Supply chain 2.0 revisited: a framework for managing volatility-induced risk in the supply chain

Abstract

Purpose The purpose of this paper is to provide an update to the Supply Chain Volatility Index (SCVI), and expand on prior work by presenting a conceptual framework illustrating how firms can deal with persistent volatility, the ensuing risk and mitigate the cost implications for their supply chain operations. Design/methodology/approach The authors use long-term time series of secondary data to assemble a “basket” of key indicators that are relevant to the business context within which global supply chains operate. The authors also report on five years of feedback gained from presentations of the SCVI to scholars and practitioners. Findings Volatility has reduced from record levels experienced during the global financial crises, yet remains at levels considerably higher than prior to the crisis, with no sign of a return to the more stable conditions that prevailed when many current supply chain networks were designed. Research limitations/implications The authors reaffirm that new mental models are needed which embrace volatility as a factor in supply chain design, rather than seek to eradicate it in supply chain operations. Traditional static “network optimisation” based on a simple definition of low unit cost seems no longer appropriate under conditions of persistent volatility. Practical implications The authors provide a conceptual link of volatility, risk and cost in the supply chain, and outline how firms can develop a supply chain strategy by managing their exposure to volatility. Originality/value The authors challenge the common assumption that volatility invariably leads to risk and higher cost in the supply chain. Instead the authors argue that the supply chain structure can mitigate the exposure to supply chain risk. The authors introduce the concepts of recovery and resilience cost within a framework designed to help firms manage volatility-induced risk by minimising the adverse cost implications of volatility in their supply chains.