Quantifying Risks in a Supply Chain Through Integration of Fuzzy AHP and Fuzzy TOPSIS

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International Journal of Production Research

ISSN: 0020-7543 (Print) 1366-588X (Online) Journal homepage: http://www.tandfonline.com/loi/tprs20

Quantifying risks in a supply chain throughintegration of fuzzy AHP and fuzzy TOPSIS

Avinash Samvedi , Vipul Jain & Felix T.S. Chan

To cite this article: Avinash Samvedi , Vipul Jain & Felix T.S. Chan (2013) Quantifying risks in

a supply chain through integration of fuzzy AHP and fuzzy TOPSIS, International Journal of Production Research, 51:8, 2433-2442, DOI: 10.1080/00207543.2012.741330

To link to this article: http://dx.doi.org/10.1080/00207543.2012.741330

Published online: 30 Nov 2012.

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Quantifying risks in a supply chain through integration of fuzzy AHP and fuzzy TOPSIS

A v i n a sh S a m v e dia, V ip ul J ai na a n d F e l i x T . S . C h anb*

aDepartment of Mechanical Engineering, Indian Institute of Technology Delhi, New Delhi, India;

bDepartment of Industrial and Systems Engineering, The Hong Kong Polytechnic University, Hong Kong

(Received 21 February 2012; final version received 11 October 2012 )

R i sk i s i n he r en t i n a l mo s t e v er y a c t iv i ty o f s u pp l y c h ai n m a na g em e nt . W i th t h e e v er - in c re a si n g p u sh f o re f f i c i e n c y , s u p p l y c h a i n s t o d a y a r e g e t t i n g m o r e a n d m o r e r i s k y . A d d i n g t o t h e d i f f i c u l t y o f d e a l i n g w i t h t h e s er is ks i s t he a mo un t o f s ub je ct iv it y a nd u nc er ta in ty i nv ol ve d. T hi s m ak es a na ly ti ca l e xa mi na ti on o f t hes i t u a ti o n v e r y d i f f i cu l t , e s p e c i a ll y a s t h e a m o u nt o f i n f o r m a t i on a v a i l ab l e a t a p a r t ic u l a r t i m e i s n o t s u f f i c i e ntf o r s u c h a n a n a l y s i s . T h u s a s u p p l y c h a i n r i s k i n d e x , w h i c h c a p t u r e s t h e l e v e l o f r i s k f a c e d b y a s u p p l y c h a i n i na g i v e n s i t u a t i o n , i s t h e n e e d o f t h e h o u r . T h i s s t u d y i s a n e f f o r t t o w a r d s q u a n t i f y i n g t h e r i s k s i n a s u p p l y c h a i na n d t h en c o ns o li d at i ng t h e v a l ue s i n to a c o mp r eh e ns i ve r i sk i n de x . A n i n te g ra t ed a p pr o ac h , w i th a f u zz ya n al y t ic a l h i er a rc h y p r oc e ss ( A HP ) a n d a f u zz y t e ch n iq u e f o r o r de r p r ef e re n ce b y s i mi l ar i ty t o t h e i d ea l

s o l u t i o n ( T O P S I S ) a s i t s i m p o r t a n t e l e m e n t s , h a s b e e n u s e d f o r t h i s p u r p o s e . F u z z y v a l u e s i n t h i s s t u d y h e l p i nc a pt ur in g t he s ub je ct iv it y o f t he s it ua t io n w it h a f in al c on ve rs io n t o a c ri sp v a lu e w hi ch i s m uc h m or ec o m p re h e n si b l e . A c a s e s t u d y i s u s e d t o i l l u st r a t e t h e p r o po s e d m e t h o d ol o g y .

Keywords: s u pp l y c h ai n r i sk m a na g em e nt ; f u zz y A H P; f u zz y T O PS I S; r i sk i n de x

1. Introduction

A s ig ni fi ca nt f ea tu re o f t he r ap id ly e vo lv in g b us in es s c li ma te , s pu rr ed o n b y s ig ni fi ca nt t ec hn ol og y s hi ft s,

i n no v at i on , c o mm u ni c at i on t e ch n ol o gi e s a n d g l ob a li s at i on , i s t h e i n cr e as i ng p r ev a le n ce o f r i sk i n a l mo s t e v er y

a s pe c t o f o u r l i v e s ( W u a n d B l a c kh u rs t 2 0 09 ) . R i s k s o c c u r b e c a us e w e c a n n e v e r k n ow e x ac t ly w h at w i ll h a pp e n i n

t h e f u t u r e . W e c a n u s e t h e b e s t f o r e c a s t s a n d d o e v e r y p o s s i b l e a n a l y s i s , b u t t h e r e i s a l w a y s u n c e r t a i n t y a b o u t f u t u r e

e v en t s ( W a t er s 2 0 07 ) . T h i s u n ce r ta i nt y c r ea t es a g a p b e t w e en w h at r e al l y h a pp e ns a n d w h a t a f i rm h a s p l a n ne d f o r

a n d c o n s e qu e nt l y c a us e s l o ss e s d u e t o t h e s e qu e nc e o f f a il u re s a n d/ o r c a u s a l e v e n t s ( L e w is 2 0 03 ) . H o we v er , a s r i sk

h a s t h e p o t e n t i a l f o r l o s s , o r g a n i s a t i o n s m u s t a s s e s s t h e p o t e n t i a l f o r s u c h a s e q u e n c e o f f a i l u r e s . A c r u c i a l e l e m e n t o f t h e r i sk m a na g em e nt p r oc e ss i s t h e i d en t if i ca t io n a n d a s se s sm e nt o f r i sk . T h is p r oc e ss i n vo l ve s u n de r st a nd i ng t h e

c on di ti on s t ha t g iv e r is e t o p ot en ti al p ro bl em s, a nd t he n a ss es si ng t he l ik el ih oo d a nd n eg at iv e i mp ac t o f s uc h

p r ob l em s ( T ap i er o 2 0 07 ) . T h e r e su l t o f t h is p r oc e ss w i ll b e i n fo r ma t io n r e ga r di n g s i tu a ti o na l r i sk s u p on w h ic h

s t ra t eg i c d e ci s io n s c a n b e m a de .

O rg an is at io ns h av e b ee n s te a di ly b ro ad en in g t he ir a pp ro ac h t o r is k m an ag em en t s in ce t he m id t we nt ie th

c e n t u r y – i n i t i a l l y f o c u s i n g o n i n s u r a n c e m a n a g e m e n t , t h e n e x p a n d i n g t o f i n a n c i a l , s a f e t y a n d p u b l i c r e l a t i o n s i s s u e s ,

a nd f in al ly , c om pa ny wi de a nd s up pl y c ha in i ss ue s ( No rr ma n a nd L in dr ot h 2 00 4) . T hi s i s d ue t o t he f re qu en t

d i sr u pt i on s a s u pp l y c h ai n e n co u nt e rs o n a r e gu l ar b a si s . S v en s so n ( 2 00 0 ) d e fi n ed s u pp l y c h ai n d i sr u pt i on s a s

u n pl a nn e d e v en t s t h a t m a y o c c u r i n t h e s u p p ly c h ai n , w h ic h m i gh t a f fe c t t h e n o r m al o r e x pe c te d f l ow o f m a te r ia l s

a n d c o m p o n e n ts . D i s ru p t i on s n o t o n l y h a l t s u p p l y c h a i n o p e r at i o ns , w i t h ou t p r e p ar a t i on a n d p r e c a u t i o ns i t t a k e s

t im e f or t he a ff ec te d s ys te m t o r ec ov er ( He nd ri ck s a nd S in gh al 2 00 5, S he ff i a nd R ic e 2 00 5) . A ll t hi s h as m ad e

m a na g in g s u pp l y c h ai n r i sk s a c h al l en g e t h at i t w a s n e v e r b e fo r e. W he r ea s i n t h e p a st , s u pp l y c h a i n m a na g er s w e re

m a in l y c o nc e rn e d w i th r e du c in g c o st , r e du c in g p u rc h as e p r ic e v a ri a nc e a n d m a na g in g i n ve n to r y, t o da y s u pp l y

c o n t in u i t y i s t h e s i n g l e b i g g e st b u s in e s s d r i v e r .

T h e m a j o r h i n d r a n c e i n a n a l y s i n g r i s k s c o m e s f r o m t h e f a c t t h a t t h e r e i s a l o t o f s u b j e c t i v i t y i n v o l v e d . I n p u t f r o m

e x pe r ts o n t h e s u bj e ct m a in l y c o me s i n t h e f o rm o f s u bj e c ti v e a s se s sm e nt s . T hi s n e ce s si t at e s t h e u s e o f t h eo r ie s s u ch

a s f u zz y o r g r ey a n al y si s w h ic h a r e c a pa b le o f d e al i ng w i th s u bj e ct i vi t y. T w o v e ry p o pu l ar t e ch n iq u es p r ev i ou s ly

*Corresponding author. E mail: [email protected]

20 1 T a yl o r & F r an c is

http://dx.doi.org/10.1080/00207543.2012.741330

I n t e r n a ti o n a l J o u r n a l o f P r o d u c ti o n R e s e a r c h, 2013

Vol. 51, No. 8, 2433–2442,

3


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u s e d i n s i m i la r s i t u a t i o ns a r e f u z z y a n a l yt i c a l h i e r a r ch y p r o c e s s ( A H P ) a n d f u z z y t e c h n i qu e f o r o r d e r p r e f e re n c e b y

s i m i l a r i t y t o t h e i d e a l s o l u t i o n ( T O P S I S ) . T h e y h a v e t h e b e n e f i t o f c o m b i n i n g a p p r o a c h e s l i k e f u z z y t h e o r y , w h i c h b y

i t s v e r y n a t u r e i s b u i l t t o h a n d l e s u b j e c t i v e a s s e s s m e n t s , w i t h a n a l y t i c a l t o o l s s u c h a s A H P , w h i c h i s a p r o v e n t o o l f o r

h a nd l in g m u lt i c r it e ri a d e ci s io n m a ki n g ( M CD M) p r ob l em s ( K ar s ak a n d T o lg a 2 0 01 , Z a ye d et al . 2 00 8) . T he

r e su l ti n g t o o l g i ve s u s t h e p o w e r t o m a ke e f fe c ti v e d e c i si o ns a n d a t t h e s a m e t i me b e i m pr e ci s e w h i l e g i vi n g i n p u ts .

T h at i s w h y t e ch n iq u es s u ch a s f u zz y A H P a r e b e c om i ng i n cr e as i ng l y p o pu l ar t o da y .

T h e r e m a i n d e r o f t h e p a p e r i s o r g a n i s e d a s f o l l o w s . S e c t i o n 2 r e v i e w s t h e r e l a t e d l i t e r a t u r e o n s u p p l y c h a i n r i s k s ,f u zz y A H P a n d f u zz y T O PS I S. S e c ti o n 3 g i ve s , i n d e ta i l, d i ff e re n t k i n d s o f r i sk i n a s u pp l y c h a i n a n d a f r am e wo r k

f o r a s se s sm e nt . A b r ie f d e sc r ip t io n a n d e x am p le s a r e i n cl u de d . S e c ti o n 4 d e sc r ib e s t h e p r op o se d m e th o do l og y a n d

d e ta i ls t h e s t ep s i n vo l ve d i n t h e t e ch n iq u es u s ed . S e ct i on 5 i l lu s tr a te s t h e p r op o se d m e th o do l og y t h ro u gh a c a se

s t ud y . S e ct i on 6 c o nc l ud e s t h e p a pe r w i th t h ou g ht s o n f u tu r e r e se a rc h s c op e s.

2. Literature review

I n t o da y ’s s c en a ri o , s u pp l y c h ai n p a rt i ci p an t s a r e b e co m in g i n cr e as i ng l y m o re c o up l ed , i n t h e s e ns e t h at d e ci s io n s

t a ke n b y o n e f i r m i n a s u pp l y c h a i n d i r e c tl y a f fe c t t h e p e rf o rm a nc e o f o t he r f i rm s . T h i s l e ad s t o t h e d i s r up t io n s

c au se d a t o ne l e ve l t o b e t ra ns mi tt ed q ui ck ly t o o th er l ev el s a nd t hu s r es ul ts i n h ug e i mp ac ts . T hi s h as l ed t o a

g ro wi ng i nt er es t i n t he a re a o f s up pl y c ha in r is k a nd i ts m an ag em en t, a s e vi de nc ed i n t he n um be r o f i nd us tr y

s u rv e ys , p r ac t it i on e r c o nf e re n ce s a n d c o ns u lt a nc y r e po r ts d e vo t ed t o t h e t o pi c , f o r e x am p le , M c Ki n se y ( 2 00 8 ).F u r t h e r , t h e e m p h a s i s t o d a y i s i n m a k i n g t h e c h a i n m o r e e f f i c i e n t , w h i c h m a k e s i t m o r e v u l n e r a b l e a n d l e s s r o b u s t i n

d e al i ng w i th d i sr u pt i on s w h en t h ey o c cu r . M o re o ve r , t h er e i s s t ro n g e v id e nc e t h at s u ch c a ta s tr o ph i c e v e nt s a r e

b e c o mi n g m o r e f r e qu e n t ( C o l em a n 2 0 0 6 ). E l k in s et al . ( 2 00 5 ) o b s e rv e d t h a t t h e r e h a s b e en a n i n cr e as e b o th i n t h e

p o te n ti a l f o r d i s r up t io n s a n d i n t h ei r m a gn i tu d e. S u pp l y c h ai n e x e cu t iv e s a t I BM b e li e ve t h at s u pp l y c h ai n r i sk

m a na g em e nt ( S CR M ) i s t h e s e c o nd m o st i m po r ta n t i s s u e f o r t h em ( I BM 2 0 08 ) . T h e r e se a rc h b y A M R i n 2 0 07 a l so

r e p o r t e d t h a t 4 6 % o f e x e c u t i v e s b e l i e v e t h a t b e t t e r S C R M i s n e e d e d ( H i l l m a n a n d K e l t z 2 0 0 7 ) . L a v a s t r e et al . ( 2 0 1 2 )

p o i n t o u t t h a t S C R M i s v e r y i m p o r t a n t g i v e n t h e n e w e c o n o m i c a n d i n d u s t r i a l e n v i r o n m e n t i n w h i c h f i r m s c u r r e n t l y

w o rk . H o we v er , f e w c o mp a ni e s h a ve t a ke n c o mm e ns u ra t e a c ti o ns ( M cK i ns e y 2 0 08 ) . M or e ov e r, t h e r e se a rc h

i n f o rm a t i on a v a i l ab l e o n t h i s t o p i c i s m a i n ly q u a l it a t i ve i n n a t u r e ( T h u n et al . 2 0 1 1 , S i m a n g u n so n g et al . 2 0 1 2 ) a n d

o n ly r e ce n tl y h a s a q u an t it a ti v e a p pr o ac h b e en a d op t ed ( H il l ma n a n d K e lt z 2 0 07 , W a ko l bi n ge r a n d C r uz 2 0 11 ,

Diabat et al . 2 0 1 2 ) . W e t r y t o f i l l t h i s r e s e a r c h g a p b y p r o v i d i n g a r i s k i n d e x w h i c h w i l l b e v e r y h e l p f u l i n q u a n t i f y i n g

s u pp l y c h ai n r i sk s . T h e m e t h od o lo g y a d o p te d u s es a n a p pr o ac h w h ic h i s a n i n te g ra t io n o f f u zz y A H P a n d f u zz yT OPSIS.

A HP a nd T OP SI S a re b ot h m ul ti -c ri te ri a d ec is io n- ma ki ng m et ho ds . T he y a re u se d f or s el ec ti ng t he b es t

a l te r na t iv e f r om a g i ve n s e t, u s in g t h ei r p e rf o rm a nc e u n de r d i ff e re n t c r it e ri a a n d s u b- c ri t er i a, w h ic h c o ul d b e

e it he r q ua nt it at iv e o r q ua li ta ti ve i n n at ur e. A HP h as b ee n u se d i n a h os t o f d if fe re nt s it ua ti on s r es ul ti ng i n

v e ry r i ch a n d e x te n si v e l i te r at u re ( T ab u ca n on et al . 1 99 4, G au de nz i a nd B or gh es i 2 00 6, Z ay ed et al . 2 00 8) ,

h o we v e r t h e p r ob l em o f d e al i ng w i th s u bj e c ti v e a s se s sm e nt s r e ma i ns l a rg e ly u n so l ve d ( Wa n g et al . 2 00 8) . T hi s

h as l ed t o t he i nc lu si on o f t he or ie s, s uc h a s f uz zy a nd g re y, w hi ch a re c ap ab le o f d ea li ng w it h s ub je ct iv e

a ss es sm en ts ( Dw ei ri a nd K ab la n 2 00 6, G u a nd Z hu 2 00 6) . F uz zy A HP h as p ro ve n t o b e a v er y u se fu l t oo l

a nd q ui c kl y g ai ne d a cc ep ta nc e a mo ng a v as t a rr ay o f r es ea rc he rs ( Ch an a nd K um ar 2 00 7, H ua ng et al . 2 00 8,

Celik et al . 2 00 9, S am ve di et al . 2 01 2). Th e m os t c om mo n m eth od u se d i n th e s ol ut ion of fu zz y AH P

a pp li ca ti on s i s t he e xt en t a na ly si s m et ho d p ro po se d b y C ha ng ( 19 92 ) ( Wa ng et al . 2 01 2) .

T O PS I S i s a w i de l y a c ce p te d m u lt i -a t tr i bu t e d e c is i on - ma k in g t e ch n iq u e d u e t o i t s s o un d l o gi c , s i mu l ta n eo u s

c o ns i de r at i on o f t h e i d ea l a n d t h e a n ti - id e al s o lu t io n s, a n d e a si l y p r og r am m ab l e c o mp u ta t io n p r oc e du r e ( K imet al . 1 99 7) . A gr aw al et al . ( 19 91 ) u se d T OP SI S f or r ob ot s el ec ti on , a nd A gr aw al et al . ( 19 92 ) e mp lo ye d

T OP SI S f or t he e va lu at io n a nd s el ec ti on o f o pt im um g ri pp er s. L ik e A HP , T OP SI S a ls o f ac ed t he s am e

c on st ra in ts o f n ot b ei ng a bl e t o h an dl e t he v ag ue a ss es sm en ts g iv en b y e xp er ts a nd t hu s l ed t o i ts m er gi ng w it h

f uz zy t he or y. C he n a nd H wa ng ( 19 92 ) f ir st a pp li ed f uz zy n um be rs t o e st ab li sh f uz zy T OP SI S ( Ku tl u a nd

E k me k ci o gl u 2 0 12 ) . C h en ( 2 00 0 ) e x te n de d t h e T O PS I S m e th o d t o f u zz y g r ou p d e ci s io n -m a ki n g s i tu a ti o ns b y

c o ns i de r in g t r ia n gu l ar f u zz y n u mb e rs a n d d e fi n in g a c r is p E u cl i de a n d i st a nc e b e tw e en t w o f u zz y n u mb e rs . F u zz y

T O PS I S h a s b e en i n tr o du c ed f o r v a ri o us m u lt i -a t tr i bu t e d e ci s io n -m a ki n g p r ob l em s ( C he n a et al . 2 00 6, Y on g

2 0 06 , K a ya a n d K a hr a ma n 2 0 11 ) .

2 A. Samvedi e t a l .2434


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3. Supply chain risks

S up pl y c ha in r is ks c an b e c at eg or is ed i n m an y d if fe re nt w ay s a nd f ro m d if fe re nt p er sp ec ti ve s, s uc h a s f ro m a

c o rp o ra t e g o ve r na n ce o r f i na n ci a l r i sk a g en d a, o r e v en i n t e rm s o f a m u lt i -l e ve l c o mp l ex s y st e m ( C hr i st o ph e r a n d

P e ck 2 0 04 ) . O n e s i mp l e c l as s if i ca t io n c a n b e e x te r na l ( e ma n at i ng f r om f a ct o rs e x te r na l t o t h e c h ai n ) a n d i n te r na l

r i sk s . E x am p le s i n s u ch c l as si f ic a ti o n c a n b e n a tu r al d i sa s te r s ( e xt e rn a l) a n d s u pp l ie r q u al i ty p r ob l em s ( i nt e rn a l) .

W h en c l as s if i ed i n s u ch a w a y, t h in g s a r e s i mp l if i ed a n d c a n b e u n de r st o od b e tt e r, b u t i n r e al p r ac t ic e t h is f a il s t o

a s si g n r e sp o ns i bi l it y t o i n di v id u al f i rm s f o r h a nd l in g r i sk s . A n ot h er c l as si f ic a ti o n c a n b e o f s t ra t eg i c, t a ct i ca l o ro p er a ti o na l r i sk s , b u t t h e m o st c o mp r eh e ns i ve a n d w i de l y u s ed c l as s if i ca t io n i s t h e o n e g i ve n b y C h ri s to p he r a n d

P e ck ( 2 00 4 ). T h ey c l as s if i ed r i sk s i n t h re e c a te g or i es a n d t h e n f u rt h er d i vi d ed t h em i n to f i ve . I n t h is s t ud y , w e t r ea t

i n t e r n a l r i s k s a s o n e , n a m e l y p r o c e s s r i s k . W e b e l i e v e t h a t i t m a k e s s i t u a t i o n s s i m p l e r t o u n d e r s t a n d a n d a l s o c o n t r o l

r i s k s a r e a n y w a y p a r t o f t h e p r o c e s s d e c i s i o n s a n d t h u s t h e y c a n b e i n t e g r a t e d . T h e d e t a i l e d c a t e g o r i s a t i o n o f r i s k s i s

g i ve n i n F i gu r e 1 .

T h e c a t e g o r i es a r e b r i e fl y d e s c ri b e d b e l o w :

( 1 ) E nv i ro n me n ta l r i sk s : T h e se a r e t h e r i sk s e x te r na l t o t h e f i r m a n d c a n i m p a ct o n e e c h e l on i n di v id u al l y o r c a n

i m p a c t t h e s u p p l y c h a i n a s a w h o l e . E x a m p l e s a r e n a t u r a l d i s a s t e r s , e c o n o m i c d o w n t u r n s , t e r r o r i s m , p o l i t i c a l

i n s ta b i l i ty a n d c u l t u r a l g r i e v a nc e s . S u c h d i s a st e r s c a n h a v e a v a r y in g i m p a c t o n t h e s u p p ly c h a i n d e p e n d in g

o n w h e r e t h e y s t r i k e . I f a m a j o r p l a y e r i n t h e c h a i n s u f f e r s t h e n w h o l e c h a i n w i l l b e s e v e r e l y i m p a c t e d . T h e r e

a r e a l s o r i s k s w h i c h a f f e c t a l l t h e p l a y e r s , s u c h a s g l o b a l d o w n t u r n . T h e e a r t h q u a k e a n d r e s u l t i n g t s u n a m i i n

J a pa n i n 2 0 11 i s a r e al - li f e e x am p le o f a n e n vi r on m en t al r i sk .( 2 ) P r oc e ss r i sk s : T h e se a r e t h e r i sk s w h ic h a r e i n t e rn a l t o t h e f i r m, a n d e m a n at e f r om t h e d i s tu r ba n ce s i n t h e

f l o w o f t h e p r o d u c t t h r o u g h t h e d i f f e r e n t p r o c e s s e s w i t h i n a f i r m . T h e s e r i s k s i n c l u d e m a c h i n e f a i l u r e s , m a j o r

F i gu r e 1 . C l as s if i ca t io n o f s u pp l y c h ai n r i sk s .

International Journal of Production Research 32435


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t e ch n ol o gi c al c h an g es , l a bo u r s t ri k es a n d q u al i ty p r ob l em s . A n e x am p le i s t h e r e ce n t l a bo u r s t ri k es i n t h e

M ar u ti S u zu k i p l a n t i n I n di a , h a l t in g t h e p r o d uc t io n o f c a rs f o r a l m o st a m o nt h .

( 3 ) D e ma n d r i s ks : T h i s i s o n e o f t h e r i s ks i n te r na l t o t h e c h a in b u t i s e x te r na l t o t h e f i r m i n f o c u s, s u ch a s s u p p ly

r i sk . D e ma n d r i sk r e la t es t o t h e d i sr u pt i on s a r is i ng f r om t h e f l uc t ua t io n s i n d e ma n d o f t h e p r od u ct , l e ad i ng

t o a g a p b e t w ee n d e ma n d a n d s u pp l y, t h us a f fe c ti n g t h e f i rm . T h er e c a n b e v a ri o us r e as o ns f o r t h e se r i sk s .

A n y c h a n ge i n t h e m a r k et c a n a l so t r ig g er t h es e r i sk s . F o r e x am p le , a r u mo u r o f a n y e s s e nt i al c o mm o di t y

b ei ng e xh au st ed w il l c re at e p an ic a nd s en d t he d em an d f or t ha t p ro du ct s oa ri ng . A no th er f ac to r i s

f o re c a st i ng e r ro r s, w h ic h c a n n e ve r b e t o ta l ly r e mo v ed b u t c a n b e m a na g ed w i th i n l i m i ts .

( 4) S up pl y r is ks : S up pl y r is ks r ef er t o t he r is ks e ma na ti ng f ro m t he p ro bl em s i n a s mo ot h f lo w f ro m t he

d o wn s tr e am s i de . W i th t h e c o nt i nu o us p u sh b e in g g i ve n t o t h e o u ts o ur c in g o f t h e n o n- c or e a c ti v it i es o f a

f i r m , s u p p l y r i s k s h a v e g a i n e d h u g e i m p o r t a n c e . A n o t h e r f a c t o r a d d i n g t o s u p p l y r i s k s i s t h e g l o b a l i s a t i o n o f

t h e s u pp l y c h a i n. D u e t o g l ob a li s at i on , a h o st o f f a il u re m o de s h a ve b e co m e a t ta c he d t o t h e u p s t re a m f l ow .

A n e x am p le o f s u pp l y r i s k s i s t h e c l as s ic e x am p le o f N o ki a a n d E r i c ss o n ( N o r rm a n a n d J a ns s on 2 0 04 ) .

4. Methodology

T h is s e ct i on p r op o se s a m e th o do l og y f o r q u a n ti f yi n g t h e r i sk s i n a c h ai n a n d f o r d e te r mi n in g t h e r i sk i n de x . T h e

m et ho do lo gy c on si st s o f f ou r s te ps a s g iv en i n F ig ur e 2 . T he f ir st s te p r eq ui re s t he f ir m t o c om e u p w it h a

c om pr eh en si ve h ie ra rc hy o f a ll t he r is ks w hi ch m ay a ff ec t t he f ir m. T hi s i s d on e b y t ho ro ug hl y s tu dy in g t he

c o ns i de r ed c h ai n a n d i d en t if y in g p o te n ti a l l o op h ol e s. T h es e a r e t h en a n al y se d f o r o v er l ap s a n d c a te g or i se d u s in gs i mi l ar c h ar a ct e ri s ti c s. T h is e x er c is e s h ou l d b e r e pe a te d w h en e ve r a m a jo r c h an g e i s m a de i n t h e c h ai n . T h e s e co n d

s t ep i n t h e p r oc e ss i n vo l ve s a s si g ni n g w e i g h ts t o t h e c r i t e ri a a c co r di n g t o t h ei r i m po r ta n ce . F uz z y A H P i s u s ed f o r

t h i s p u r p o s e a n d e x p e r t v i e w s a r e t a k e n a s i n p u t . T h e t h i r d s t e p i n v o l v e s d e t e r m i n i n g t h e s c o r e s o f d i f f e r e n t r i s k s b y

a n al y si n g t h em u n de r f o ur d i ff e re n t c r it e ri a ; n a me l y t h ei r p r ob a bi l it y o f o c cu r re n c e, t h ei r i m pa c t o n s u pp l y c h ai n

p e r f o r m a n c e , t h e e f f o r t a n d t i m e r e q u i r e d i n r e c o v e r i n g f r o m t h e i m p a c t a n d t h e l e v e l a t w h i c h t h e r i s k h a s a n a f f e c t .

T h is i s b e ca u se , a s c a n b e s e en f r om t h e l i t e ra t ur e , a r i sk a f fe c ti n g t h e s t ra t eg i c l e v e l i s m u ch m o re d a ng e ro u s t h a n

o n e a f f e c ti n g t h e o p e r at i o n al l e v e l .

4.1 Fuzzy AHP

T h e f u z z y A H P m e t h o d o l o g y e x t e n d s S a a t y ’ s A H P b y c o m b i n i n g i t w i t h f u z z y s e t t h e o r y . I n f u z z y A H P , f u z z y r a t i o

s ca le s a re u se d t o i nd ic at e t he r el at iv e s tr en gt h o f t he f ac to rs i n t he c or re sp on di ng c ri te ri a. T he re fo re , a f uz z y judgment matrix can be constructed. T he final scores of alternatives are also represented by fuzzy numbers. T he

o pt im um a lt er na ti ve i s o bt ai ne d b y r an ki ng t he f uz zy n um be rs u si ng s pe ci al a lg eb ra ic o pe ra to rs . I n t hi s

m e t h od o l o gy , a l l e l e m e nt s i n t h e j u d g m e n t m a t r i x a n d w e i g h t v e c t o r s a r e r e p r e s e n te d b y t r i a n g u l ar f u z z y n u m b e r s.

U s in g f u zz y n u mb e rs t o i n di c at e t h e r e l a ti v e i m p o rt a nc e o f o n e r i s k t y pe o v er t h e o t h e r, a f u zz y j u dg m en t v e ct o r i s

t h e n o b t a i n e d f o r e a c h r i s k . T h e s e j u d g m e n t v e c t o r s f o r m p a r t o f t h e f u z z y p a i r w i s e c o m p a r i s o n m a t r i x w h i c h i s t h e n

u se d t o d et er mi ne t he w e ig ht o f e a ch r is k. T ab le 1 s ho ws t he m ea ni ng o f l in gu is ti c e xp re ss io ns i n t he f or m o f

1• Finalise the SCRM hierarchy.

2

• Use expert advice for pairwise comparisons.

• Find the weights using fuzzy AHP.

3

• Use expert advice to tabulate risk properties.

• Combine using fuzzy TOPSIS to get scores.

4

• Consolidate scores and weights to get riskindex.

F i gu r e 2 . F l ow o f t h e p r op o se d m e th o do l og y .

T a bl e 1 . T r ia n gu l ar f u zz y n u mb e r e q ui v al e nt s t o t h e c o rr e -s p o nd i n g l i n g ui s t i c e x p r es s i o ns .

L inguisticexpressions

E quivalentf u z z y n u m be r s

T r i a ng u l a r f u z z yn um be r ( l, m , u )

Equal 1 (1, 1, 3)Little importance 3 (1, 3, 5)Strong importance 5 (3, 5, 7)Very strong importance 7 (5, 7, 9)Extreme importance 9 (7, 9, 9)



6/11

f u z z y n u m b e r s . E x p e r t s a r e a s k e d t o g i v e t h e i r a s s e s s m e n t i n t h e f o r m o f t h e s e l i n g u i s t i c e x p r e s s i o n s w h i c h a r e t h e n

c o nv e rt e d a n d a n al y se d t o f i na l ly g e t t h e w e ig h ts . C h an g ’s e x te n t a n al y si s m e th o d h a s b e e n u s ed f o r d e t e rm i ni n g

w e i g h ts f r o m p a i r wi s e c o m p ar i s o ns .

4.2 Fuzzy TOPSIS

T O PS I S i s a m u lt i pl e -c r it e ri a m e th o d t o i d en t if y s o lu t io n s f r om a f i ni t e s e t o f a l te r na t iv e s a s i n it i al l y p r op o se d b y

C he n a nd H wa ng ( 19 92 ). T he u nd er ly in g l og ic o f T OP SI S i s t o d ef in e t he i de al s ol ut io n a nd t he n eg at iv e i de al

s o l u t i o n . T h e a l t e r n a t i v e s a r e t h e n c o m p a r e d w i t h t h e s e i d e a l a n d n e g a t i v e i d e a l s o l u t i o n s , t o f i n d o u t t h e d i s t a n c e s .

T he se d is ta nc es a re t he n u se d t o c om e u p w it h a s co re . T he o ne w hi ch i s c lo se st t o t he i de al a nd f ar th es t f ro m t he

n e ga t iv e i d ea l g e ne r al l y q u al i fi e s f o r t h e o p ti m um . I n f u zz y T O PS I S, t h e n u mb e rs a r e c h an g ed t o f u zz y v a lu e s a n d

t h e p r o c e s s n o w i n c l u d e s f u z z y m a t h e m a t i c a l t e c h n i q u e s . M o r e d e t a i l s a b o u t t h e f u z z y T O P S I S m e t h o d o l o g y c a n b e

f o un d i n K a rs a k ( 2 00 2 ). D e ta i ls o f t h e m e th o do l og y a r e g i ve n b e lo w

( 1 ) I n t h is a p pr o ac h , w e f i rs t n o rm a li s e t h e g i ve n d a ta c o lu m n w i s e . T h i s i s d o ne u s in g t h e f o l l ow i ng f o rm u la

rij ¼ raij , rbij , rcij

¼cþ j cij

cþ j a

j

,cþ j bij

cþ j a

j

,cþ j aij

cþ j a

j

!

where cþ j ¼ maxi cij and a j ¼ mini aij .( 2 ) D e fi n e t h e i d ea l a n d a n ti - id e al s o lu t io n a s rþ j ¼ ð1 , 1 , 1Þ and r

j ¼ ð0 , 0 , 0Þ r e s p e c ti v e l y f o r j ¼ 1, . . . , n.

( 3 ) C a lc u la t e t h e d i st a nc e s o f a l l r i sk t y pe s f r om t h e i d e a l ( a nt i -i d ea l ) v a l u e s. T h e d i s t an c es b e tw e en t w o f u z z y

n u mb e rs i s f o un d b y u s in g t h e f o r m ul a g i ve n b e lo w

DðA1 , A2 Þ ¼ 1

2 max a1 a2j j, c1 c2j jð Þ þ b1 b2j j

T he d is ta nc e o f a r is k t yp e f ro m t he i de al ( an ti -i de al ) v al ue s c an b e f ou nd b y s um mi ng u p t he d is ta nc e s o f

r e s p ec t i v e p a r a m e t er v a l u e s f r o m t h e i d e a l ( a n t i - id e a l ) v a l u e s . E q u a l w e i g h ti n g h a s b e e n a s s um e d f o r a l l p a r a me t e r s

i n t h is s tu d y.

( 4) C al cu la te t he s co re f or t he r is k t yp es b y c al cu la ti ng t he ir p ro xi mi ty t o t he i de al v al ue , u si ng t he f or mu la

g i v e n b e l o w

Score ¼ D i s t an c e f r o m t h e a n t i i d e a l v a l u e

D i s t a n c e f r o m t h e a n t i i d e a l v a l u e þ D i s t a n c e f r o m t h e i d e a l v a l u e

T h e s c o r es o b ta i ne d a r e t h en c o ns o li d at e d w i th t h e w e ig h ts a s si g ne d b y t h e f u z z y A H P m e t h od a n d t h u s t h e f i n a l

r i sk i n de x v a lu e i s r e ac h ed . T h e n e x t s e ct i on e x pl a in s t h e m e t h od o lo g y w i t h a c a se s t ud y a s a n u me r ic a l e x a m pl e .

5. Numerical illustration

A d e t a i l e d s u r v e y o f t h e I n d i a n t e x t i l e a n d s t e e l i n d u s t r y w a s c o n d u c t e d t o u n d e r s t a n d t h e s t a t u s o f s u p p l y c h a i n r i s k

m a na g em e nt . T he s u rv e y c o ns i st e d o f p e rs o na l i n te r vi e ws w i th t h e s u pp l y c h ai n e x e cu t iv e s i n t h es e f i rm s a n d a n

o n li n e s u rv e y q u es t io n na i re w a s a l so u s ed . F o r t h e s u rv e y, 1 5 7 c o mp a ni e s w e re c o nt a ct e d. T h e f i na l d a ta b as e

c on si st s o f d at a f ro m 6 2 r es po nd en ts i n c ha rg e o f s up pl y c ha in m an ag em en t o r l og is ti cs a nd w ho a re t he re fo rea s su m ed t o b e t h e m o st s u it a bl e f o r p r ov i di n g t h e d e si r ed i n fo r ma t io n o n s u pp l y c h ai n r i sk m a na g em e nt . P e rs o na l

i n te r vi e ws w e re c o nd u ct e d w i th 1 8 o f t h es e r e sp o nd e nt s . B a se d o n a n e x ha u st i ve l i te r at u re r e vi e w a n d r i go r ou s

i nt er ac ti on s w it h e xp er ts f ro m t he c on ce rn ed i nd us tr ie s, t hi s s ur ve y h as b ee n u se d t o g en er at e t he d at a f or t he

n u m e ri c a l i l l u st r a t io n o f t h e m e t h od o l o gy .

T he r e a r e t w o m a jo r s t ep s i n t h e p r o c e ss , n a me l y a s si g ni n g w e ig h ts t o a l l t h e c r i t er i a a n d d e te r mi n in g t h e s c o r es

o f a l l t h e r i s k s a t t h e l o w e s t l e v e l i n t h e h i e r a r c h y . T h e s e t w o v a l u e s a r e t h e n c o n s o l i d a t e d i n t o o n e s i n g l e - r i s k i n d e x

v al ue . T he i np ut s c om e i n t he f or m o f l in gu is ti c v al ue s. E ac h i np ut p ar am et er i s d iv id ed i nt o f iv e l in gu is ti c

e x pr e ss i on s w i th m e mb e rs h ip v a lu e s, a s s h ow n i n F i gu r e 3 .



7/11

T he f i rs t s t ep u s es f u zz y p a ir w is e c o mp a ri s on s b e tw e en t h e c r i t e ri a t o a s si g n t h e w e ig h ts . T h is i s s i mi l ar t o t h e

p ai rw is e c om pa ri so n p ar t i n t he f uz zy A HP p ro ce ss . P ar t o f i t i s s ho wn i n T ab le 2 , w he re t he r is ks u nd er t he

e n v i ro n m e nt a l c a t e g o r y a r e a s s i gn e d w e i g h t s . T h e p a i r wi s e c o m p ar i s on m a t ri x i s c o m p il e d u s i n g e x p e r t a d v i c e a n d

t h e n s o l v e d u s i n g f u z z y s y n t h e t i c e x t e n t a n a l y s i s . A s a s i n g l e e x p e r t c a n s o m e t i m e s g i v e e r r o n e o u s d a t a , t h r e e e x p e r t s

a r e a s k e d t o g i ve t h ei r a d vi c e a n d t h en t h e f u z z y v a l u es a r e a v e r ag e d u s i n g f u z z y m a t h em a ti c s. T he w e ig h ts o f a l l

o t h e r r i s k t y p e s , a t e a c h l e v e l o f t h e h i e r a r c h y , a r e d e t e r m i n e d i n t h e s a m e w a y . T a b l e 3 g i v e s t h e w e i g h t s f o r a l l t h e

o t he r r i sk t y pe s g i ve n i n t h e h i er a rc h y. T h es e w e ig h ts h a ve b e en g e ne r at e d r a nd o ml y f o r i l lu s tr a ti o n p u rp o se s .

T he s e co n d s t e p o f t h e p r o c e ss , w h ic h i n vo l ve s a s si g ni n g s c or e s t o t h e l o w e r -l e ve l r i sk s i n t h e h i er a rc h y, u s es a

f uz z y T OP SI S p ro ce ss . E ac h r is k i s m ea su re d a ga in st f ou r p ar am et er s, n am el y t yp e o f r is k, p ro ba bi li ty o f o cc ur re nc e , i mp ac t o f t he r is k o n t he s up pl y c ha in i f i t o cc ur re d a nd h ow e as il y t he m it ig at io n w ou ld b e f or t he

i mp ac t o f t ha t r is k. T he i np ut s f or t he v al ue s o f t he se p ar am et er s a re t ak en f ro m e xp er ts a ga in i n t he f or m o f

l i ng u is t ic e x pr e ss i on s w h ic h h a ve e a rl i er b e en d e fi n ed a s f u zz y i n te r va l s, a s s h ow n i n F i gu r e 3 . A d vi c e f r om t h re e

e x pe r ts i s t a ke n a n d a v er a ge d , a s d o ne i n t h e p r ev i ou s s t ep . T h e l i n g ui s ti c e x pr e ss i on s a r e r a nd o ml y g e ne r at e d a n d

a r e s h o w n i n T a bl e 4 . T h e p a r a me t er t y pe o f r i sk h a s b e e n d i vi d ed i n to f i ve l i ng u is t ic e x pr e ss i on s , n a m e ly s t ra t eg i c

( S ) , m i d - s t r a t e g i c – t a c t i c a l ( S T ) , t a c t i c a l ( T ) , m i d - t a c t i c a l – o p e r a t i o n a l ( T O ) a n d o p e r a t i o n a l ( O ) . T h e p r o b a b i l i t y a n d

i m p a c t o f o c c u r r e n c e i s d i v i d e d i n t o l o w ( L ) , m e d i u m ( M ) , h i g h ( H ) , v e r y h i g h ( V H ) a n d e x t r e m e ( E ) . M i t i g a t i o n i s

d i v i d e d i n t o v e r y e a s y ( V E ) , e a s y ( E ) , m e d i u m ( M ) , d i f f i c u l t ( D ) a n d v e r y d i f f i c u l t ( V D ) . T h e m e m b e r s h i p f u n c t i o n s

a ss ig ne d a re t he s am e a s s ho wn i n F ig ur e 3 .

T he a ve ra ge v al ue s o f t he f ou r p ar am et er s a re g iv e n i n T ab le 5 . T he l as t c ol um n o f T ab le 5 s ho ws t he s co re ,

o bt ai ne d f or e ac h r is k u si ng f uz zy T OP SI S. T hi s i s d on e b y a pp ly in g t he p re vi ou sl y d es cr ib ed f uz zy T OP SI S

m e t h od o l o gy t o t h e t h r e e c o m b i n ed p a r a me t e r s, p r o b ab i l i ty , i m p a ct a n d m i t i g a ti o n . T h i s r e s u l t s i n a v a l u e f o r e a c h

r i s k w h i c h i s t o b e m u l t i p l i e d b y t h e m i d d l e v a l u e t h a t i s t h e m o s t p r o b a b l e v a l u e o f t h e t y p e o f r i s k p a r a m e t e r . T h er es ul ti ng v al ue i s t he s co re f or t ha t r is k, a s s ho wn i n t he l as t c ol um n o f T ab le 5 .

T h e s e s c o r e s a r e t h e n c o n s o l i d a t e d u s i n g t h e w e i g h t s a s s i g n e d t o a l l t h e r i s k s . T h i s i s d o n e b y f i r s t n o r m a l i s i n g a l l

t he s co re v al ue s s o t ha t t he r an ge i s n or ma li se d t o b et we en 0 –1 . T he se s co re s a re t he n m ul ti pl ie d b y t he w ei gh ts

a s s i g n e d t o t h e r e l a t i v e r i s k s . T h e v a l u e s o b t a i n e d a r e t h e n a d d e d u p f o r t h e f i r s t l e v e l r i s k s . F o r e x a m p l e , t h e v a l u e s

f o r f i r s t f i v e r i s k s a r e a d d e d t o g i v e a s c o r e f o r t h e e n v i r o n m e n t a l r i s k . T h e s c o r e s o b t a i n e d f o r t h e f i r s t l e v e l r i s k s a r e

t h e n a g a i n m u l t i p l i e d b y t h e w e i g h t s a s s i g n e d t o t h e s e f i r s t l e v e l r i s k s a n d t h e r e s u l t i n g v a l u e s s u m m e d u p t o g e t t h e

f i n a l r i s k i n d e x v a l u e , w h i c h i n t h i s c a s e c o m e s o u t t o b e 0 . 6 1 . T h e s i g n i f i c a n c e o f t h i s v a l u e i s j u d g e d b y d e t e r m i n i n g

t h e m e mb e rs h ip i n d i ff e re n t l i ng u is t ic s e ts o f t h e o u tp u t f u nc t io n , a s s h ow n i n F i gu r e 4 .

T a bl e 3 . W e ig h ts a s si g ne d t o t h e r e m a in i ng r i sk t y pe s .

Risks Weights Risks Weig hts Risks Weights Risks Weights

Demand 0.25 Sudden fluctuations 0 .4 Outsourcing risks 0.27 Machine failure 0.37Supply 0.20 Ma rket changes 0 .3 Supplier insolvency 0.25 L abour strike 0.21

Process 0.10 Competition chang es 0 .1 Quality 0.15 Quality problems 0.28Environment 0.45 Forecasting errors 0 .2 Sudden hike in costs 0.33 T echnological change 0.14

T a bl e 2 . F u zz y p a ir w is e c o mp a ri s on f o r r i s k t y pe s u n de r e n vi r on -m e n t c a t e g or y .

T e rr o r E c on o mi c P o li t ic a l C u lt u ra l N a tu r al W e ig h ts

Terror 1 – – 5, 7, 7 – 0.123Economic 5, 7 , 5 1 3, 5, 1 7, 9, 7 – 0.27 2Political 5, 5 , 7 – 1 3 , 3, 5 – 0.17

Cultural – – – 1 – 0.027Natural 7, 7, 7 5, 7, 3 7, 9, 3 9, 9, 9 1 0.424

0.2 0.4 0.6 0.8 1.0

µm

Low Mild High V High Extreme

F ig ur e 3 . M em be rs hi p f un ct io ns o f t he l in gu is ti cexpressions.



8/11

T a bl e 5 . A v e ra g e d v a l ue s f o r t h e e x p er t i n pu t s a n d t h e f i na l r i sk s c or e .

Risks Type of risk Probability Impact Mitigation Score

Terror (0 .47, 0.67, 0.87) (0.07 , 0.27, 0.47) (0.6, 0.8 , 1) (0.47, 0.67 , 0.87) 0.2981Economic (0 .7 3, 0.93, 1) (0.2, 0.4, 0.6) (0 .53, 0.73, 0.93) (0.73, 0.93 , 1) 0.3345Polit ica l (0 .53, 0 .73, 0 .93) (0.13 , 0 .33, 0 .53) (0 .33, 0 .53, 0 .73) (0.53, 0 .73 , 0 .93) 0.3581Cultura l (0 .47, 0.67, 0.87) (0, 0.2, 0.4 ) (0 .13, 0.33, 0.53) (0.27, 0.47 , 0.67) 0.4440Na tural (0 .6 7, 0.87, 1) (0.33 , 0.53, 0.73) (0 .47, 0.67, 0.87) (0.67, 0.87 , 1) 0.3099Outsourcing risks (0 .47, 0 .67, 0 .87) (0.4, 0 .6, 0 .8) (0 .37, 0 .57, 0 .77) (0.47, 0 .67 , 0 .87) 0.2828Supplier insolvency (0 .53, 0 .73, 0 .93) (0.07 , 0 .27, 0 .47) (0 .4 , 0 .6, 0 .8) (0.33, 0 .53 , 0 .73) 0.4104Quality (0 .07, 0.27, 0.47) (0.53 , 0.73, 0.93) (0 .07, 0.27, 0.47) ( 0.2, 0.4, 0.6 ) 0.1499Sudden hike in costs (0.2, 0 .4 , 0 .6) (0.47 , 0 .67, 0 .87) (0 .13, 0 .33, 0 .53) (0.13, 0 .33 , 0 .53) 0.2298

Sudden f luctuations ( 0, 0 .2, 0 .4) (0.4, 0 .6, 0 .8) (0 .27, 0 .47, 0 .67) (0.07, 0 .27 , 0 .47) 0.1140Market changes (0 .53, 0 .73, 0 .93) (0.27 , 0 .47, 0 .67) (0 .27, 0 .47, 0 .67) (0.33, 0 .53 , 0 .73) 0.3862Competition chang es (0 .7 3, 0 .93, 1 ) (0.13 , 0 .33, 0 .53) (0 .47, 0 .67, 0 .87) (0.33, 0 .53 , 0 .73) 0.4727Forecasting errors (0 .07, 0 .27, 0 .47) ( 0.73, 0 .93 , 1 ) (0 .07, 0 .27, 0 .47) (0.07, 0 .27 , 0 .47) 0.1481Machine failure ( 0, 0.2, 0.4) (0.6, 0.8, 1) (0 .2 , 0.4, 0.6) (0.13, 0.33 , 0.53) 0.1036Labour strike (0 .47, 0 .67, 0 .87) (0.27 , 0 .47, 0 .67) (0 .47, 0 .67, 0 .87) (0.47, 0 .67 , 0 .87) 0.2870Quality problems (0 .07, 0 .27, 0 .47) (0.6, 0 .8, 1 ) (0 .27, 0 .47, 0 .67) (0.27, 0 .47 , 0 .67) 0.1231Technological change (0 .6 7, 0 .87, 1 ) (0.4, 0 .6, 0 .8) (0 .27, 0 .47, 0 .67) (0.33, 0 .53 , 0 .73) 0.4291

T a bl e 4 . E x pe r t i n p u ts f o r t h e p e rf o rm a nc e o f r i sk s o n d i ff e re n t p a r a me t er s .

Risks Type of risk Probability Impact Mitigation

Terror ST,T,T L,L,M E,VH,H M,D,MEconomic S,S,ST M,L,H H,VH,VH VD,VD,DPolit ical ST,ST,T L,M,M H,H,M D,D,MCultura l T,T,ST L,L,L M,M,L E,E,M

Na tural ST,ST,S M,H,H H,VH,H D,D,VDOutsourcing risks T,ST,T H,M,VH H,M,H M,M,DSupplier insolvency ST,T,ST L,M,L H,H,H M,M,EQuality O,O,TO VH,VH,H L,L,M E,VE,MSudden hike in costs TO,O,T H,H,VH L,M,M E,E,VESudden fluctua tions O,O,O VH,H,M M.M.H VE,E,VEMarket changes ST,T,ST M,H,M H,M,M E,M,MCompetit ion changes S,ST,S M,M,L H,VH,H M,E,MForecasting errors O,O,TO E,VH,E M,L,L VE,VE,EMachine failure O,O,O VH,E,H M,M,M E,E,VELabour st rike T,T,ST H,M,M H,VH,H M,M,DQuality problems O,O,TO E,VH,H H,M,M E,E,MTechnological change ST,ST,T H,H,H M,M,H M,M,E

µm

0.2 0.4 0.6 0.8 1.0

Low Mild High V High Extreme

0.9

0.1

F i gu r e 4 . D e te r mi n in g t h e m e mb e rs h ip v a lu e o f r i sk s c or e .



9/11

T h e s u p p l y c h a i n s t u d i e d h a s a v e r y h i g h m e m b e r s h i p v a l u e o f 0 . 9 i n t h e h i g h - r i s k s e t o f t h e o u t p u t f u n c t i o n a n d

s c o r e s w i t h a l o w o f 0 . 1 f o r v e r y h i g h r i s k . T h i s s h o w s t h a t t h e s i t u a t i o n i n t h e s u p p l y c h a i n i s h i g h l y r i s k y a n d , i f n o t

g iv en d ue a tt en ti on , c an m ov e t o v er y h ig h r is k s ta tu s q ui ck ly . S uc h n ew s s ho ul d s ou nd a w ar ni ng t o t he

m a na g em e nt o f t h e f i rm a n d t h ey s h ou l d i m me d ia t el y i n cr e as e t h e t i mi n g f o r t h e r e so u rc e s a v ai l ab l e t o t h e r i sk

m a na g em e nt t e am s o t h at m i ti g at i on c a n b e d o ne r a pi d ly . T h e r i s k s c or e t a bl e s h ou l d b e t h e s t ar t in g p o in t f o r t h e

r i sk m a na g em e nt t e am a s i t d e ta i ls t h e w e i g ht s g i ve n t o t h e d i f f er e nt r i sk t y pe s a n d a l s o t h e p r es e nt s t at u s o f t h e

s up pl y c ha in v ul ne ra bi li ty f ro m a p ar ti cu la r r is k. A ll t he s co re s s ho ul d b e p ut i n d ec re as in g o rd er a nd t he r is km a n a ge m e n t t e a m s h o ul d s t a rt h a n d li n g t h e t o p r i s k s i m m e di a t e ly .

6. Conclusion

S u pp l y c h ai n r i sk s a r e i n cr e as i ng e v e ry d ay d u e t o t h e h i gh l y t u rb u le n t e n vi r on m en t s t h at s u pp l y c h ai n s t o da y f a ce ,

a s w e l l a s d u e t o t h e c o n t i n u i n g e m p h a s i s o n i n c r e a s i n g e f f i c i e n c y . T o a d d t o t h e v u l n e r a b i l i t i e s , s u p p l y c h a i n s t o d a y

e x t e n d a c r o s s m a n y c o u n t r i e s w i t h s u p p l i e r s i n s o m e o f t h e s e c o u n t r i e s b r i n g i n g i n d i v e r s e k i n d s o f r i s k s t o t h e c h a i n .

T h is a d ds a l o t o f r i sk s t o t h e o v e r al l s u pp l y c h a i n . T h i s c a l l s f o r e f f e ct i ve p o li c ie s f o r t h e m i ti g at i on o f t h es e r i sk s

a n d h e n c e i s o f i n c r e a s i n g i m p o r ta n c e t o s u p p ly c h a i n r i s k m a n a g e m e nt . E f f ec t i v e m a n a g e m e nt c a l l s f o r a t h o r ou g h

q u a n ti t a t iv e a n a l ys i s o f t h e s i t u a t i on , h o w e ve r r i s k i s a n i n t a ng i b l e p a r a m e te r , a n d i s v e r y d i f f ic u l t t o q u a n ti f y . T h i s

h a s l e ad t o r e se a rc h i n t h is a l l- i mp o rt a nt t o pi c t o b e m a in l y o f t h e t h eo r et i ca l k i nd , a n d h a s i n hi b it e d q u an t it a ti v e

research.

I n t h i s s t u d y a c o m p r e h e n s i v e r i s k i n d e x h a s b e e n p r o p o s e d w h i c h i s g e n e r i c i n n a t u r e a n d c a n b e a p p l i e d i n a n y

i n d u s t r y s i t u a t i o n . T h i s r i s k i n d e x t a k e s e x p e r t a d v i c e a s i t s i n p u t a n d d e l i v e r s a c r i s p n u m b e r b e t w e e n 0 – 1 a s t h e r i s k

s co re . A p ro gr am i n t he m at la b e nv ir on me nt h as b ee n p re pa re d a nd u se d f or t he n um er ic a l i ll us tr at io n. T he

p ro po se d m et ho do lo gy c on si st s o f f ou r m aj or s te ps , n am el y t he c on st ru ct io n o f r is k h ie ra rc hy f or t he s ai d

e n v i r o n m e n t , d e t e r m i n a t i o n o f t h e w e i g h t s o f t h e r i s k t y p e s a t a l l l e v e l s , d e t e r m i n a t i o n o f t h e s c o r e s o f t h e r i s k t y p e s

a t t h e l o w e s t l e v e l o f t h e h i e r a r c h y a n d c o n s o l i d a t i o n o f t h e w e i g h t s a n d s c o r e s i n t o o n e s i n g l e c r i s p v a l u e , w h i c h i s

t h e r i s k i n de x . T h e d e te r mi n at i on o f t h e r i s k i n de x s h ou l d b e c a rr i ed o u t a t r e gu l ar i n te r va l s a n d a l so w h en e ve r a

m a j o r c h a n g e i s m a d e i n t h e s u p p l y c h a i n , s u c h a s t h e a d d i t i o n o f a m a j o r s u p p l i e r . B e i n g n o t i f i e d o f t h e r i s k l e v e l o f

t h e c h a i n, a n o r ga n is a ti o n c a n d e ci d e o n w h en r i sk m a na g em e nt n e ed s a t te n ti o n. T hi s w i ll a l lo w t h em t o f r ee u p

a v ai l ab l e r e so u rc e s f o r t h e r i sk m a na g em e nt t e am a n d t h us c a n l o we r t h e r e du n da n cy b e in g b u il t i n to t h e s y s t em .

F ut u re a t te m pt s , i n p r op o si n g o r i m pr o vi n g u p on t h e p r op o se d r i sk i n de x , c a n b e t o p r ov i de i n du s tr y -s p ec i fi c

r i sk i n de x es . T h e p r op o se d r i sk i n de x i s b a se d o n a g e ne r ic c l as s if i ca t io n o f r i sk s , w h i c h w i ll c h an g e w i th i n du s tr i es

a s f i n e r d e t a i l s e m e r g e b y r e m o v i n g u n n e c e s s a r y r i s k s . A c u s t o m i s e d r i s k i n d e x w i l l b e m o r e u s e f u l a s t h e t r a i t s o f t h ec o n c e r n e d i n d u s t r y a r e b u i l t i n . A n o t h e r d i r e c t i o n o f f u t u r e r e s e a r c h i n t h i s a r e a c a n b e t o d e v e l o p n e w r i s k i n d e x e s

b y i n c o r p o r a t i n g t h e n e w f r a m e w o r k s i n c o r p o r a t i n g v a r i o u s a r t i f i c i a l i n t e l l i g e n c e m o d e l l i n g t e c h n i q u e s , m u l t i - a g e n t ,

P e tr i n e t, g r ap h t h eo r y, a n d s o o n , a n d t h en c o mp a ri n g t h e p e r f or m an c e s o f t h es e r i sk i n de x es w i th t h e p r o p os e d

o n e. T hi s c a n t h e n b e f u rt h er e x te n de d b y d e ve l op i ng a h y br i d r i s k i n d e x w h ic h i n co r po r at e s t h e b e st p a rt s o f t h e

b e s t p e r f o r m i n g r i s k i n d e x e s . T h e r e s u l t i n g p r o d u c t w i l l t h e n b e t h e o p t i m u m o n e a n d w i l l b e r e a d y f o r d e p l o y m e n t

i n t h e i n d u s t r y . A f u r t h e r e x t e n s i o n o f t h i s w o r k c a n i n c l u d e c o n s i d e r i n g u s i n g f u z z y A N P f o r w e i g h t d e t e r m i n a t i o n .

T h i s i s b e c a u s e t h e r i s k t y p e s h e r e h a v e b e e n c o n s i d e r e d t o b e i n d e p e n d e n t i n o r d e r t o k e e p t h e m e t h o d o l o g y s i m p l e .

T h i s m a y n o t b e t h e c a s e i n a r e a l - l i f e s c e n a r i o a n d h e n c e f u z z y A N P , w h i c h t a k e s i n t o a c c o u n t t h e i n t e r r e l a t i o n s h i p s

b e t w e e n t h e c r i t e r i a , m a y b e a b e t t e r c h o i c e . A n o t h e r e x t e n s i o n c a n b e t o u s e g r e y m e t h o d s i n s t e a d o f f u z z y m e t h o d s ,

a s g r ey t h eo r y i s m o re r e ce n t a n d i s d e ve l op i ng r a pi d ly .

Acknowledgements

T h e w o r k d e s c r i b e d i n t h i s p a p e r w a s s u b s t a n t i a l l y s u p p o r t e d b y a g r a n t f r o m T h e H o n g K o n g P o l y t e c h n i c U n i v e r s i t y R e s e a r c hC o m mi t t e e w i t h f i n a n ci a l a n d t e c h ni c a l s u p p o r t t h r o u g h a n i n t e rn a l g r a n t ( p r o je c t n u m b e r G - Y L 2 6 ) .

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