A Supply Risk Reduction Model Using Integrated Multicriteria Decision Making

TLDR

Supply‑chain risk management is gaining prominence as firms recognize the need to incorporate multidimensional risk measures into supplier evaluation and selection. The study develops a risk‑assessment framework for supply risk categories and proposes a decision tool for supplier selection. The authors combine analytic hierarchy process with goal programming to evaluate suppliers considering risk measures and product life‑cycle factors. The model was validated with a mid‑sized automotive supplier, demonstrating its practical applicability and yielding managerial insights.

Abstract

Risk management in supply chains is receiving increasing attention in both academia and industry. Firms are recognizing the importance of considering supply risk in evaluating and selecting suppliers for strategic partnerships. One of the critical issues faced by purchasing managers is in effectively defining, operationalizing, and incorporating supply risk measures in the supplier evaluation process. Due to the multidimensional nature of supply risk, analytical tools that can effectively integrate various risk measures into the decision process can prove useful for managers. To this end, the contribution of this paper is twofold. First, we consider extant research in supply risk in developing a framework for risk assessment based on various categories and types of risks. Second, we propose a combination of analytic hierarchy process and goal programming as a decision tool for supplier selection in the presence of risk measures and product life cycle considerations. The efficacy of the model is tested at a mid-sized automotive supplier and managerial implications are discussed.