et al., p. 3040) divided risk into operational risks and disruption risks. Operational risks are associated with inherent uncertainties such as uncertain customer demand, uncertain supply, and uncertain cost, whereas disruption risks are associated with major disruptions caused by natural and man-made disasters