The encyclopedia · R&D & Science · Strategic decision · 2012–2014
Ford's Risk Exposure Index showed which supplier failure would hurt most
Ford and MIT built an index that prices the impact of losing each supply-chain node, so scarce mitigation goes where failure costs most.
Ford Motor Company
the move
Ford and MIT set out to answer a question supplier audits could not: if an earthquake, fire or failure hits one plant or part, how much revenue and profit is actually at stake?
The Risk Exposure Index computes, for each node, its resulting financial impact (lost revenue or profit) and operational impact (lost production), so managers see maximum exposure rather than a categorical risk score.
Ford deployed it in a daily Decision Support System for Risk Management, used strategically to segment suppliers, tactically to alert executives to shifting exposure, and operationally to steer resources after a disruption.
why it works
- An exposure per node converts a judgment into a prioritizable number
- It ranks suppliers by what their loss actually costs the business
- Daily tracking catches risk changes before they become disruptions
- The idea transferred to telecom, pharmaceutical and disaster-risk use
what transfers
Protect the node whose loss costs the most, not the one that seems most important; quantifying impact lets a limited mitigation budget go where a failure actually hurts.
what came after
Ford uses the system daily in procurement and the work won the 2014 INFORMS Daniel H. Wagner Prize. The index was later adopted by the UN Office for Disaster Risk Reduction and in telecom and pharmaceutical supply chains.
references
- Simchi-Levi and colleagues win INFORMS Daniel H. Wagner Prize for Excellence in Operations Research Practice
- From Superstorms to Factory Fires: Managing Unpredictable Supply-Chain Disruptions
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