ABSTRACT
Introduction This chapter looks at issues surrounding the risks associated with supplier networks. Risk management and network sourcing have been the subject of separate vivid debate but have not been discussed together. The development and management of the supplier network is one of the most important functions of industrial companies.For suppliers, network arrangements have recently been perceived as a strategic weapon in their quest to secure targeted customers and hence, gain access to the end markets on which their business depends. The importance of this toSMEs is even more relevant, as many customers reduce their supplier base and turn towards single sources of supply in pursuit of lean management philosophies.Business relationships have changed during the last twenty years. Supplier relationships have become more important through increasing outsourcing and networking of companies. The traditional role of supplier relationship assessment has been to analyze supplier performance from the buying company’s point o f view taking the supplier’s aspects into minor consideration. However, risks related to the collaboration are not merely dependent on the one company’s goals and objectives, although in many relationships there is a dominant party, whose aspiration is to take the responsibility of managing the entire supplier network. The increasing sharing of responsibilities and the dynamic nature of relationships requires the assessment o f relationships in a dyadic fashion.In the first part o f this chapter, we deal with network and risk management theory. A TCE model is developed in order to explain theoretically the most critical elements of a typical subcontracting decision, with special emphasis on technology-related factors, such as asset specificity, appropriability of knowledge, the role o f complementary assets in the value chain and the nature of innovation. Next we look at the risks surrounding different kinds of relationships because we believe that the type of relationship has an effect on the perceived risks of different parties. Furthermore, we present some main risk categories in supplier networks and their role in sourcing strategy development. Finally, we illustrate a framework for risk management in supplier networks.
