Managing a supply chain's web of risk

Purpose – This purpose of this article is to look at how companies focused on optimizing their supply chain through global sourcing and just‐in‐time (JIT) delivery systems to dramatically cut the cost of production, now must learn to reduce their exposure to a variety of complex risks. Design/methodology/approach – The article traces how in the aftermath of the March 2011 earthquake and tsunami in Japan, many manufacturers around the world suddenly discovered how exposed their operations were to unanticipated interruption in their supply chain. Findings – The author suggests steps companies can take to analyze risk, to prevent supply chain disruption and to manage its consequences when it happens. Practical implications – For identifiable individual risks, a company can choose a variety of mitigation approaches: avoid; transfer; mitigate; minimize; respond; monitor; accept. Originality/value – The paper presents at a five‐level approach where improved risk management can be tackled at five levels of increasing sophistication: level 1 – efficient firefighting; level 2 – insurance; level 3 – core risk management; level 4 – return‐risk optimization; and level 5 – distributed operations for uncertainty and complexity.