Supply Chain Risk - A Behavioral Perspective

A significant number of recent surveys and reports show that Supply Chain Risks are clearly on the rise.  This is not only due to common risk drivers such as Globalisation and increasing Supply Chain complexity, but is often also a negative side-effect of managerial decisions aimed at cost and efficiency improvements – such as “lean” practices. Although both practice and research continue to deliver evidence of increasing levels of Supply Chain Risk and the devastating effects of Supply Chain disruptions, having a Supply Chain Risk Management strategy is still an exception rather than a rule, and investments in Supply Chain Risk prevention and mitigation are still not among the priorities for most organisations – which makes Supply Chains increasingly prone to disruptions. Early research on Supply Chain Risk has shown that it is usually not the conscious intention of Supply Chain managers to work with higher risk levels, but rather an effect of reduced risk perceptions. The managers appear to display biased behaviour such as being overconfident regarding the undisturbed future operations of their businesses, and neglecting evidence of increasing risks and their outcomes.

This study suggests that frequent use of heuristics and the existence of cognitive biases lead to overconfidence and neglect of Supply Chain Risks, and as a consequence influence managerial decision to invest – or not to invest – in measures of Supply Chain Risk prevention and mitigation. In this conceptual paper propositions are developed about the influence of four “classic” heuristics and cognitive biases on individually perceived levels of Supply Chain Risk, and the resulting effects on decision-making in Supply Chain Risk Management.  The study represents Supply Chain Risk research from a behavioural perspective and within the field of Behavioural Operations. The paper examines the research problem through the theoretical lens of Behavioural Decision Theory (BDT), and specifies the decision as the unit of analysis.