2.2.1.1 Risk ranking
Risk ranking is based on the determination of risk exposure values for each identified SC risk, and is defined as Equation 1 This equation uses the indices defined in Tables II‐III above (see Tummala and Mak, 2001; Ng et al., 2003). For example, if the consequence severity of a SC risk is critical and the corresponding probability category is often, then the risk exposure value is 3×4=12. In this fashion we can find the risk exposure values for each identified risk factor as illustrated in Table IV.
For simplicity and parsimony, these risk exposure values can be grouped into classes representing similar ranges of exposure. For example, risks with values between 16 and 11 could be grouped in the most critical class. These could for instance include the risk of the shipment being stolen or lost during transfer, the risk of the only qualified supplier going out of business, or the risk of the company's warehouse burning down. Risks between 10 and 6 could be categorized in the next‐most critical class. Risks in this category could include the risk of temporary strikes at a supply chain or logistics partner, delays at customs, or the breakdown of a machine used by a supplier to provide products to the focal company. Risks between 5 and 1 could then be classified in the negligible class. These risks could involve late, incomplete or defective deliveries of suppliers that do not necessarily threaten the operations of the focal company, due to for example sufficient safety stock of the supplies or the non‐critical nature of the items. Alternatively, the risk exposure values may also be used to classify risks based on an 80‐20 approach (Pareto analysis), i.e. the 20 percent of the risks could be identified that are likely responsible for 80 percent of the supply chain failures, and then these critical risks could be mitigated.