ATTITUDE TOWARD RISKS IN SUPPLY CHAIN RISK MANAGEMENT

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1 ATTITUDE TOWARD RISKS IN SUPPLY CHAIN RISK MANAGEMENT SeyedMohammadreza Karbalaee 1, Mohammadreza Nourbakhshian 2, Alireza Hooman 3, Arman Rajabinasr 4 1 Master of business administration, Graduate School OF Management (GSM), MMU 2 Master of business administration, Graduate school of management (GSM), MMU 3 DBA Student, Faculty of Management, Multimedia University, Malaysia 4 MBA finance student, faculty of management (FOM), Multimedia University, Cyberjaya, Malaysia (MMU) Abstract Going through past studies helped this research a lot in its discussions and the perspective with which it views the matter of risk in supply chain risk management. SCRM in concerned with the risks that supply chain management faces. The development of a method to reduce the risks of supply chain risk management has been the focus of many researches. Thereupon, various techniques have been developed although following the four steps of detecting, valuating, accomplishing in finding a solution and controlling the risk is the most useful way to manage the risks. Keywords: Risk, Supply Chain Risk Management, Attitudes toward Risk 1. Overview Kiser &Canterl (2006) have categorized the risk into two groups of internal risk and risks that are external. Internal risks include risk imposed on organization while manufacturing, planning, business, and control risks, contingent and mitigated risks while the external risks include supplying, demanding, physical plant and business risks along with risks related to the environment. According to Bode, Wagner &Besidws (2008), these risks have five different origins which are not related to one another and are as follows. Some are originated from the demand side and some the supply side; some havecatastrophic, bureaucratic, regulatory or legal origins; while others are originated from the infrastructure. For analyzing the effects of various operative variables along with the decisions that have been made, Hua (2011) has designed a multi agent simulative model. Through this model the horizontal competitions among the retailers, the allocation of ordering techniques, the price of large scale manufacturing, the characteristics and demands of the market, and the amount of retailers to propagate bankruptcy can be investigated and analyzed. The supply chain s vulnerability and the fact that it is exposed to various problems can be considered as an element COPY RIGHT 2013 Institute of Interdisciplinary Business Research 331

2 of risk that hugely affects the capabilities of supply chain in serving their customers effectively (Mason, 1998). Various researches attempted to identify the origin of the risks and the doubts and uncertainties they cause. Various authors have developed different methods to assess and identify the risks (Christopher & Lee, 2004). Identifying the risk consists of quantifying the risks and we can apply the information we gathered through this to develop risk model and methods (Christopher & Lee, 2004). 2. Attitude toward risks Several studies have been conducted for developing strategies on reducing risks in SCRM. Therefore, many models are ready for use while there are only four effective and useful steps for risk management which are including: detection, evaluation, solution accomplishment and controlling the risk. According to Harland (2003), the attitude of an individual toward the risk depends on involved firm s behavior that shows the acceptable level of risk, profit margin and the ability of organization in taking and dealing with the risks. While organizations and individuals can be divided in two groups including risk takers or non-risk takers, the nature of the business is an element that has an impact on the attitude toward the risk taking as well as the personal type and his behavior changes, which is highly influenced by the experience. Loss is the other element that influences both organization and individual s attitude toward the risk taking. The model of risk management developed by Harland (2003) can be interpreted in the following phases: (1) supply chain trace such as key functions, fundamental factors and possession (2) discerning and establishing the risk and its probabilities (3) assessing risk including its probability, its potential targets (4) managing the risk; (5) develop supply collaborative network strategies (6) using the supply collaborative network strategies (Hallikas, 2003). The most important strategies that can be used in order to decrease the risk are including Elusion, control, collaboration, imitation and adaptability (Juttner, 2003, Miller, 1992). One of the preventive ways is to remove some risky products or markets that are caused by some organizations and suppliers. Some of the useful methods for increasing strategies are including accumulation, vertical integration, mediator inventory usage, battery, product extra capacity injection, transportation, managing and developing conventional commitments toward the suppliers. Incorporation of different attempts can improve the success and effectiveness of supply COPY RIGHT 2013 Institute of Interdisciplinary Business Research 332

3 chain. On the other hand, it would be useful for decentralization of risk concerning the supply chain. According to Juttner (2003), risk reduction adaptability of supply chain strategies refers to the source centralization and postponing. He hasalso introduced and established the collaboration strategy from the supply chains aspect. The investigation has been conducted on different supply chains establishment and their capability in improving their supply chain s capacity for short term and long term. This can be possible through sharing information, limiting offering for some detected risk source and finally developing business joint plans. Organizationswhich had numerable significant suppliers made use of collaboration strategies. Hallikas (2003) introduced four major steps in his study for typical collaboration risk management which are including: (i) notice the existent risk, its potential threats and its effect on supply chain and other parties. (ii) Evaluating risk s influence intensity, its financial influence, and itseffects on the production, its probability,cost of losses and performance of the organizations, (iii) Controlling the potential risks that can be inhabited, control risks throughusing designedshort,medium and long term programs. Developing training programs for staffs, decentralize the risk probability and financial response between partners and indicators of controlling system, (IV) deciding about risk management, particularly risk-related strategies, and using risk reducing, eliminating and effective individual risk-related analysis. Table 1, shows main positionsused by organizations toward the risk. These positions have been obtained from interviews with the managers and also based on previous studies (Harland, 2007; Halikas, 2004). According to Halikas (2004) the main strategies of supply chains in risk management study areincluding: risk reduction, risk acceptability, risk transfer, personal risk analysis and decline. COPY RIGHT 2013 Institute of Interdisciplinary Business Research 333

4 Table 1. Elements of attitudes toward risk Attitude towards risks in supply chain Transfer the risk to another actor in the supply logistics (supplier, subcontractor, Service, distributer, customer, etc.) so they bear the risk Share or divide the risk with another actor in the supply chain (supplier, subcontractor, service, distributor, customer, etc.). Singlehandedly try to reduce or eliminate this risk using internal solutions. Reduce or eliminate this risk with other partners in the supply chain (supplier, service, customer ) Finance the risk by budgeting and prepare for its consequences if it were to happen. For example you apply for insurance or you decide to record financial reserves. Do nothing at all and ignore the risk Source: O.Lavastre et al. (2012) 3. Conclusion The behavior of each individual towards risk and the way they approach it relies on the behavior and attitude of the involved company which is a representative of the level of risk that is acceptable for them, the amount of their profit, and their power in handling the risk. Although companies and individuals can be categorized in to two different categories of the ones that take risk and ones who do not, the business s nature affects their behavior in approaching risk and alters their attitude towards it. This change of attitude is hugely influenced by experience. Loss can be considered as another element influencing the behavior of individuals and companies toward taking risks. COPY RIGHT 2013 Institute of Interdisciplinary Business Research 334

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