Risk Management Strategies in Supply Chain Management Anssi

Risk Management Strategies in Supply Chain Management Anssi Käki Supervisor: Prof. Ahti Salo Systems Analysis Laboratory Aalto University School of Science and Technology forename. surname@tkk. fi 1

Supply Chain Management Definition: The management of upstream and downstream relationships with suppliers and customers to deliver superior customer value at less cost to the supply chain as a whole. * Material flow Information flow * Christopher, Martin (2005). Logistics and Supply Chain Management. Richard D. Irwin, Inc. , Financial Times, New York, NY. 2

Supply Chain Risks Risk types are operational and disruptive. They are mitigated by: § Supply management (e. g. , supplier diversification) § Demand management (dynamic pricing) § Product management (make-to-order system) § Information management (information sharing) Example of a novel approach is the award winning* procurement risk management approach at Hewlett-Packard (Nagali et al. 2008)**: § Scenario-based approach for demand, cost and unavailability uncertainty modeling § Risk-sharing portfolio of structured contracts § Optimization engine for dynamic contract evaluation Avenues for future research include: i) non-stationary uncertainty modeling, ii) risk objectives (e. g. recovery time optimization), iii) understandable applications with empirical research and iv) modeling of extreme events *1 st place: Franz Edelman Award for Achievement in Operations Research and the Management Sciences, 2009 **Nagali, V. et al. (2008). Procurement Risk Management (PRM) at Hewlett-Packard Company. Interfaces, 38(1): 51 -60. 3

Procurement Risks of a Global Consumer Electronics Manufacturer Challenge: How can procurement risks be managed with supply contracting strategy that addresses supply chain uncertainties, such as component demand availability risks? How to identify and model critical dependencies between uncertainties and how do they contribute to e. g. procurement cost distribution? Approach: A stochastic optimization model can be built to evaluate procurement strategies under interdependent uncertainties. Benefits / Scientific contribution: Insight into contracting; what is the value of flexibility established with contracts and what are the critical interdependencies in the system. Models that include demand supply uncertainty interdependencies are lean in the literature and amount of reported case studies small. 4