A Portfolio Approach to Supply Chain Risk Management

ABSTRACT Modern supply chains serve as a critical infrastructure that help create organizational value. This infrastructure is often subject to a high degree of risk due to a variety of factors, and supply chain risk management is an active research area. While extant literature has identified several risk factors and approaches to managing risks in supply chains, there is need for a more integrated approach. Prior research has recognized some relationships between risk management strategies and risk. However, there is scope for additional analysis, understanding, and integration of the relationships between risks, risk management strategies and supply chain value. This article considers a variety of relationships between supply chain risks, risk management strategies, and supply chain value in an integrated manner. It proposes a measure of supply chain value based on finance theory and analyzes its relationship with risks and risk management strategies. It develops an analytical model to understand the above‐mentioned relationships, proposes a measure of synergy associated with a portfolio of risk management strategies, and develops a more general simulation model to analyze the value of such a portfolio. The simulation model can be used to understand the value of individual supply chain risk management portfolio components, as well as to compare alternate portfolios of risk management strategies.