A conceptual approach for analysing risk in supply networks

Besides lowering costs and improving customer service, sharing of risk has also been identified as an advantage of supply chain collaborations. As network members complement each other to operate interdependently, risk is distributed differentially among the network partners depending on their functional contribution to the collaboration. Consequently, different forms of interdependence are possible with differing risk implications. Due to the complexity in inter-firm dependencies, supply risk within network systems has received limited attention in the supply chain literature to date. Using the Principal-Agent paradigm, this paper provides a framework for understanding the different characteristics and hierarchical distributions of supply risks associated with alternative network relationships between Principal/s and Agent/s. The framework allows researchers and practitioners to more accurately interpret not only the actual problems encountered in the assessment of supply risk within network systems, but also the relevant risk management techniques that are required.