Predicting Supply Chain Risks

Process variabilily can add to supply chain risk in a number of ways. Variation implies unstable processes with outcomes that are not always predictable. The use of six sigma methodology can be a powerful way to reduce variability in supply chain processes (see box). 

Chapter 4 Predicting and Managing Supply Chain Risks 55... 

Fig. 4.1 The predictive-proactive supply chain risk management methodology Samir Dani, 2007...

The large number of industrial chemicals and their applications, the global nature of supply chains as well as the fundamentally limited knowledge about the direct and indirect effects of industrial chemicals on ecosystems and the human organism, all call for pragmatic restrictions for risk assessment and risk management. The risks of chemical products in each of their applications can neither be predicted exactly nor can they be reduced to zero in real-life situations. 

Both situations caused massive losses for the companies. These were not only financial losses, but also immeasurable losses such as loss of reputation and customer trust. The decision to move the branch proved to be wrong, as it was ill considered from the point of view of the size and diversity of associated threats. On the other hand, the oil spill in the Gulf of Mexico was the direct consequence of the operational risk. The explosion of the drilling rig was a random event and difficult to predict, with a scenario that turned out to be dramatic. The preparation of corrective measures in the event of adverse effects is a very important element in assuring process continuity in the relationships between the supplier and purchaser. It provides for resistance (resilience, robustness), i.e. a company s capacity to respond to unexpected disruptions and therefore to assure the proper level of operational process in the supply chain (Rice 2003, p. 4). 

Furthermore, this information was used to support the supply chain s ALARP review, allowing consideration for how much it will cost for each top event to reduce the risk for an individual hazard from (say) lE-9/hr to lE-lO/hr and if the predicted costs are disproportionate, to justify a general statement that a detailed cost benefit analysis is not necessary for each top event. 

Each level reflects quite different perspectives but together these levels cover elements of a supply chain and the environment within which they are embedded (Peck 2005). This has also been suggested by Faisal et al. (2006) that risk sources are the environmental, organizational or supply chain related variables that cannot be predicted with certainty and that affect the supply chain-outcome variables. 

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