Operational and Financial risks in supply chain management

Competitiveness and complexity are unavoidable and frequent source of uncertainty affecting the normal execution of supply chain processes. At the same time, unplanned events or risks represent an additional matter of concern for managers, having the responsibility to satisfy customer’s demand, while keeping a safe financial status of the company. In this regard, companies are forced to adopt risk mitigation strategies, not only at the individual firm level, but also in a broader supply chain perspective aiming at enhancing resilience of the whole supply chain. The objective of this thesis is to develop a model demonstrating how operational events might negatively affect the ability of companies to comply with their financial obligations towards debtors. This aspect, belonging to credit risk management field, has been scarcely investigated by recent literature from a supply chain perspective. In addition, few studies have linked credit causes with operational risks that have been widely treated by many researchers in supply chain management. The study first presents a review of the literature on supply chain disruption propagation and operational risk management. Next, the thesis proposes a methodology to show operational risk propagation along the supply chain and their cascade effect on companies’ default risk. The heart of the methodology has its roots in the probabilistic Bayesian network approach, a powerful methodology that allows to represent the conditional dependence between risks and their probability of occurrence. This study provides managers with an accessible but mathematically rigorous methodology through which measuring and analyzing the propagation dynamics of supply chain operational risks, in order to implement appropriate mitigation strategies. In this sense, the methodology can support not only a smooth supply chain management, but also any stakeholder wishing to assess the riskiness of supply chain processes, even under a financial perspective.