Systemic risk assessment in complex supply networks

Ledwoch, Anna and Brintrup, Alexandra and Mehnen, Jörn and Tiwari, Ashutosh (2016) Systemic risk assessment in complex supply networks. IEEE Systems Journal. pp. 1-12. ISSN 1932-8184

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    The growth in size and complexity of supply chains has led to compounded risk exposure, which is hard to measure with existing risk management approaches. In this study, we apply the concept of systemic risk to show that centrality metrics can be used for complex supply network risk assessment. We review and select metrics, and set up an exemplary case applied to the material flow and contractual networks of Honda Acura. In the exemplary case study, geographical risk information is incorporated to selected systemic risk assessment metrics and results are compared to assessment without risk indicators in order to draw conclusions on how additional information can enhance systemic risk assessment in supply networks. Katz centrality is used to measure the node’s risk spread using the World Risk Index. Authority and hub centralities are applied to measure the link risk spread using distances between geographical locations. Closeness is used to measure speed of disruption spread. Betweenness centrality is used to identify high-risk middlemen. Our results indicate that these metrics are successful in identifying vulnerabilities in network structure even in simplified cases, which risk practitioners can use to extend with historical data to gain more accurate insights into systemic risk exposure.