When does operational risk cause supply chain enterprises to tip? A simulation of intra-organizational dynamics

Interrelationships and feedback loops between different enterprises in a supply chain are widely acknowledged to create additional challenges for risk identification and monitoring. However, each individual manufacturing enterprise is also characterized by interrelationships between its internal operational risks. Our paper investigates these internal interrelationships and provides insights into the operational dynamics of single supply chain enterprises. We use system dynamic simulation and scenario analysis to answer the question: “When does operational risk cause a supply chain enterprise to tip”? We show that some operational risks are significantly more critical than the others, and that this is caused by the interrelatedness of those supply risks. In view of our findings we suggest changes in procurement and risk management activities that shift the focus towards critical operational risks. This will help to create a more stable supply network in the midterm.