Track: Supply Chain Management

Abstract

Today’s market is characterized by instability and uncertainty which has been increasing due to the complexity of supply chain networks, the volatility of the demand, outsourcing, and the product and technology short life-cycle. With the increase in instability, risks of disturbances in supply chains become very high. They can be categorized as been internal to the firm, external to the firm, or external to the network.  When developing strategies for managing and mitigating risks, companies tend to incorporate cost of risk recovery (CRR) into their final product price. The CRR is based on the probability of the happening of such risk, and the forecasted damage caused by this risk. In this paper we assume that the price of the product is constant and so is the CRR. In a typical supply chain, each partner may be subject to a possible risk situation hence, there is a probability of including the cost recovery into their pricing model. If more than one partner considers this cost then the price of the final product may be unjustifiably inflated. However, in supply chain management, pricing decision is an integrated process where all the partners must be implicated. Thus the CRR must be optimized in such a way that it can serve all the partners in the supply chain without becoming a burden on the supply chain itself, or on the final customer. In this research, I will suggest different models to optimize the risk of cost recovery based on a probabilistic risk assessment strategy.