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Integration of ISO 31000:2009 and Supply Chain Risk Management

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Integration of ISO 31000:2009 and Supply Chain Risk Management American Journal of Industrial and Business Management, 2013, 3, 367-377 367 http://dx.doi.org/10.4236/ajibm.2013.34043 Published Online August 2013 (http://www.scirp.org/journal/ajibm) Integration of ISO 31000:2009 and Supply Chain Risk Management Thomas Scannell1, Sime Curkovic2, Bret Wagner2 1Department of Management, Western Michigan University, Kalamazoo, USA; 2Department of Management, Western Michigan University, Kalamazoo, USA. Email: [email protected], [email protected], [email protected] Received January 12th, 2013; revised February 12th, 2013; accepted March 12th, 2013 Copyright © 2013 Thomas Scannell et al. This is an open access article distributed under the Creative Commons Attribution License, which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited. ABSTRACT Supply chain risk management (SCRM) can provide companies with a long-term competitive advantage, particularly if it is integrated with enterprise risk management (ERM). Current SCRM research frameworks do not explicitly examine this integration, potentially hindering a deeper understanding of SCRM. This research uses survey data and follow-up interviews to suggest that ISO 31000:2009 provides a foundation for advancing future SCRM research, and to more successfully execute SCRM. It is also determined that ISO 31000:2009 encompasses existing SCRM frameworks, but is more exhaustive. It includes two critical steps generally omitted from SCRM frameworks: 1) developing a strategic context for SCRM, and 2) performance monitoring. Finally, it was found that firms recognize the importance of SCRM, but SCRM integration and skills are lacking. Keywords: IS0 31000:2009; Supply Chain Risk Management (SCRM); Enterprise Risk Management (ERM); Survey 1. Introduction provides researchers a framework for developing a con- sensus on SCRM terms and scope, and provides practi- Enterprise risk management (ERM) is a critical compo- tioners with a foundation for linking ERM and SCRM, nent of business strategy [1]. Despite ERM’s importance, and then planning and executing SCRM. The findings ERM implementation is limited [2]. The International also suggest that though companies recognize the impor- Organization for Standardization (ISO) released ISO tance of SCRM, SCRM is not generally linked to ERM 31000:2009 Risk Management Principles to provide and that key SCRM skills are lacking. ERM implementation guidance [3]. A key component of ERM is supply chain risk man- 2. Literature Review agement (SCRM) [4,5]. A well designed, risk-oriented supply chain provides a strong competitive position and SCRM research gaps include a lack of agreement re- reliable long-term benefits to all stakeholders [6]. For garding SCRM scope and definition, and a lack of em- SCRM to be most effective, it should be integrated with pirical research focused on current practices [8]. This ERM. However, SCRM is often implemented in an research accepts the perspective that empirical research ad-hoc manner. focused on developing frameworks may advance re- SCRM research is in its infancy stage [7]. SCRM search [8]. The total quality management (TQM) disci- research might advance more readily if research is linked pline provides an example. TQM research advancements to practitioner needs, and if a standard SCRM framework were supported by operational definitions and standard- is developed [8]. This research has two primary goals: 1) ized frameworks, which provided a foundation for theory determine whether ISO 31000 provides the framework to building and testing [9-13]. reach consensus on SCRM scope and definition, which in While TQM research has reached a “mature” stage, turn could accelerate SCRM research, and 2) determine SCRM research is in an “early” stage. For example, [7] whether ISO 31000 provides the foundation for planning suggested that SCRM research regarding crisis situations and executing SCRM. was in its “infancy” stage, then examined the literature To pursue these goals, survey data and follow-up in- and conducted interviews to develop a theoretically terviews were used. Findings suggest that ISO 31000 grounded framework for examining supply crisis man- Copyright © 2013 SciRes. AJIBM 368 Integration of ISO 31000:2009 and Supply Chain Risk Management agement [7]. Driven by the suggestions that SCRM re- in the external environment, risk treatment, or corporate search is in an early stage, that a standard SCRM frame- objectives. It also assesses the success of risk treatments. work may advance research, and that SCRM is a subset of ERM, this exploratory research examines SCRM rela- 2.2. SCRM Frameworks tive to the ISO 31000 framework. SCRM frameworks [17-19] share common elements with 2.1. ISO 31000:2009 each other and with ISO 31000. However, Table 1 iden- tifies a lack of consensus regarding what constitutes ERM has received attention as a way to gain competitive SCRM, and indicates that ISO 31000 is more compre- advantage, yet has not gained much traction [14]. The hensive than SCRM frameworks. ISO 31000 emphasizes International Organization for Standardization (ISO) that the first critical step for enabling holistic risk man- published ISO 31000:2009 Risk Management Principles agement is establishing the context. It also explicitly and Guidelines [3] to provide a foundation for ERM im- recognizes the need for stakeholder engagement and plementation. It is anticipated that ISO 31000 will be- communication, and emphasizes continuous monitoring, come an international norm for ERM [15]. This research review, and improvement. focuses on ISO 31000, Clause 5 Risk Management Proc- ess, which consists of five integrated segments [16] 2.3. Supply Risks and Responses (Figure 1). The research identifies many supply risks, including but Communication and consultation (5.2) requires en- not limited to order fulfillment problems, information gagement of stakeholders to determine objectives, secure delays, labor tensions, natural disasters, capacity fluctua- involvement, and to disseminate risk information. Estab- tions, bankruptcy, exchange rates, government regula- lishing the context (5.3) sets objectives, identifies factors tions, security, and opportunism [19-23]. Risk treatments that influence success, appraises stakeholder relation- might include dual-sourcing [24], credit analysis [25], ships, and identifies the risk management environment. use of capable suppliers [19], building structural flexibil- This essential step precedes risk assessment. ity into supply chain designs [26], supply chain modeling Risk assessment (5.4) consists of three interrelated [27], inventory buffers [23], trust development [27], or steps. “Risk identification” defines risks, and identifies contingency planning [28,29], for example. risk drivers and risk categories. “Risk analysis” evaluates risk, including potential business consequences and oc- 3. Research Method currence likelihood. “Risk evaluation” prioritizes risks from acceptable to unacceptable, and identifies which This exploratory research selected a purposeful sample to risks require treatment. pursue the research objectives [30]. Targeted participants Risk treatment (5.5) identifies options for treating risks, were known to support supply research and education, including: accepting risk to achieve competitive advan- and were active in professional supply associations. The tage; avoiding risk; reducing or removing the likelihood survey was sent to 58 firms. A 66% response rate was or consequence of risk; and sharing or transferring risk. achieved. Early-to-late respondent survey comparisons Monitoring and review (5.6) analyzes changes in risks were made to analyze potential nonresponse bias [31]. and the emergence of new risks that result from changes No statistically significant differences were found. The Figure 1. ISO 31000:2009 clause 5 process for managing risk. Copyright © 2013 SciRes. AJIBM Integration of ISO 31000:2009 and Supply Chain Risk Management 369 Table 1. ISO 31000:2009 and SCRM frameworks. ISO 5.2 Communication 5.3 Establishing 5.4.2 Risk 5.4.3 Risk 5.4.4 Risk 5.6 Monitoring 5.5 Risk treatment 31000:2009 and Consultation the context identification analysis evaluation and review Hallikasa et Decision and Risk al., Risk assessment implementation of risk Risk monitoring identification 2004 management actions Kleindorfer & Specifying Saad, sources of risks Assessment Mitigation 2005 and vulnerabilities Selection of appropriate risk management strategies Manuj & Risk Risk assessment and Implementation of supply Mentzer, Identification evaluation chain risk management 2008 strategies Mitigation of supply chain risks Tummala & Risk Risk Risk Risk Risk mitigation & Risk control & Schoenherr, measurement Identification assessment evaluation contingency plans monitoring 2011 majority of responses were from manufacturing firms Table 2. Industry profile. (Table 2). Sales volume, number of employees and re- Industry Count spondent titles are shown in Tables 3-5 respectively. Manufacturing 11 Automotive 10 4. Data Analysis Aerospace/Defense 4 Consumer Products 3 Results are categorized relative to the segments of ISO Health Care 2 31000:2009. In all tables, the “agree/disagree” questions Construction 2 are scaled from “1 = strongly disagree” to “7 = strongly Other 6 agree”, and the “extent of use” questions are scaled from “1 = not used” to “7 = extensively used”. Table 3. Sales. Sales Count 4.1. Communication and Consultation $10M - $49M 1 Table 6 suggests that firms attempt
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