Risk Exposure Index™ (REI)

Risk Exposure Index™ (REI) Helps Industries Identify and Mitigate Risk

Risk Exposure Index™ enables companies for the first time to fully quantify their maximum risk exposure from natural disasters or any other unpredictable supply chain disruptions. It specifically assesses for each node, or site, in a given supply chain the resulting financial impact, such as loss of revenue or loss of profit, or operational impact, such as loss of production volume.

Ford implements MIT prof. David Simchi-Levi’s REI to expose risk in the automotive supply chain

Ford has implemented this concept in collaboration with the MIT team, by developing their Decision Support System for Risk Management, which is used daily. The system is used by procurement managers and directors in three ways: strategically, to identify exposure to risk associated with parts and suppliers, prioritize and allocate resources effectively, segment suppliers, and develop mitigation strategies; tactically, to track daily changes in risk exposure in order to alert procurement executives to changes in their risk position; and operationally, to respond to a disruptions by identifying an effective way to allocate resources after a disruption.

Simchi-Levi and colleagues win INFORMS Daniel H. Wagner Prize for Excellence in Operations Research Practice

Prof. David Simchi-Levi and eight colleagues received the 2014 INFORMS Daniel H. Wagner Prize for Excellence in Operations Research Practice for a project that utilizes Simchi-Levi’s Risk Exposure Index™ (REI) to identify risk and mitigate disruptions in the automotive supply chain.

“We are very pleased to have won this prestigious award with the Ford team and to see our work on the Risk Exposure Index™ successfully implemented and used daily,” says Simchi-Levi. “This concept has had a large impact beyond automotive industries such as telecommunication and pharmaceutical and has been recently adopted by the United Nations Office for Disaster Risk Reduction to assess risks in emerging countries.”

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UN Office for Disaster Risk reduction utilizes the Risk Exposure Index™

“From Superstorms to Factory Fires: Managing Unpredictable Supply-Chain Disruptions,” published recently in the Harvard Business Review, describes a method developed by Prof. David Simchi-Levi, founder of the MIT Forum for Supply Chain Innovation, to manage unpredictable supply chain disruptions. This method helps prioritize the financial impact of risk through the Risk Exposure Index™ (REI), enabling companies to focus mitigation efforts on the most important suppliers and risk areas. The method was implemented successfully at Ford Motor Company.

The REI methodology is beginning to influence thinking beyond the corporate supply chain world, as demonstrated in a recent article published by the United Nations Office for Disaster Risk Reduction, “Flood Risks and Impacts Future Research Questions and Implication to Private Investment Decision-Making for Supply Chain Networks.”

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