2.2.1.2 Risk acceptance
Once the SC risks are classified, acceptable levels of risk must be established. This is the second sub‐step of risk evaluation in Phase II (Figure 1). The ALARP (as low as reasonably practicable) principle can be used to classify SC risk as unacceptable, tolerable or acceptable (Engineering Council, 1994). Cross‐functional teams, including senior management, must be involved, and all available relevant information should be used in establishing these criteria. Based on these guidelines the demarcation between acceptable and unacceptable SC risks can be defined, as illustrated in Figure 2 (Tummala and Mak, 2001; Ng et al., 2003). As risk‐exposure values increase, they are initially at a value below some level; at this stage risks are considered to be so small that it is not advisable to spend time and resources for their control. An example may include late delivery of pencils to a manufacturing facility – pencils are not necessarily critical for the proper operation of the plant, and therefore expending resources to reduce the risk of late delivery from office products suppliers may not be warranted. As risks become elevated and their risk‐exposure values increase to unacceptable levels, appropriate response actions must be taken for their containment. Unacceptable risks usually have adverse effects on the proper operation of the firm and can result in the shutdown of the assembly line, when for example deliveries from an upstream supplier are not received. The risks for which the risk‐exposure values fall between these two levels may be considered tolerable with no immediate action required. However, they should be monitored continuously and further improvement should be sought if resources are available. Continuing with the example from above, tolerable risks could be tardy deliveries from suppliers that do not shut down the assembly line. While certainly not desired, these late deliveries do not interrupt the flow of products, but the potential for doing so may be increased. Contracts developed between customers, suppliers, logistics providers and manufacturers may aid in the determination of these acceptability levels. Overall, mapping risks along their magnitudes, as illustrated in Figure 2, can provide a useful overview of all risks involved in a particular supply chain, and can help determine on which risk‐preventive actions should be performed. The triangular shape of Figure 2 implies that most risks will be acceptable and tolerable, while only few risks will be completely unacceptable, for which therefore mitigation strategies should definitely be developed. The next section elaborates on this aspect.