Value-Focused Supply Chain Risk Analysis

Abstract

Multicriteria analysis provides modeling tools to aid in identification of preference. This process begins with creating a hierarchical structure of criteria. Structuring of a value hierarchy is a relatively subjective activity, with a great deal of possible latitude. It is good to have a complete hierarchy, including everything that could be of importance to the decision maker. However, this yields unworkable analyses. Hierarchies should focus on those criteria that are important in discriminating among available alternatives. The key to hierarchy structuring is to identify those criteria that are most important to the decision maker, and that will help the decision maker make the required choice.

This chapter presents the value-focused approach to structure hierarchies, and the SMART method to provide a simple model of preference. These were demonstrated in the context of the supply chain risk management decision of selecting a plant location for production of a component. The methods apply for any decision involving multiple criteria.