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22 European J. Industrial Engineering, Vol. 1, No.

1, 2007

Received 11 June 2006, Accepted 9 September 2006
Copyright 2007 Inderscience Enterprises Ltd.











Quantification of risk mitigation environment
of supply chains using graph theory and
matrix methods
Mohd Nishat Faisal,* D.K. Banwet
and Ravi Shankar
Department of Management Studies,
Indian Institute of Technology,
Hauz Khas,
New Delhi-110016, India
E-mail: nishat786@yahoo.com
E-mail: dkbanwet@dms.iitd.ernet.in
E-mail: ravi1@dms.iitd.ernet.in
*Corresponding author
Abstract: Today supply chains leverage their partners competencies and in
the process also inherit the risks associated with various links of a supply chain.
Although it is impossible to completely eliminate various risks, an environment
can be created which helps to effectively mitigate risk. The most difficult part
of Supply Chain Risk Management (SCRM) is an understanding of the
variables related to risk mitigation and their relative interdependencies. This
paper presents a conceptual framework which models various variables
associated with risk mitigation environment along with their interdependencies.
Using graph theory and matrix methods, the Risk Mitigation Environment
(RME) is quantified and presented in the form of a single numerical index. The
proposed model is quite versatile from the point of view that it provides an
opportunity to integrate new variables which could impact the overall supply
chain risk mitigation environment along with the potential to benchmark supply
chains on risk mitigation dimension.
Keywords: supply chain management; SCM; risk; graph theory; matrix
methods.
Reference to this paper should be made as follows: Faisal, M.N., Banwet, D.K.
and Shankar, R. (2007) Quantification of risk mitigation environment of
supply chains using graph theory and matrix methods, European J. Industrial
Engineering, Vol. 1, No. 1, pp.2239.
Biographical notes: Mohd Nishat Faisal is currently National Doctoral Fellow
at the Department of Management Studies, Indian Institute of Technology,
Delhi, India. He is on sabbatical from the Faculty of Management Studies
and Research, Aligarh Muslim University, Aligarh, India where he is a
Senior Lecturer with 12 years of teaching and research experience. His research
interests are in the area of Operations Management, Supply Chain
Management, Small Business Management, Management Science and
Information Technology. He has published papers in journals like Industrial
Management and Data Systems, Business Process Management Journal,
Decision, Management Review, Udyog Pragati, Abhigyan, etc.









Quantification of risk mitigation environment of supply chains 23













D.K. Banwet is Dalmia Chair Professor and Former Head at the Department
of Management Studies, Indian Institute of Technology Delhi, India.
His areas of interest are Production and Operations Management,
Management Science, Entrepreneurship and Technology Management,
General Management/Strategic Management, Project Management, Supply
Chain Management etc. He has published research papers in journals like The
TQM Magazine, Journal of Educational Planning and Administration,
Industrial Management and Data Systems, Business Process Management
Journal, Productivity, International Journal of Productivity and Performance
Management (formerly Work Study), Asian Academy of Management Journal,
Journal of Global Competitiveness, Management Review.
Ravi Shankar is currently an Associate Professor of Operations and Information
Technology management at the Department of Management Studies, Indian
Institute of Technology Delhi, India. He has nearly 25 years of teaching
experience. His areas of interest are Supply Chain Management, Knowledge
Management, Flexible Manufacturing Systems, TQM, etc. His publications
have appeared in various journals including the European Journal of
Operational Research, International Journal of Production Research,
Computers and Industrial Engineering, International Journal of Production
Economics, Computers and Operations Research, International Journal of
Supply Chain Management, Industrial Management and Data Systems, etc.
He is the Executive Editor of Journal of Advances in Management Research.

1 Introduction
Todays business environment is characterised by fast changes. Players are focused on
improving upon their core competencies which makes them more dependent on outside
support for final fulfilment of services or delivery of a product. This makes identification
of risks and the assessment of their impact on the overall performance an important
aspect of overall business strategy. Thus business strategists today incorporate
contingency plans for managing risks so that any disruption in material, information or
money flows can be properly managed. The fall of a number of organisations such as
Enron, Worldcom, Parmalat and HealthSouth, has made the issue of risk management
and its implication for corporate governance a salient and more critical feature for
decision makers to address (Alessandri et al., 2004).
With a greater focus on integration with partners, lean production and outsourcing,
the impact of uncertainties, dynamics and accidents on the whole chain is highly
probable. Thus there is a need for joint coordination and risk sharing. But the increased
asymmetry of information and business logic influence individual companies of a supply
chain to myopically reduce their own risks without sufficient regard to overall supply
chains interest (Agrell et al., 2004).
Following Norrman and Jansson (2004) and Tang (2006), we define SCRM as the
process of risk mitigation achieved through collaboration, coordination and application
of risk management tools among the partners, to ensure continuity coupled with long
term profitability of the supply chain. To assess supply chain risk exposures,
organisations must identify not only direct risks to its operations but also the potential
causes or sources of those risks at every significant link along the supply chain (Harland
et al., 2003). Risk management skills (which includes, awareness of risk signals,









24 M.N. Faisal, D.K. Banwet and R. Shankar













developing risk management plans and improving end to end information visibility) are
essential requirements for Supply Chain Management (SCM) success (Christopher and
Lee, 2004).
2 Prior studies on supply chain risk management
SCRM is still a fairly new field of research and studies related to the topic are scarce
(Jttner, 2005; Ojala and Hallikas, 2006). Zsidisin and Ellram (1999) and Zsidisin et al.
(2000) are some of the earlier studies in the area of supply chain risk management. But
these studies have focused more on purchasing and supply, while our focus is supply-
chain approach. That is, to analyse risk in the whole network. The nature of risk
assessments can be formal to informal, as well as quantitative or qualitative. The research
in supply chain risk management can be classified into three categories; Firstly, dealing
with risk issues in supply chains in general, Secondly, sector specific risk management
issues and third general quantitative models dealing with supply chain risks.
Some of the studies that focus on general issues in supply chain risk management are
the understanding of risk and the need to improve visibility and control of information to
mitigate supply chain risks (Christopher and Lee, 2004), supply chain risk classification
along with a discussion on corporate social responsibility risks and risk associated
with security (Speckman and Davis, 2004), multiple case studies for understanding how
and why purchasing organisations assess supply risk (Zsidisin et al., 2004) and
consideration of situational factors when determining the level of risk management in
the supply chain (Giunipero and Eltantawy, 2004). Sector specific studies include a
generic prescriptive methodology to mitigate supplier risk in the aerospace supply chain
using the IDEF0 method (Sinha et al., 2004) and risk in telecom supply chains
(Agrell et al., 2004).
Quantitative models in the area of supply chain risk management which considers
risks in general are:
network equilibrium model which takes into account the supply side
and demand side risk (Nagurney et al., 2005)
framework based on qualitative data to assess risks in supply chains (Hallikas
et al., 2002)
supply network risk tool to identify, assess and manage risk (Harland
et al., 2003)
risk management framework considering the dynamic complexity of
the network and the feedback mechanism (Hallikas et al., 2004) and
demand and inventory risk in tactical supply chain planning using simple
models and risk measures (Sodhi, 2005).
Our contention is that in case of a supply chain, along with the general risk management
process, there is an urgent need to develop an environment that in itself acts as an enabler
to mitigate risk. A Risk Mitigation Environment (RME) would be the result of a
conscious and collaborative effort of all the supply chain partners. Using graph theory
and matrix methods we have quantified the RME of a supply chain. The uniqueness of
the model lies in its ability to quantify RME by a single numerical index. The proposed
model is also capable to capture the dynamics of supply chain environment as it is easy









Quantification of risk mitigation environment of supply chains 25













to incorporate new variables. Also a continuous monitoring of the RME and
benchmarking is possible as it can be processed by a computer program.
3 Objectives of this research
It is evident from the literature that many studies have been conducted that addresses
various issues related to risk in supply chains. But little research exists which considers
all these variables as being interdependent and studies them as a system. So this paper
tries to develop a theoretical framework that holistically considers all the variables of
RME and their interrelationships.
The major objectives of this study can be stated as:
to identify the variables that may impact the RME of a supply chain
develop a conceptual framework that could effectively analyse the
interrelationships among the identified variables and
suggest a metric to quantify the RME.
4 Literature review: risk mitigation environment variables of
a supply chain
Todays supply chains are characterised by a high dependence on strategic alliances and
partnerships, which has resulted in a highly integrated structure. This makes the overall
supply chain more susceptible to risk because of the threats to different links of the
chain. So in place of managing risk to individual organisations it is required that all the
partners in a supply chain work in tandem to create an environment which itself mitigates
risk. This environment is dependent upon several variables like information sharing,
strategic risk planning, risk sharing, trust among supply chain partners, collaborative
relationships, etc. The variables that would have a positive impact on overall RME are
discussed in this section.
4.1 Information sharing
Supply chains which work on shared information perform significantly better than those
that do not have access to information related to their partners (Lee et al., 2000). Also an
increase in the visibility of demand information across supply chain reduces risk
(Lee, 2002). Companies like Dell, Whirlpool and Wal-Mart are sharing information with
suppliers and customers to decrease costs and improve customer service which helps in
reducing risk (Handfield and Nichols, 1999).
4.2 Supply chain agility
Agility is defined as a business-wide capability that embraces organisational structures,
information systems, logistics processes and in particular, mindsets (Christopher and
Towill, 2001). Companies can minimise inventory risks by working with a highly
responsive supplier (Chopra and Sodhi, 2004). Supply chain agility is a key to manage









26 M.N. Faisal, D.K. Banwet and R. Shankar













risks associated with inventory, market variations, fast changing customer preferences
and suppliers failure more effectively.
4.3 Aligning incentives and revenue sharing policies in a supply chain
According to Narayanan and Raman (2004) supply chains perform better if the
incentives of the partners in the chain are aligned. This requires the risks, costs and
rewards of doing business are distributed fairly across the network. Revenue sharing is
kind of supply chain contract that makes it possible to share the risks among supply chain
partners (Tsay, 1999).
4.4 Strategic risk planning
At the strategic level, supply chain risk management is relatively new and rapidly
expanding discipline (Gunasekaran et al., 2004) as an appropriate and effective
organisational strategy can, to a certain extent, mitigate supply chain risks (Finch, 2004).
Chopra and Sodhi (2004) suggest that for any risk mitigation strategy to succeed there
should be a shared organisation wide understanding of supply-chain risks and managers
must try to determine how to adapt general risk-mitigation approaches to the
circumstances of their particular company.
4.5 Risk sharing in a supply chain
According to Mentzer et al. (2001) a key component for SCM is sharing both risks and
rewards between the members of the supply chain. Risk for the supply chain should be
accepted as joint risk, as they can either have their source in the shared processes and
relationships between the organisations and/or affect them jointly through the rippling
effects (Jttner, 2005). Long term relationships based on trust and transparency of
information among partners is a prerequisite for risk sharing arrangement to succeed.
4.6 Trust among supply chain partners
This dimension of the supply chain allows cooperation and collaboration to take place
both within the organisation and across the supply chain partners. Trust refers to a firms
expectation that their partners will act to benefit their (firms) interests and would not act
in an opportunistic manner even if there are short-term incentives to do so, regardless of
their ability to monitor such behaviour (Kwon and Suh, 2005). Lack of trust is one of the
major factors that contribute to supply chain risk (Sinha et al., 2004).
4.7 Collaborative relationships among supply chain partners
In order to manage risk effectively in a supply chain, organisations are moving to adopt
closer relationships with suppliers (Giunipero and Eltantawy, 2004). Through close
relationships, supply chain partners are more willing to share risk (Chen and Paulraj,
2004). Collaborative supply chain partnerships support the development of flexibility,
responsiveness and low-cost/low-volume manufacturing skills thereby reducing risk
(Hoyt and Huq, 2000).









Quantification of risk mitigation environment of supply chains 27













4.8 Information security
Today supply chain success is based on the capability to collect and disseminate
information among supply chain partners with the ultimate objective of replacing
inventory by information. This growing realisation has established that information
security governance has an enterprise wide risk mitigating impact (Von-Solms and
Von-Solms, 2005). In this regard, Warren and Hutchinson (2000) have stressed the need
of security aspects when using IT in supply chains.
4.9 Corporate social responsibility
Corporate social responsibility which generally refers to business practices based on
ethical values is important because in a supply chain, organisations are exposed to risk
that may emanate because of the consequences of the partners policies and actions on
ethical and environmental issues (Speckman and Davis, 2004). To minimise risk
associated with CSR companies are opting for social audit and third party verification
(Warhurst, 2005), along with the introduction and integration of environmental issues
and concerns in purchasing process (Handfield et al., 2002).
4.10 Knowledge about risks in a supply chain
Hallikas et al. (2004), suggest that improved understanding about risk in a supply chain
helps to make better decisions and decreases the risks of both a single organisation and
the whole network. Organisations need to develop a common understanding of the
risks surrounding their supply chain (Jttner, 2005). An improved understanding
about the variety and interconnectedness of supply-chain risks facilitate managers
to develop effective risk-reduction strategies for their supply chains (Chopra and
Sodhi, 2004).
4.11 Continual risk assessment and analysis
Continual risk assessment provides opportunities to devise and implement strategies to
properly manage risks. The assessment of risk is important for two reasons; first it helps
a company to focus on essential risks and secondly it has significance for the choice of
strategies (Hallikas et al., 2002). Risk analysis is a practice with methods and tools for
identifying risk in a process (Sinha et al., 2004) and risk identification provides decision
makers with the opportunity to prepare for that risk. For a supply chain it is important to
identify the possible causes or sources of those risks which may impact every significant
link along the supply chain (Norrman and Jansson, 2004).
4.12 Loss assessment metrics for the supply chain
Many companies have not succeeded in maximising their supply chains potential
because they have often failed to develop performance measures and metrics
(Gunasekaran et al., 2004). Metric misalignment is thought to be a primary source of
inefficiency and disruption in supply chain interactions. Existence of a metric that could
provide information to supply chain partners about the loss resulting due to various









28 M.N. Faisal, D.K. Banwet and R. Shankar













supply chain risk exposures may be a major enabler to risk mitigation in supply chains.
According to Jttner (2005), future research in supply chain risk management should
place the main emphasis on the implementation side of risk assessment.
5 Methodology
In this section, we will first discuss the rationale for choosing graph theory and
matrix method. The Delphi method is a structured technique used for forecasting
information in technology, business, education, science and other fields. It follows a
series of steps to develop a consensus among a group of experts. The main disadvantage
associated with the Delphi method is that it is very difficult to collect questionnaires from
busy individuals. The Structural Equation Modelling (SEM) is a confirmatory approach
to data analysis requiring a priori assignment of inter-variable relationships. It tests a
hypothesised model statistically to determine whether it is valid with the sample data
(Schumacker and Lomax, 1996). One of the limitations of SEM is that it requires
statistical data to obtain results. Multicriteria decision models (MCDM) like
Analytic Hierarchy Process (AHP) and Analytic Network Process (ANP) are
comprehensive decision-making techniques (Saaty, 1980; 2001). But both AHP and ANP
help to identify the best possible decision alternative rather than to provide measurement
of some variable. Fuzzy approaches have also been used to model supply
chain processes. Using fuzzy approaches we can also model the risk in a supply chain,
but it is a very cumbersome process and it is difficult to model the interdependencies of
variables.
In our case the purpose is to quantify the RME of a supply chain. This depends upon
the degree of inheritance of various variables and the amount of interactions present
between them. The quantification of inheritances and interactions is not possible by using
Delphi, AHP, ANP, SEM or fuzzy logic. While using graph theory and matrix method
the interactions among the variables can be easily analysed and they can even
be transformed into mathematical equations. This would enable management to
understand the contribution of various enablers to mitigate risk and whether their efforts
to mitigate these risks are yielding the desired results or not.
Application of graph theory and matrix methods to analyse systems and problems in
science and technology is well documented in literature as represented in Table 1.
Table 1 Select applications of graph theory and matrix methods for decision making
S.No Application Reference(s)
1. Maintainability index for mechanical systems Wani and Gandhi (1999)
2. Quantifying TQM environment Grover et al. (2004)
3. Performance evaluation of TQM in Indian industries Kulkarni (2005)
4. Selection of industrial robots Rao and Padmanabhan (2006)
5. Customer sensitivity and risk in supply chains Faisal et al. (2006)
The graph theory and matrix methods consist of the digraph representation, the matrix
representation and the permanent function representation. The digraph is the visual
representation of the variables and their interdependencies. The matrix converts the









Quantification of risk mitigation environment of supply chains 29













digraph into mathematical form and the permanent function is a mathematical
representation that helps to determine the numerical index. This paper aims to extend this
approach for the analysis, quantification and comparison of RME of a supply chain.
6 Analysing the risk mitigation environment
The literature review in the previous section suggests that there are broadly twelve
variables impacting RME of a supply chain.
Thus
RME (risk mitigation variables) f =
The attempt here is to correlate these twelve variables, their quantification based on
subvariables and interdependencies of these variables. Based on the above quantification
it is proposed to find the capability of a supply chain in terms of countering risk
successfully.
6.1 Digraph representation
A digraph consists of a set of nodes R = [R
i
], with i = 1, 2, , M and a set of directed
edges D = [R
ij
]. The direction of edge R
12
from node R
1
to node R
2
indicates the
dependency of R
2
on R
1
that is, R
1
impacts R
2
. It is possible that any two variables
(R
i
and R
j
) of a variables digraph are interdependent on one another. This is represented
by joining two nodes (R
i
and R
j
) by two directed edges (R
ij
and R
ji
) in the opposite
directions forming a close loop. Risk mitigation digraph of a supply chain, in general, is
developed considering the 12 variables, identified in the literature review section and
their degree of interdependencies.
These variables can be represented as
R
1
: information sharing
R
2
: supply chain agility
R
3
: aligning incentives
R
4
: strategic risk planning
R
5
: risk sharing in a supply chain
R
6
: trust among supply chain partners
R
7
: collaborative relationships
R
8
: information security
R
9
: corporate social responsibility
R
10
: knowledge about risk in a supply chain
R
11
: continual risk assessment and analysis
R
12
: loss assessment metrics for the supply chain.









30 M.N. Faisal, D.K. Banwet and R. Shankar













The interdependencies among these variables are developed with the help of expert
opinion. A small workshop was conducted where experts from the field and academia
participated. Before the workshop, field visits were conducted to comprehend the view of
the industry on supply chain risk mitigation issues. Further a brief description of RME
variables in supply chain as deduced from the literature review was sent to these experts
to familiarise them with the formal terminology. The relationships among these variables
are then expressed through structural self interaction matrix as given in Table 2. Four
symbols are used to denote the direction of relationship between the risk mitigation
variables (i and j):
V: variable i will help to achieve variable j;
A: variable i will be achieved by variable j;
X: variable i and j will help achieve each other and
O: variables i and j are unrelated.
Table 2 Structural self interaction matrix
RME variables 12 11 10 9 8 7 6 5 4 3 2
1. Information sharing V V V V V X X V V X V
2. Supply chain agility O O A A A A A A A
3. Aligning incentives and revenue
sharing policies
V V A X A A A V V
4. Strategic risk planning V V A X V A A V
5. Risk sharing V V A A V A A
6. Trust among partners V V X V O X
7. Collaborative relationships V V X V V
8. Information security O O A A
9. Corporate social responsibility V V A
10. Knowledge about risks V V
11. Continual risk assessment and
analysis
O
12. Loss assessment metrics
To analyse the system using graph theory and matrix method, a typical case consisting of
only five variables: information sharing, supply chain agility, aligning incentives,
strategic risk planning and risk sharing in a supply chain are considered as an example.
The digraph for the five variables is shown in Figure 1.
This graphical representation augments the understanding of supply chain from a
RME point of view, which needs to be exploited to improve overall supply chain risk
mitigation capability. However, the digraph becomes complex if all variables and their
interdependencies are considered. This complicates the visualisation process which is
managed conveniently using a matrix representation.











Quantification of risk mitigation environment of supply chains 31













Figure 1 Digraph for selected five variables

6.2 Matrix representation
Consider a matrix L with off-diagonal elements R
ij
representing interactions between
RME variables. Other matrix M is taken with diagonal elements R
i
, i = 1, 2, 3, 4, 5
where the R
i
represent the effect of individual variables. Thus, the variable permanent
RME matrix (VPM-RME) corresponding to the five variables RME digraph (Figure 1) is
given by
1 12 13 14 15
2
31 32 3 34 35
42 4 45
52 5
0 0 0 0
VPM RME [ ]
0 0
0 0 0
R R R R R
R
R M L R R R R R
R R R
R R

= = + =








(1)
The diagonal elements R
1
, R
2
, R
3
, R
4
, and R
5
represent the contribution of the
five variables considered in creating the RME and the off-diagonal elements represent
dependency of one variable on another in the matrix.
6.3 Permanent representation
The permanent is a standard matrix function and is used in combinatorial mathematics
(Deo, 2000; Jense and Gutin, 2000). The permanent function is obtained in a similar
manner as the determinant but unlike in a determinant where a negative sign appears in
the calculation, in a variable permanent function positive signs replace these negative
signs. Quantitative RME evaluation of a supply chain is obtained from VPF-RME by
substituting numerical values of the R
i
s and R
ij
s which can be obtained analytically or
by comparing to ideal cases. This single numerical index is the representation of a typical
risks mitigation environment in quantitative terms. The VPF-RME expression
corresponding to the five-factors is given by









32 M.N. Faisal, D.K. Banwet and R. Shankar













( )
( )
( )
( )( )
{
( ) ( ) ( )
}
( )( )
{
*
VPF - RME= Per R
5
= R + R R R R R
12 21 3 4 i 5
1 1 2 3 4 5
+ R R R + R R R R R
12 23 31 13 32 21 4 5
1 2 3 4 5
+ R R R R R
12 21 34 43 5
1 2 3 4 5
+ R R R R + R R R R R
12 23 34 41 14 43 32 21 5
1 2 3 4 5
+ R R R R R + R R R
12 21 34 43 45 53 35 54
1 2 3 4 5
+ R R R R R + R R R
12 23 34 4 45 51 15 54





( )
}
R R
3 32 21
1 2 3 4 5

(2)
The permanent of the matrix (i.e. Equation (2)) is a mathematical expression in symbolic
form. It ensures an estimate of the RME in a supply chain. Equation (2) contains terms
arranged in N +1 groups, where N is the number of elements, which in this case is five.
In general, if there are M numbers of risk mitigation variables and relative importance
exists between all of the risk mitigation variables, then the universal RME variables
matrix R is written as:
Attributes1 2 3 M
R R R R
1 12 13 1m 1
R R R R
2
21 2 23 2m
3 R R R R
31 32 3 3m
R=


M
R R R R
m
m1 m2 m3


(3)
The universal RME function for this matrix R contains factorial M (i.e. M!)
number of terms. In sigma form, the universal risks mitigation function may be
written as:
( )
( ) ( )
( )( ) ( )
( )
M
per R = R + R R R R R + R R R +R R R R R R
m
M M i ij ji k l ij jk ki ik kj ji l
i =1 i,j,,M i,j,,M
+ R R R R R R R + R R R R +R R R R R R R
m n m n
M M ij ji kl lk ij jk kl li il lk kj ji
i.jM i.jM (4)
R R R R R + R R R )R R R
n o
M ij ji kl lm mk km ml lk
+
+ R R R R R + R R
ij jk kl lm mi im m



( )

R R R R R R + i.jM
n o
M l lk kj ji
i.jM




Thus VPM-RME, considering all the variables of risk mitigation and their
interdependencies as represented by a structural self interaction matrix Table 2, on the
lines of Equation (3) can be expressed as









Quantification of risk mitigation environment of supply chains 33













R R R R R R R R R R R R
1 12 13 14 17 18 19 110 111 112 15 16
0 R 0 0 0 0 0 0 0 0 0 0
2
R R R R R 0 0 R R 0 R R
31 32 3 34 38 39 311 312 35
0 R 0 R R 0 0 R R 0 R R
42 4 48 49 411 412 45
0 R 0 0 R 0 0 0 0 0 R R
52 5 511 512
R R R R R R R R R R R R
61 62 63 64 65 6 67 68 69 610 611 612
R=
R R R R R R R R R R
7 71 72 73 74 78 79 71 75 76

R R
0 711 712
0 R 0 0 0 0 0 R 0 0 0 0
82 8
0 R R R R 0 0 R R 0 R R
92 93 94 98 9 911 912 95
0 R R R R R R R R R R R
102 103 104 107 108 109 10 1011 1012 105 106
0 0 0 0 0 0 0 0 0 0 R R
11 1112
0 0 0 0 0 0 0 0 0 0 0 R
12























(5)
VPF-RME of the above matrix can also be written on the line of Equation (4) which can
be used to analyse the impact of all the 12 variables on RME.
6.4 The risk mitigation environment index
RME index (I
rm
) is a measure of a supply chain environments ability to counter risk.
If the RME of a supply chain is conducive, its risk mitigation index should be higher and
vice versa. This index for a system needs to take into account the value of variables for
the supply chain and the degree of dependence among these variables. VPF-RME,
developed earlier is a characteristic of the supply chain RME capability and thus it can be
used for the evaluation of the index.
RME Index Permanent value of VPM RME
rm
I = =
Quantification of the R
i
s and R
ij
s (i.e. the diagonal and off-diagonal elements of
VPM-RME) is required for evaluation of VPF-RME. R
i
s are evaluated considering each
R
i
as a subsystem and graph theory and matrix method is applied to each subsystem.
The various subfactors affecting R
i
are identified, the subsystem digraph is constructed,
the subsystem permanent matrix is written and the subsystem permanent function is
evaluated (on the lines of general Equation (4)). This will lead to inheritance of
subsystem R
i
. Similarly the other R
i
's are evaluated considering subfactors affecting
each R
i
. Wani and Gandhi (1999) used data from previous research for selecting the
values of the variables while Kulkarni (2005) had used a questionnaire to measure each
attribute in terms of weightage to arrive at the values of the variables. So in practice if
data regarding the variables from some previous research or field study is available it
can be used to determine the index. But in case no quantitative values are available and
in order to avoid complexity at sub-subsystem level, values for inheritance may be taken
from Table 3.
Numerical values for the off-diagonal elements (R
ij
's) representing relative impacts
between the variables at system level or subsystem level cannot be measured
directly. Rao and Padmanabhan (2006) had used the scale proposed by Saaty in his
Analytical Hierarchy Process (AHP) to assign values to the relative importance between









34 M.N. Faisal, D.K. Banwet and R. Shankar













attributes. However, values can be assigned through proper interpretation by experts
(Faisal et al., 2006; Wani and Gandhi, 1999). Table 4 suggests these qualitative values of
relative impacts of variables.
Table 3 Value of risks mitigation environment variable
Qualitative measure of RME variable Assigned value of the variable(R
i
)
Exceptionally low 0
Extremely low 1
Very low 2
Below average 3
Average 4
Above average 5
Moderate 6
High 7
Very high 8
Extremely high 9
Exceptionally high 10
Table 4 Quantification of RME variables based on their degree of interdependency
Qualitative measure of facilitation Assigned value of interdependency (R
ij
)
Very weak 1
Weak 2
Medium 3
Strong 4
Very strong 5
The user may select an appropriate scale For example, 05, 010, 050 or 0100 for
R
i
's and R
ij
's, but the final ranking will not change as these are relative values.
However, it is desirable to select lower scale value to obtain a manageable value
of index and also to reduce subjectivity. The final result will not be changed if the
user chooses a different scale. The relative risk mitigation index will be useful in this
regard.
6.4.1 Relative risk mitigation index
The ideal value of the risk mitigation index for this case is obtained from the VPF-RME,
that is, expression (2) by taking the value of diagonal elements (R
1
to R
5
) to be equal to
10, that is, the highest score value. The values of off-diagonal elements are obtained
from the Table 4 on the basis of degree of interdependence. The ideal value of risk
mitigation index I
rmi
is calculated to be 115,000. Comparison of RME value of the
system (I
rm
) can be relatively made with the ideal value (I
rmi
). This comparison
shows to what level the RME of the supply chain exists as a percentage of the ideal









Quantification of risk mitigation environment of supply chains 35













value. Relative index provides supply chain managers qualitative information for
improving those areas which contribute to overall risk mitigation capability of the
supply chain.
The risk mitigation index for different supply chains can be found using the
methodology presented in this paper and thus various supply chains can be compared on
the basis of their capability to mitigate risks. It is a flexible instrument and the
methodology can accommodate the ever-changing environment by including new factors
that would impact the supply chains risk mitigation capability.
6.5 Comparison of supply chains
Comparison of two supply chains is also carried out by evaluating the coefficient
of similarity/dissimilarity based on the numerical value of the terms of the
universal risk mitigation function in its grouping/subgrouping. The coefficient of
similarity/dissimilarity lies in the range 01. If two supply chains are similar in their
capability to mitigate risks, then the coefficient of similarity is 1 and the coefficient of
dissimilarity is 0. In the same manner, if two supply chains are dissimilar in risk
mitigation capabilities, then the coefficient of dissimilarity is 1 and the coefficient of
similarity is 0. Based on the mitigation environment dissimilarity, the coefficient of
dissimilarity for two supply chains is proposed as:
,
(1/ )
d ij
i j
C Q =

(6)
where
( )
maximum| | | ' |
ij ij
Q R and R =


R
ij
and R'
ij
denote the values of distinct terms for the universal risk mitigation function of
the two supply chains under comparison and
ij
= |R
ij
R'
ij
|
It may be noted here that the absolute difference between the values of the terms
for the universal risk mitigation function of the two supply chains under comparison
is considered in calculating the coefficient of dissimilarity. The coefficient of
similarity is
1
s d
C C =

(7)
Expressions (6) and (7) are useful for comparing two supply chains based upon their
capability to counter risk.
7 Conclusion
This paper tries to model RME for supply chain using graph theory and matrix method.
This is a simple tool by which supply chain managers can easily analyse the variables
responsible for risk mitigation in a supply chain. It is an effective aid in improving the
understanding of risk from a supply chain perspective because of its quantification of









36 M.N. Faisal, D.K. Banwet and R. Shankar













risk environment in single numerical index. The suggested methodology would also help
to benchmark and compare supply chains.
Salient features of the proposed methodology can be summarised as
it provides a quantitative measure of RME for a supply chain
the RME can be represented by single numerical index
it provides an opportunity to benchmark against the best practices
related to supply chain risk management
the model is flexible in the sense that new variables can easily be
incorporated
it provides the ease of computer processing and so the dynamic nature
of RME could be studied
it permits modelling of interactions/interdependencies among various
variables
the methodology suggests ideal values for risk mitigation index which can be
used as a scale to improve.
The suggested methodology could help to simplify the dynamic nature of environment
for managing risk in a supply chain. This would open new understanding of risk from a
supply chain perspective because today it is often the advantages that are highlighted and
the risks neglected. As for supply chains its effectiveness is dependent on partners
capabilities and thus the suggested methodology which enunciates explicitly various
factors would help to analyse how partners skills could be leveraged to improve
the RME.
8 Limitations and scope for future work
In this paper, an attempt is made to quantify RME of a supply chain. The variables
contributing to risk mitigation are identified from the literature and then modelled using
graph theory and matrix methods. The model developed is based on only five selected
variables which do not truly reflect the RME. So as an extension of this work all the
twelve variables may be considered to quantify RME. As it is not easy to process 12 by
12 matrices manually, it is suggested to develop a program in C or C++ language to
obtain the results. Another major limitation of the proposed framework is that the
findings are not corroborated for actual practical settings. So it is proposed that the model
be verified in actual supply chain settings with the help of the experts. Also while
developing the model we have not taken into account the subsystems associated with
each variable. In future work, various subsystems can be delineated and then their impact
can be taken into account to develop a more comprehensive model. Further, comparative
data can be generated to benchmark supply chain practices to improve their overall
RME. But even with all the above limitations the present study provides a theoretical
framework that could serve as a starting point in modelling risk and its mitigation
processes in the supply chains.









Quantification of risk mitigation environment of supply chains 37













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