House of risk: a model for proactive supply chain risk management

Abstract

PurposeIncreasingly, companies need to be vigilant with the risks that can harm the short‐term operations as well as the long‐term sustainability of their supply chain (SC). The purpose of this paper is to provide a framework to proactively manage SC risks. The framework will enable the company to select a set of risk agents to be treated and then to prioritize the proactive actions, in order to reduce the aggregate impacts of the risk events induced by those risk agents.Design/methodology/approachA framework called house of risk (HOR) is developed, which combines the basic ideas of two well‐known tools: the house of quality of the quality function deployment and the failure mode and effect analysis. The framework consists of two deployment stages. HOR1 is used to rank each risk agent based on their aggregate risk potentials. HOR2 is intended to prioritize the proactive actions that the company should pursue to maximize the cost‐effectiveness of the effort in dealing with the selected risk agents in HOR1. For illustrative purposes, a case study is presented.FindingsThe paper shows that the innovative model presented here is simple but useful to use.Research limitations/implicationsIn the proposed framework, the correlations between risk events are ignored, something that future studies should consider including.Practical implicationsThe framework is intended to be useful in practice. For the calculation processes, a simple spreadsheet application would be sufficient. However, most of the entries needed in the model are based on subjective judgment and hence cross‐functional involvement is needed.Originality/valueThe paper adds to the SC management literature, a novel practical approach of managing SC risks, in particular to select a set of proactive actions deemed cost‐effective.