FINANCIAL SUPPLIER RISK MANAGEMENT FRAMEWORK

FINANCIAL SUPPLIER RISK MANAGEMENT FRAMEWORK



Abstract

The purpose of the paper is to present and empirically support a theoretically sound, operational, and easy-to-implement supplier risk management framework that focuses on supplier development using a benchmarking approach. The paper develops a five stage framework for supplier risk management, entailing supplier risk identification, assessment of supplier risks, reporting and decision of supplier risks, supplier risk management responses, and supplier risk performance outcomes, that builds on the conceptual approach of Ritchie and Bridley (2007a) and the approach of the Association of Insurance and Risk Managers (AIRMIC, 2002). The operation of the framework is illustrated in a single case study of a UK firm. The paper contributes to the research in operations management and particularly in risk management in the specific field of supplier risk management. The study presents details of one of the later stages of the risk framework (i.e. management responses stage) and enhances the understanding of how the development of suppliers can be conducted so as to create a vital supplier base. As an analytical method, the use of factor analysis generally requires metric scaled data, but we applied it to ordinal-scaled data. Therefore, we had to confirm our two-factor solution with non-metric multidimensional scaling. In addition, the operation of our supplier risk framework is demonstrated within one firm only. Further case studies are therefore needed to strengthen the research findings. The study goes beyond the conceptual discussion of supplier risk management, and demonstrates the activities a firm can undertake in response to supplier risk ratings and assessments. Managers can use the supplier risk management framework to develop firm-specific risk management programs, and to create management responses that influence and improve their relationships with suppliers. The framework is fully operational, easy to implement; and facilitates proactive supplier risk management, rather than reactive crisis management.

Table Of Content

CHAPTER 1: INTRODUCTION5

Purpose of Study7

CHAPTER 2: LITERATURE REVIEW9

Overview9

Supply Chain Procurement Risks9

Frameworks for Supplier Risk Management11

Supplier Risk Management Framework Application to Supplier Development15

Summary24

CHAPTER 3: RESEARCH METHODOLOGY26

Research Design26

Research Sample27

Questionnaire Instrument29

Data Collection Method30

CHAPTER 4: RESULTS AND ANALYSIS33

Results33

Analysis and Integration Step40

Action Step41

Reflection on the supplier risk management framework42

CHAPTER 5: CONCLUSION45

Conclusion45

Limitations of the Study46

Future Work47

REFERENCES49

APPENDIX62

Questionnaire62

Tables65

Figures69

CHAPTER 1: INTRODUCTION

Overview

Connecting with reliable and trustworthy suppliers has become a key factor for successful organisations. Therefore, supplier decisions are important, but difficult, due to the challenges firms face in today's business environment. These challenges include the increased competition from international as well as from domestic sources (Hill, 2007). The situation becomes even more complex, because, at the same time, various catastropic events such as terrorist attacks, earthquakes and floods have reinforced the awarness of vulnerability along the entire supply chain for manufacturing firms (Knemeyer et al., 2008), down-stream in dealing with customers and up-stream in dealing with suppliers (Juettner, 2005).

Manufacturing firms respond to this situation through active management of their suppliers including the management of risks inherent to the supplier. An A.T. Kearney (2005) study has revealed that approximately 90% of organisations attach great importance to the risk ...