Supply Chain Forum: An International Journal

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Rethinking supply chain risk analysis –

common flaws & main elements

Iris Heckmann & Stefan Nickel

To cite this article: Iris Heckmann & Stefan Nickel (2017) Rethinking supply chain risk analysis –
common flaws & main elements, Supply Chain Forum: An International Journal, 18:2, 84-95

To link to this article: http://dx.doi.org/10.1080/16258312.2017.1348871

Published online: 05 Jul 2017.

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 SUPPLY CHAIN FORUM: AN INTERNATIONAL JOURNAL, 2017
VOL. 18, NO. 2, 84–95
https://doi.org/10.1080/16258312.2017.1348871

ARTICLE

Rethinking supply chain risk analysis – common flaws & main elements
Iris Heckmanna and Stefan Nickelb
a
Division for Information Process Engineering, FZI Research Center for Information Technology, Karlsruhe, Germany; bInstitute
of Operations Research, Karlsruhe Institute of Technology (KIT), Karlsruhe, Germany

ABSTRACT KEYWORDS
Supply chain networks are globalized and complex systems. Due to unexpected deviations Supply chain risk; analytics;
and disruptions, which are subsumed under the notion of supply chain risk, the planning risk assessment; risk
and optimizing of such systems is harder than ever. Therefore, making well-informed definition; disruption
decisions requires risk analysis. The increased frequency and severe consequences of past
supply chain disruptions have resulted in an increasing interest in risk. This development led
to the adoption of risk concepts from related fields that do often not fit for risk
consideration in the supply chain context. This paper consists of a discussion on common
biases of supply chain risk analysis. We do not limit ourselves to the discussion of
misinterpretations and missing aspects, but rather provide main elements that reveal
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dynamics and result in supply chain risks.

Introduction system. Due to this failure a series of reactions lead

The successful management of supply chain risk is
vital for the establishment and execution of supply
chains that sustain unexpected developments
(Jaegler and Sarkis 2015). The preparation of
supply chains against those developments is
supported by a con- cept that proactively examines
aspects that drive the extend of risk, namely, risk
analysis.
The definition and the meaning of ‘risk analysis’
is comparable long as the history of the notion ‘risk’.
There is a vast amount of literature tackling
concepts, methods, and technologies tailored for
risk analysis. Some of them we briefly discuss in
Section 2, in brief, the purpose of risk analysis is to
determine unex- pected incidents and their impacts
for the underlying system (International Organisation
for Standardization 2009; Society of Risk Analysis
2015). Risk analysis offers qualitative and
quantitative decision support to forestall the most
severe or serious consequences. In the following,
however, we provide a real world example that
reveals how contemporary risk analysis can fail to
protect the system against (most certainly)
unintended results.
On March 11th, 2011, a marine earthquake
offshore the Japanese islands reached magnitude 9
on the Richter scale. The waves of the unleashed
tsunami reached height up to 14 meter. More than
25.000 people were killed due to this natural
catastrophe and its immediate consequences.
Additionally, several nuclear power plants were
affected by the quake and/ or by the tidal wave.
The emergency power genera- tors of the
Fukushima-Daiichi plant were destroyed such that
they provoked the failure of the cooling
to a partial core meltdown in three reactors and the
escape of radioactive material to the environment.
As earthquakes and tsunamis are quite common in
Japan, reactor plants have to be prepared for
serious realizations of such events. The
Fukushima-Daiichi plant was designed for
magnitude of 8.6 on the Richter scale and tsunami
waves of height 5.7 meter. Waves higher than the
expected maximum have a strong potential to
destroy the plant’s cooling system, which is vital for
nuclear safety. With the benefit of hindsight, it
seems irresponsible that the plant was not
designed for much higher waves. While authori- ties
and officials declare this type of faulty preparation
as a part of the unmanageable residual risk related
to power plant, scientist are rather questioning the
use- fulness of contemporary risk analysis (Hagmann
2012). In the context of supply chains, incidents like
outages, labour strikes, supplier glitches, epidemic
or terrorist attacks were always considered as
geographi- cally isolated events, which executives
heard of in news, but did not need to manage in
their companies. However, due to increased
complexity of worldwide spread supply chains, a
medical crisis in Asia became a problem for the
producer of high-tech goods in the Middle East. A
labour strike in harbour facilities of the US affected
exports coming from South Korea. While the name
‘Fukushima’ epitomizes the limitations of risk
analysis in regards of public security and safety
(Hagmann 2012), events like the West coast port
lock- out or the European ash-cloud put the validity
of con- temporary supply chain risk analysis into
question. In
particular, we pose the following research questions:

CONTACT Iris HeckmannDivision for Information Process Engineering, FZI Research Center for Information Technology
© 2017 Kedge Business School
 SUPPLY CHAIN FORUM: AN INTERNATIONAL JOURNAL 8

● Question: Is event-based risk analysis good
(enough) for supply chain risk identification and
assessment?
● Question: To what extent does a simplified risk
concept support risk mitigation?
● Question: What are the prerequisites for the
quantification of risk-aware decision models?
and Nickel 2015). We discuss why dynamics that
ori- ginate from these characteristics need to be
addressed by supply chain risk analysis. The
conclu- sion and an outlook embracing answers to
the guid- ing research questions along with ideas
for future research are provided in Section 4.

The objective of this paper is to discuss the The risk of supply chain risk analysis
aforemen- tioned questions while focussing on
Definitions of concepts related to supply chain risk
supply chain risk and to approach answers to the
depend on the methodological background and
questions by identifying existing flaws related to the
inter- est of research scientists as well as on cultural,
perception of supply chain risk analysis. We
industrial or geographical differences, as pointed out
emphasize the importance of under- standing the
by (Heckmann, Comes, and Nickel 2015). As the
dependencies between unexpected sup- ply chain
concept of supply chain risk is heterogeneously
developments and the extent of supply chain risk
defined, so are derivative functions such as supply
prior to the development of new risk-aware optimi-
chain risk assess- ment, supply chain risk analysis
zation models. For a critical review of existing
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or supply chain risk management. Often these terms

optimiza- tion models tailored for the consideration
are used interchange- ably (Mullai 2009), compare
of supply chain risk, we refer to the review of
for example (European Commission 2000;
(Heckmann, Comes, and Nickel 2015). We do not
International Organisation for Standardization 2009;
limit ourselves to the discussion of
Society of Risk Analysis 2015; Wenger, Mauer, and
misinterpretations and missing aspects, but rather
Cavelty 2008).
provide insights of the underlying dynamics that
A generic managerial approach especially
result in the supply chain risks.
tailored for supply chain risk can be traced from
Based on our new formulated definition of supply
diverse authors (e.g. Ghadge et al. 2013; Zsidisin
chain risk (Heckmann, Comes, and Nickel 2015)
and Ritchie 2008). The process is arranged as a
we present the influence of core characteristics and
process cycle, which encom- passes the following
their interactions on the extent of supply chain risk.
core management steps intended to be applied for
For a more profound and detailed explanation of
each potential disruptive trigger that evolves out of
these dynamics that drive the quality of risk-aware
unexpected incidents: Culture, Identification,
solution models we refer to (Heckmann 2016).
Assessment, Mitigation (often referred to as
Models that follow the re-definition of supply chain
Management, too), Monitoring & Control, and
risk can be traced along different planning levels: a
Learn. Although this cycle provides a work flow of
strategic risk- aware model for location decision is
risk conduction, it lacks a quantitative treatment of
formulated in (Heckmann, Nickel, and Saldanha-da-
risk that can be adjusted to any supply chain. The
Gama 2016), a simulation framework developed for
relation between supply chain risk management
tactical supply chain planning is provided by
and supply chain risk analysis is depicted in Figure
(Heckmann and Nickel 2015).
1. Each of the following paragraphs outlines how
The remainder of this paper is organized as
the oversim- plification of supply chain risk leads to
follows: the next section briefly traces the relation
various flaws when following the steps of supply
between supply chain risk management and
chain risk analysis. These flaws are also
-analysis. By doing so, it will be easier to
highlighted in Figure 1.
understand the placement as well as the discussion
The effective and efficient practice of this
of the different flaws that are presented
process in today’s globalized world depends on the
subsequently. In Section 3, we present important
colla- boration between geographically dispersed
characteristics that drive today’s under- standing of
organi- zations (Kovács and Paganelli 2003):
risk as derived by (Heckmann, Comes,
(local)
8 I. HECKMANN AND S.
NICKEL
Figure 1. Formation of supply chain risk analysis.
 information must be collected, evaluated and
shared across organizational boundaries (Gan et
al. 2000). Yet information processing needs to be
aware of uncertainty. The status and the
development of situations can be uncertain or fast-
changing. The degree of relevance and reliability of
information describing both status and
development can be dynamic or uncertain, too.
These characteristics pose particular problems
to supply chain managers as they make it
impossible to process all available information prior
to choice (Maule and Hodgkinson 2002). To deal
with such situations people use heuristic forms of
thinking that are relatively simple; they involve
processing less of the available information and
doing so in a simpler way. These heuristics operate
at individual and group level. For instance,
individuals rely on confirmation thinking: having
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lead to catastrophic outcomes for individuals and
organizations (Gilovich, Griffin, and Kahneman 2002).
In the following we present biases of analysis of
supply chain risk which originated from heuristic
thinking. We emphasize that biases of risk identifica-
tion mainly arise from the definitional fiat of supply
chain risk and from the simplified interpretation of
probability. Biases of risk countermeasures originate
from an oversimplification of risk treatment.
Biases of risk identification and assessment
The definitional fiat
The prevalent perception of risk, including supply
chain risk, is event-related. Supply chain risk
evalua- tion and assessment, therefore, focus on
an event-by- event analysis and assume that the

consequences of an initial triggering event can be

derived an initial inter- pretation of the information
uniquely determined (Figure 2(a)). The supply chain
available, all further information searches and
performance describes the extent to which the
evaluations are biased. Falsifying information is
underlying supply chain ful- fills its core functions
often ignored or reinter- preted in ways that support
efficiently and effectively. The level of deterioration
the initial understand- ing. This leads to incorrect
of relevant key performance indicators, like
interpretations being followed with very high
supplier’s reliability, service-level, logis- tics costs,
degrees of confidence (Klayman and Ha 1987).
capacity utilization, production output, or inventory
Similarly, individuals have difficulties assessing
throughput time, are used to quantify the impact on
probabilities of outcomes, so often base their
the supply chain performance (Figure 2(b)). A
judgments on subjective credibility or plausibility
single event, however, may lead to several distinct
(Kahneman and Frederick 2002). In other words, a
extents of impact on supply chain performance
plausible story is usually thought to be highly
(SCP). An earthquake, for example, can affect
probable. There is also a range of simplify- ing
production lines at core suppliers, which result in a
procedures at the group level (French, Maule, and
decrease of production output at own facilities, or
Papamichail 2009). For example, groups have a
destroy impor- tant transportation links to customer
strong tendency to discuss information that they
markets, which lead to a decrease of service-level.
hold in common without sharing information that
The reverse exists too: several events may result in
each individual holds uniquely (‘common
the same single consequence for a supply chain
knowledge effect’) (Hinsz, Tindale, and Vollrath
(Figure 2(c)).
1997). This ten- dency reduces the potential benefit
of group deci- sion making, which assumes that
Example. The eruption of the Icelandic volcano
involving more individuals means that the decision
Eyjafjallajökull led to delays of relevant production
is informed by more of the relevant information.
com- ponents and a halt of production (as of April,
Heuristics are func- tional, in the sense that they
2010, BBC News listed on their website
make complex pro- blems tractable. However,
http://news.bbc.co.uk/1/hi/
decisions based on heuristics are prone to error
world/europe/8633451.stm). In the very same year,
and bias, which can
sev- eral other, less-spectacular events occurred that
had the potential to similarly affect supply chains: at
the
Figure 2. Relation between events and their related consequences with regard to supply chain performance (SCP).
 beginning of November 2010 several package (Kahneman and Tversky 1979; Tversky and
bombs were detected in air cargo aircrafts; as a Kahneman 1974). As the
result cargo flights from Yemen were not allowed to
enter the air space of several countries including
Germany, France, the UK and the US (as of
November, 2010, Al Jazeera and Deutsche Welle
listed on their websites www.aljazeera.
com/news/middleeast/2010/11/201011241536827238.
html and http://www.dw.de/authorities-review-airport-
security-after-failed-bomb-plot/a-6178554 respectively).
Only one month later, in December 2010, Spanish
air- traffic controllers walked out on a wildcat labor
strike. Spanish airspace was closed for several hours
and air- lines had to cancel flights (as of December,
2010, The Guardian and BBC News listed on their
websites https://
www.theguardian.com/world/2010/dec/04/spanish-air
port-strike-state-emergency and http://www.bbc.co.uk/
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news/world-europe-11918008 respectively). If the

Spanish government had not authorized the military
to take over flight control, the no-fly zone would
have had a great impact on European supply
chains.
The reason for this ambiguity arises due to the
fact that the triggering event is only the root cause
of performance deterioration. It is due to supply
chain inherent dynamics that a triggering event
yields to negative developments. These dynamics
need to be carefully examined and understood.

The probability trap

Particularly when assessing supply chain risk, prob-
ability – as measure of uncertainty – is often
inappro- priately simplified or inadvertently
misapplied. We denote this biased practice as
probability trap. In the context of probability it is the
dynamic nature of probability that is most often
neglected: uncertainty evolves, thus, changes over
time, which implies that since risk is assessed with
probability, its extent changes over time, too.
Additionally, when informa- tion about uncertainty
are missing, probability is hard to capture and risk
most often ignored. Less-frequent or less-probable
events can have a tremendous impact on the
supply chain, such that the continued non-
consideration of these ‘unknown-unknown’ events
(Simchi-Levi, Kaminsky, and Simchi-Levi 2008) can
lead to the same devastating consequences as
intentionally or unintentionally ignoring of risks.
The following paragraphs briefly present the
most important biases related to the application of
the probabilistic risk definition in the context of
supply chain risk management. The explanation of
the fol- lowing biases highlights their similarity to
existing so called cognitive biases. Cognitive biases
describe a certain recurrent and repetitive way of
heuristic think- ing that results in systematic error of
judgement. Based on the work of Daniel Kahneman
and Amos Tversky within the field of cognitive
psychology, cog- nitive biases are studied for years
definition of most cognitive biases is still controver- activity only becomes a problem for air traffic in
sially discussed, we limit ourselves in referring Europe
heur- istic thinking within supply chain risk
management to existing cognitive biases, rather
than acknowledging their equality.

Ranking bias. Global supply chains are exposed

to many potential threats. It follows that the
considera- tion and management of all risks is
hardly possible. Supply chain managers,
therefore, apply heuristics thinking and try to focus
on managing the most important risks. To
determine, what actually is most important, often
the product of probability of an event occurring and
the severity of its consequences is applied to
assess the extent of risk. As the degree of
uncertainty associated with a situation and its
evolu- tion may evolve over time (because new
information becomes available), the probabilities
associated with any risk may change, too. Often
probability is consid- ered as constant over time.
This can lead to misjudge- ments of risk relevance
or even to its ignorance: if the probability of a
highly ranked risk decreases over time, the risk
becomes less prominent and should have been
rejected from the priority list. If the prob- ability of a
low-ranked risk increases, the risk becomes more
relevant and it would have been better to have
considered this risk in the priority list. Instead,
initial risk assessment is considered to be valid for
the entire time horizon of decision level.

Black swans. Whereas events with very low

probabil- ities are still measurable, a phenomena
exists called ‘Black Swans’ (Taleb 2007). Black
Swans are not even represented within a
distribution. Instead they are indirectly assigned a
probability of zero. The reason for this is not
necessarily that an event is in itself unlikely; rather
its relevance is neglected either expli- citly or
implicitly, such as in case of emerging or
unprecedented events that have not been
identified yet. The Black Swan Theory formulated
by (Taleb 2007) defines an event to be a Black
Swan, when it is unexpected, has major impact
and is rationalized in hindsight. The latter means
that the information and data available before the
event are re-interpreted in the light of the new
insights. A Black Swan, therefore, is an event that
could have been anticipated.

Example. The volcanic ash cloud affected Europe

in April 2010 and is estimated to have caused
losses of US$4.7 billion in global GDP (Oxford
Economics 2010). Although this event has been
frequently called unpre- cedented and unexpected
(Lynch 2012; Rogers, Pawar, and Braziotis 2012),
it was neither. Volcanic activities in Iceland
comparable to the 2010 eruption, occur on
average every 20 to 40 years (Sammonds,
McGuire, and Edwards 2010). This volcanic
 when it coincides with rare north to north-westerly Fiksel, and Croxton 2010; Svensson 2000) and to
air movements (Leadbetter and Hort 2011). While reduce supply
the ash cloud can be considered unusual, it was far
from unprecedented and not unexpected: the
volcano had been in eruption for 4 weeks before
the ash cloud reached the airspace of the United
Kingdom on April 15th, which was more than ample
time to have put into effect contingency plans, had
these existed.
In summary, Black Swans highlight the
challenges posed by those risks for which
organizations – parti- cularly those collaborating in
supply chains – and public authorities are not
prepared.

Risk-elimination bias. If, for two risks the conse-

quences are of equal severity the risk with higher
prob- ability is judged more important. Intuitively,
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however, a rare event, for which the supply chain is

not prepared, is riskier than a frequent event the
supply chain is already used to. Less-frequent
events can have a tremendous impact on the
supply chain, such that the continued non-
consideration of these ‘unknown-unknown’ events
(Simchi-Levi, Kaminsky, and Simchi-Levi 2008) can
lead to the same devastating consequences as
intentionally or unintentionally ignoring of risks.
As risk grows with increasing impact and
probabil- ity, supply chain risk management
strategies aim at reducing these issues. When
supply chain managers concentrate solely on the
design of mitigation options for prioritized risks,
they disregard the influence of those alternatives on
lower-ranked risks. At best, miti- gation options that
reduce high-priority risks have the same impact on
all other risks. In the worst case, however,
mitigating one specific risk increases the impact or
the probability of further risks. As these risks are
usually not monitored, a change in risk rele- vance
may go unnoticed.

Example. When the shortfall of a supplier

delivering a single component is assessed to be
very perilous, a prevalent mitigation strategy is to
implement an alter- native or backup supplier for
this component (Tang and Tomlin 2008a, 2008b;
Tang 2006b). But an addi- tional supplier implies
higher complexity and often additional costs caused
by contractually specified pur- chase quantities or
higher costs for transportation, monitoring and
control. While effectiveness will improve, efficiency
can aggravate.
Without a sound and careful analysis of interde-
pendencies among all identified risks and identified
mitigation options it is hard to assess, whether an
additional supplier increases the overall resilience
of the supply chain risk portfolio. Its complexity,
how- ever, has certainly increased. Note that we
refer to resilience as an ability of the supply chain
to over- come supply chain vulnerability (Pettit,
chain risk (Jüttner and Maklan 2011). This chain risks is depicted in Figure 4. The figure
discussion shows that the degree of knowledge highlights the allocation possibilities of identified
and available information is vital for a good risks – in terms of
preparation towards unexpected or uncertain
developments. In this sense the work of (Klibi and
Martel 2012) provides a classi- fication scheme for
different event types that a supply chain network is
exposed to, namely: random, hazar- dous, and
deeply uncertain events.
Conclusion for research question 1: Supply
chains are complex and interrelated systems,
whose dynamics are difficult to describe. Contrary,
defini- tions on supply chain risk do not capture
this com- plexity, but oversimplify underlying
dynamics and exaggerate the influence of
triggering events. Due to the limits of explanatory
power provided by the supply chain risk definition
and the methodology deduced from this definition,
numerous biases arise. The assessment of risk as
a product of event-related probability and impact
may lead not only to faulty assessment, but also to
deficient identifications. The analysis of events is
necessary, but not enough for the protection of
supply chains.

Biases of risk mitigation

Assignment bias
The contemporary supply chain risk analysis
strictly follows the stepwise process of supply
chain risk man- agement. Therein, each disruptive
trigger is declared to be identified, assessed, and
mitigated separately.
Not only are disruptive triggers handled
individually, but also related countermeasures. The
decision maker, therefore, pre-determines which
type of risk mitigation he is willing to accept – in
terms of effect and cost related to each
countermeasures. Whenever, the deci- sion maker
is not willing to accept an identified risk, he might
also use the strategy of risk avoidance as pointed
out by (Manuj and Mentzer 2008). This strategy
implies that the decision maker is aware of the
risk, but choose to avoid the risk for example by
exiting the market. Generally, countermeasures are
categorized upon the type of supply chain process
they address or upon the scope they affect.
Countermeasures are not limited to supply chain
processes, but can also determine engi- neering
options for product design and production
technology, which in turn affect supply chain
processes. Tang gives a detailed overview of
prominent quantita- tive approaches for mitigating
the impact of supply chain risks and categorize them
in accordance to supply, product, demand, and
information management (Tang and Musa 2011;
Tang 2006a, 2006b). Figure 3 highlights the
aforementioned risk management perspectives and
related decision problems that strive for the
determina- tion of risk-aware solutions.
The individual treatment of identified supply
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Figure 3. Perspectives of supply chain risk management, based on (Tang 2006a).

Figure 4. Possible functional relations between the set of identified supply chain risks and potential mitigation
options.

identified disruptive triggers – to available reduction
strategies as described above.
Figure 4(a) shows the situation where identified
risks can be reduced by one or several distinct
mitiga- tion options. Consider for example the West
Coast Port Lockout, which discloses a labour strike
of har- bour employees. The incident was
predictable for New United Motor Manufacturing
Incorporated (NUMMI) and they immediately
increased their inven- tory. After inventories ran
empty, NUMMI switched to airfreight from Japan to
the United States. They used two different
mitigation options to answer the identi- fied supply
chain risk. For further examples on how affected
companies responded to different types of
disruptive triggers, we refer to the Appendix of this
paper. A profound discussion of different mitigation
options, their characteristics as well as their effect
on
risk, is offered by Tang and Tomlin (2008a) as well
as Tang (2006a; 2006b). It might also be the case
that available risk countermeasures are not
appropriate for all identified risks. Only a subset of
risks can be trea- ted. This situation is depicted by
Figure 4(b). Figure 4
(c) then highlights the situation where no counter-
measures are available for reducing identified risks.
Limited uncertainty
Uncertainty is a concept closely related to risk. While
in decision theory the terms uncertainty and risk
describe different situations of information availability
(Rosenhead, Elton, and Gupta 1972), the prevailing
understanding in supply chain management regards
uncertainty as a pre- requisite of supply chain risk:
the fact of not knowing how the future evolves, is the
reason for the genesis of supply chain risk. Thus,
supply chain risk is omnipresent in today’s
 uncertain supply chain environments. For a further
dis- cussion on the connection between risk and
uncertainty we refer to (Heckmann, Comes, and
Nickel 2015). In the context of supply chain
management uncertainty refers to the degree of not-
knowing. Information about future developments
within the supply chain, the occurrence of triggering-
events, and the impact of any changes on supply
chain performance is often limited or uncertain. In
order to limit the size of the decision problem
decision makers limit the consideration of uncertainty
to a (very) small amount of parameter types, for
example customer demand or transportation lead
times. The consideration of interactions between
distinct uncertain and certain parameters across
different parameter types is not applied. Consider the
situation, where the demand of one specific type of
customers is highly erratic, while the demand of
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another type of customers is endowed with less
uncertainty. Or consider the case, where the lead
times of container ships leaving the Asian region are
more volatile than those of container ships leaving
North America. Both cases demonstrate that
approaches need to be carefully adjusted to the
underlying situations. Prior to model formulation it is
indispensable to analyse not only which type of
parameters is endowed with uncertainty, but rather
which group of parameters is erratic. Similarly, the
formulation of decision variables restricts the set of
potential countermeasure types in advance.
Time horizon & planning level
It is still an open question, for which time horizon
supply chain risks should be considered and which
planning level best fits for the consideration of
supply chain risk. Generally, supply chain risk
considerations are classified according to the
decision levels: short- term, mid-term, and long-
term.
Often decision makers argue that risks yielding to
huge performance deteriorations should be handled
on a strategic, medium risks on a tactical and small
risks on an operational planning level. However, to
overcome huge incidents like the European ash
cloud in 2011 pro- minent strategic instruments like
increased inventory levels – which are installed over
the entire planning horizon – also lead to increased
tied-up capital and con- sequently to an increase of
overall logistic costs. It is naive to believe that so-
called strategic instruments are profi- cient for the
incidents with large impacts, especially
because decision makers do not know how
disruptions evolve over time and which other risks
may arise.
Decision models for supply chain problems
consider uncertainty at distinct planning levels.
Traditionally, first strategic supply chain decisions are
made. The solution of strategic decisions is used as
an input for consecutive,
e.g. tactical and operational, decisions. Recently,
Dunke et al. offer a new planning framework to deal
with time- dependent risk consideration (Dunke et al.
2016). They discuss which planning method best fits
for which time frame with regard to the underlying
uncertainty and prevailing risk. Figure 5 shows how
planning for future activities should be aligned to time,
uncertainty and risk. Conclusion to research question
2: Prevailing con- cepts of supply chain risk do not
support consistent assessment nor complete
identification; therefore, mitigation approaches
focus on single identified risk types and miss to
address properly additional aspects like uncertainty,
time and different planning levels for various risk
types. Risk analysis should seek for an interrelated
process between all planning stages with the
objective to identify risk-aware balanced
supply chain solutions.
Main elements of supply chain risk analysis
The exclusive probabilistic and event-related under-
standing of supply chain risk leads to an incomplete
and insufficient perception and impedes the appro-
priate management of supply chain risks. In this
sec- tion we present main elements that are
needed to understand the dynamics of supply chain
risk and to design appropriate risk-aware decision
models.
Given the re-definition from a previous
publication (Heckmann, Comes, and Nickel 2015),
the level of supply chain risk is affected by three
core character- istics: the risk objectives, the risk
attitude of the deci- sion maker, and the risk
exposition of the underlying supply chain. The latter
is further specified by disrup- tive triggers occurring
within or exterior to the supply chain, time-based
aspects having tremendous impact on the severity
and characteristics of the affected supply chain,
see Figure 6. Having defined supply chain risk as a
construct of interdependent elements, a profound
understanding of each basic element is required as
well as the analysis of their interrelations. The main
tasks of supply chain risk analysis, therefore,
Figure 5. Division of the time line under consideration of risk and uncertainty measures (Dunke et al. 2016).
 Figure 6. Core characteristics of supply chain risk (CCSCR) (Heckmann, Comes, and Nickel 2015).
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need to be applied to these elements. In the performance deterioration.

following we concentrate on the disruptive triggers,
risk objec- tive, and the affected supply chain by
discussing their analysis in terms of potential
triggers, performance measurements, and the
supply chain constitution. For explanations on time-
based characteristics, we refer to (Dunke et al.
2016).

Analysis of potential triggers

Events most often related to supply chain risk are
referred to as triggering events. Such events have
impact on the environment of the affected supply
chain and conse- quently on the network itself.
Instead of using triggering events as a concept, we
distinguish between a potential trigger and a
disruptive trigger. While the former refers to each
incident that has the potential to negatively affect
supply chain objectives, the latter effectively results
in a performance deterioration. Consider the Icelandic
vol- cano eruption of 2011: In this example the
eruption imposes the disruptive trigger, its ash cloud
affected supply chains environment, which had a
huge impact on air transportation. Individual activities
involved in pro- curing, producing, storing, and
distributing goods as well as services for the sake of
goal achievement of the under- lying supply chain are
referred to as supply chain pro- cesses (Dunke et al.
2016; Heckmann and Nickel 2015). Each supply
chain process can further be described through
additional characteristics, such as costs or capa-
cities, which we call supply chain factors (SCF). The
ash cloud incident could have had an influence on
the lead time or the capacity of that process.
Precisely, we could capture the consequences
through a lead time increase or a capacity decrease.
Assuming that: what decision makers would like to
find out is and what they need to figure out is, which
factors are critical for the performance of the supply
chain and which factor modifications lead to
 Thus, instead of identifying triggering events,
the determination of modifications of supply chain
factors is of vital interest. To sum up: The extent of
supply chain risk (SCR) depends on potential
triggers (PoT), which can be specified by supply
chain factors:
SCR :¼ f ðPoTÞ ¼ f ðSCF1; SCF2;.. .; SCFnÞ:

Analysis of performance measurement

Supply chain objectives can be classified into two
major groups: effectiveness and efficiency
(Borgström 2005). Effectiveness refers to the
availability of resources and the functionality of
supply chain processes. Effective processes are
able to fulfil their functions of sourcing, producing
and delivering products a.o., which results in the
satisfaction of customer demands on time.
Whenever supply chain processes are interfered in
ful- filling their functions, it could be possible that
supply chain effectiveness cannot be ensured. The
short circuit at Philipps production plant,, for
example, led to a decrease of effectiveness in
terms of missing supply parts that resulted in
production halt for Nokia and Ericsson. Efficiency
refers to the profitable execution of supply chain
processes. The efficient achievement of customer
satisfaction and value creation is threatened by
disruptions and failure or increasing volatility of
important supply chain factors directly or indirectly
related to logistics costs. The evaluation of supply
chains efficiency and effectiveness is conducted
through the assessment of selected supply chain
KPIs. Having iden- tified which performance
measures best reflect and assess supply chain
strategy and related objectives of efficiency and
effectiveness, it becomes necessary to determine
the targeted level of these performance mea- sures
as well as the acceptable degree of level deteriora-
tion. Most often decision makers are well aware of
the extent of performance deterioration – in terms
of effi- ciency or effectiveness – they still can
accept.

Figure 7. Exemplary uncertainty profiles of supply chain
fac- tor values (SCF) (Dunke et al. 2016).
Figure 7 highlights exemplary developments of the
following parameters: a factor modification over time
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(SCF), the planned supply chain performance (SCPP),
the actual supply chain performance (SCPA), the
resulting performance deterioration, (SCPD), and the
acceptable level of deterioration, (aSCPD). As can be
seen out of the Figure, the increase of factor level
leads to a timely shifted decrease of supply chain
performance. The supply chain can handle the first
minor to moderate changes (peaks in the curves). The
actual supply chain performance (SCPA) diverges from
the planned performance (SCPP), but the
deterioration (SCPD) does not reach the limit of the
acceptable level (aSCPD). After the third increase,
how- ever, the supply chain cannot adhere to the
acceptable level of performance deterioration.
Consider, for example, the case of delayed incoming
material due to unspecified problems at the
delivering supplier. The supply chain is able to
compensate the delay on three consecutive days,
e.g. with safety stock, but when the lead time of the
goods increases again, safety stock is empty and the
production has to halt.
Thus, supply chain risk analysis should assist to
uncover the influence of factor modifications on
selected supply chain objectives.
The extent of supply chain risk thus additionally
depends on the selected portfolio of supply perfor-
mance measures (PPor), whose level depend on
the development of supply chain factors:
SCR :¼ f ðPoT; PPorÞ ¼ f ðSCF1; SCF2;... ;
SCFnÞ:
Analysis of supply chain constitution
The discussion so far shows, that the development
of factor uncertainties has an influence on the
degree of performance achievement. However, it is
the supply chain resilience that determines whether
the targeted performance value of the decision
maker can still be met. Supply chains are
differentially endowed with the ability to absorb the
consequences of potential triggers. Elements of
supply chain constitutions that
favour the ability to overcome unexpected changes
are: supply chain structure, bill of material, product
portfolio, demand pattern, market power,
production technology, product design, and product
lifecycle. Each element has an effect on the extent
of supply chain risk so have they interactions and
has to be carefully determined for each supply
chain prior to the installation of mitigation
strategies. For instance, supply chains that process
products, which consists of substitutable pre-
products or which are offered by different suppliers
may be less vulnerable to factor modifications. Non-
substitutable products are quite often produced or
manufactured by highly complex production
technologies. In particular, the chemical processing
industry, whose production is character- ized by
physically and temporally complex processes, has
highly individualistic production facilities. Special
chemical processors, like reactors or
homogenizers, are difficult to obtain. When these
components are damaged by water or fire, it often
takes several month up to years to replace them
(Logistik Heute 2010). Consider the example of a
Swiss chemical producer trying to limit the loss
evoked by a breakdown of its production process.
Typically, companies strive to limit the loss they
might encounter by closing insur- ance contracts.
However, the considered major re- insurer refused
to insure the production breakdown, because the
replacement time of the batch reactor was
estimated to be over one year (Logistik Heute
2010). Such situations demand for special
modelling perspectives in order to derive more
resilient supply chains that overcome such
disruptions. More resilient,
i.e. less vulnerable, supply chains positively affect
the level of risk. Whenever the constitution of a
supply chain is capable to absorb changes, the risk
– the potential non-achievement of performance
objectives
– reduces correspondingly.
Consequently, the constitution as well as the
envir- onment of a supply chain needs to be
carefully exam- ined by the means of supply chain
risk analysis in order to determine adequate risk
countermeasures. Thus, the extent of supply chain
risk depends also on the supply chain constitution
(SCC):
SCR f ðPoT; PPor; SCCÞ ¼ f ðSCF1; SCF2; ...; SCFnÞ
Conclusion for research question 3: Besides pro-
spective developments, it is the understanding of
how changes affect the supply chain in general and
supply chain factors in particular that need to be
carefully evaluated. The development of supply
chain factors is captured by uncertainty profiles
such as recurring changes, moderate changes,
major changes, and level shifts. The analysis of the
under- lying supply chain factors and its dynamics
are the major purpose of supply chain risk analysis
and depict
 the prerequisites for quantitative decision performance. The extent of supply chain risk,SCR,
modelling. After having identified and understood depends on the status of each of these elements:
the underlying dynamics, decision makers are
enabled to formulate mathematical models that
respect the interrelations.

Conclusions and tasks of supply chain

analysis
Heuristic forms of thinking guided supply chain practi-
tioners and scientists to oversimplifications and mis-
inter- pretations of the effects of risk. Hagmann
concludes that the analysis of risk in general is up for
debate (Hagmann 2012). We emphasize that this is
especially true for the analysis of supply chain risk. In
particular, we posed the following questions and
deduced conclusions through- out the paper. A
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summary is provided as follows:

● Question: Is event-based risk analysis good

(enough) for supply chain risk identification
and assessment? Conclusions: Supply chains
are com- plex and interrelated systems, whose
dynamics are difficult to describe. Contrary,
definitions on supply chain risk do not capture
this complexity, but oversimplify underlying
dynamics and exag- gerate the influence of
triggering events. The analysis of events is
necessary, but not enough for the protection of
supply chains.
● Question: To what extent does a simplified risk
concept support risk mitigation? Conclusions:
Prevailing concepts of supply chain risk do not
support consistent assessment nor complete
iden- tification; therefore, mitigation
approaches focus on single identified risk
types and miss to address properly additional
aspects for various risk types like uncertainty,
time and different planning levels.
● Question: What are the prerequisites for the
quantification of risk-aware decision models?
Conclusions: Instead of starting risk analysis
with the identification, gathering and
assessment of potential events that may serve
as a disruptive trigger, we propose that it is the
main task of supply chain risk analysis to
evaluate the poten- tial effect of modifications
of supply chain factors and assess their
influence on key performance indicators. At
the same time the analysis of the effect of
supply chain factors depict the prere- quisites
for quantitative decision modelling.

The identification, assessment and mitigation of

sup- ply chain risk should respect the influence of
existing potential triggers, PoT, the prevailing
portfolio of per- formance measures, PPor, and the
actual constitution of the underlying supply chain,
SCC, on the possible deterioration of supply chain
 companies such as BASF, Lufthansa, Miele, or SAP.
SCR :¼ f ðPoT; PPor; SCCÞ

The status of each of these elements is described

by supply chain factors, SCF, that capture current
ele- ment levels.

SCR :¼ f ðSCF1; SCF2;... ;

SCFnÞ
If these dynamics are understood, mathematical
approaches can formalize these dynamics and
develop appropriate model formulations.
Optimization models need to consider these
function within the objective function or restrictions.
A scenario-based simulation approach needs to
respect uncertain developments of supply chain
factors within the scenario generation. The solution
of those mathematical models supports deci- sion
makers in implementing reliable risk-aware supply
chain designs and/or plans. Then, it is possible to
over- come the biased stepwise process of
assessing, identify- ing, and mitigating supply chain
risk individually.

Disclosure statement
No potential conflict of interest was reported by the
authors.

Notes on contributors
Dr. Iris Heckmann holds a Diploma degree in Industrial
Engineering from the Karlsruhe Institute of Technology
(KIT). She started as a research scientist at the FZI
Research Center for Information Technology, which is a
non-profit institution for applied research in information
technology and technology transfer. Its task is to provide
industrial and public institutions with the latest research
findings in infor- mation technology. Iris Heckmann
worked on several industrially and publicly funded
research projects and headed the department of Risk-
aware Logistics: Supply Chain and Health. In that time
she received a PhD in engi- neering from the Karlsruhe
Institute of Technology (KIT). Since 2016 she is division
head of the research division Information Process
Engineering. Her research focuses on developing
mathematical optimization approaches for sup- ply chain
risk analytics.

Prof. Stefan Nickel is a full professor for Discrete

Optimization and Logistics at the Karlsruhe Institute of
Technology (Germany). He obtained his PhD in
mathematics at the Technical University of
Kaiserslautern (Germany) in 1995. After a full professor
position at the Saarland University from 2003 to 2009,
he joined the Karlsruhe Institute of Technology in April
2009. Since 2011 is one of the directors of the Karlsruhe
Service Research Institute (KSRI) as well as of the
Research Center for Information Technology (FZI).
Since 2016 he is editor-in-chief of Operations Research
for Health Care and was editor-in- chief of Computers &
Operations Research. Stefan Nickel has authored or co-
authored 6 books as well as more than
120 scientific articles in his research areas Locational
Analysis, Supply Chain Management, Health Care
Logistics, and Online Optimization.. In addition, he
conducted several industry projects with well-known
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Appendix

Table A1. Major disruptions and related countermeasures used by affected companies.
Name Incident Reaction of affected Company Countermeasure
West Coast Port Lockout labour strike The incident was immediately predictable. Therefore, New United increased safety stock, flexible
Motor Manufacturing Incorporated (NUMMI) was able transport
to increase its inventory. After inventories run empty
NUMMI switched to air freight from Japan to the
United States. flexible transport
9/11 terroristic attacks Ford was not prepared with contingency plans and had to
close 5 production plants. Chrysler was able to arrange direct
transports from its supplier TRW in Virginia to Mexico.
Continental Teves used established emergency plans with
transport carriers such as Emery to compensate losses from postponement, flexible supply
European deliveries. base
Nokia – Philips – Ericsson lightning bolt The reaction of the two main customer, Nokia and Ericsson,
was
very different. Nokia acted quickly and grasped the situation
correctly. Due to the modular product designs of Nokia’s
mobile phones an alternative product specification could be
created without affecting the demand of final customers.
Additionally, Nokia took all available production capacities
from alternative suppliers. Contrary, Ericsson could not
apply postponement strategies as their product postponement, flexible supply
configurations did not allow alternatives and backup base, revenue management via
suppliers capacities were already blocked by Nokia. dynamic pricing
Dell – Apple earthquake Dell as well as Apple use a build-to-order strategy. Despite
the
significantly time between order and delivery date Apple flexible supply base, outsourcing
was not able to isolate its customers from the
consequences of the accident. Dell, however, drew the
attention of customers to alternative products by
advertising and strategic pricing.
Toyota – Aisin short circuit The close customer-supplier relationship enabled Toyota to access
the collective know-how of its suppliers, shortly implement
a flexible supply base and re-distribute thought lost
production capacity.