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Use of Flexibility in Supply Chain Risk Management. Yasemin Kahyaoglu Ahmet Satir. Outline. The Concept of Risk The Concept of Flexibility as it relates to Risk/Uncertainty Risks in Supply Chains Risk Management Strategies in Supply Chains Supply Chain Risk Management Framework

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Use of Flexibility in Supply Chain Risk Management

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Use of Flexibility in Supply Chain Risk Management

Yasemin Kahyaoglu

Ahmet Satir


Outline

  • The Concept of Risk

  • The Concept of Flexibility as it relates to Risk/Uncertainty

  • Risks in Supply Chains

  • Risk Management Strategies in Supply Chains

  • Supply Chain Risk Management Framework

  • Examples of Using Flexibility as a Risk Mitigation Strategy in Supply Chains


Certainty/Risk/Uncertainty

  • No element of chance between decisions and outcomes

  • The link between decisions and outcomes is governed by probability distributions

  • Impossible to assign probabilities to outcomes of a decision

    • Randomness-random variables related to business as usual operations

    • Hazards-low probability/high impact unusual events

    • Deep Uncertainty-lack of information on plausible future extreme events

      Source: Klibi et al. (2010)


Flexibility vs Uncertainty


Various Conceptualizations of Flexibility

  • Operational Definition of Flexibility: Flexibility of a system is the outcome of the dynamic interaction of uncertainty, capabilities associated with system configuration and performance components (Kahyaoglu, Kayaligil and Buzacott, 2002)

  • Value Chain Flexibility: Flexibilities in product development/manufacturing/logistics/spanning as they relate to uncertainties with respect to customers, suppliers, technology and competitors (Zhang et al. (2002), Nair (2005))

  • Supply Chain Flexibility: Lummus et al. (2005), Tan (2002), Olhager and Seldin (2004)


Risks in Supply Chains


Risk Management Strategies in Supply Chains

  • Avoidance Strategy – eliminate or significantly reduce the company’s exposure to particular (extreme) risks

  • Prevention Strategy – reduce the occurrence probability of a risky event

  • Mitigation Strategy – eliminate or minimize the negative impact of a risky event


Supply Chain Risk Management Framework

Internal Operations

Environment

Marketplace

External Stakeholders

Source of Risk

Identified Risk 1

Identified Risk 2

Identified Risk 3

Identified Risk 4

Avoidance Approaches

Responsible Functional Areas/Supply Chain Stakeholders

Prevention Approaches

Mitigation Approaches

Bandaly et al.

8


Example of Using Flexibility as a Supply Chain Risk Mitigation Strategy – with respect to Marketplace Uncertainties

Bandaly et al.

9


Example of Using Flexibility as a Supply Chain Risk Mitigation Strategy – with respect to Uncertainties Originating from Internal Operations

Bandaly et al.

10


Example of Using Flexibility as a Supply Chain Risk Mitigation Strategy – with respect to Uncertainties Originating from External Stakeholders

Bandaly et al.

11


Example of Using Flexibility as a Supply Chain Risk Mitigation Strategy – with respect to Environmental Uncertainties

Bandaly et al.

12


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