The result of all these uncertainties is the supply chain risk. The notion of risk and risk management are receiving greater attention in research on supply chain management by academics and practitioners alike.

Supply chain dynamics and risk. Supply chains do not always behave as expected or desired. Excessive demand variability – due to information distortion in the supply chain, between one member and the next  -can become a serious problem. This distortion is known as the Bullwhip or Forrester effect (Lee, et al [1997]. The diagram below shows the effects of such distortion along the supply chain (Davis and O’Sullivan [1999]). In addition to demand variability and information distortion, other main issues in supply chain management relate to the uncertainties within the supply chain system.

What is a supply chain? There have been a number of definitions of the supply chain in the literature. Christopher [1998] defined it as, “a network of connected and interdependent organisations mutually and co-operatively working together to control, manage and improve the flow of material and information from suppliers to end users”.  According to Johansson [2002], one of the most common perceptions of the supply chain is, “A system whose constituent parts include material suppliers, production facilities, distribution services and customer linked together via the feed-forward flow of materials and the feedback flow of information”.

Supply chain flows. It is commonly accepted that there are three main flows in the supply chain: material flow, information flow and cash flow.  The activities involved in the material flow are to deliver to the end-user via procurement of raw materials, manufacturing, distribution and customer service.  All these activities must be managed using suitable information flows. The diagram below shows the forward flow of materials from upstream to downstream, the bidirectional flow of information, and the movement of money from downstream to upstream.