Outcome Driven Supply Chain - Part 1

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Presented at MDP on 'Demystifying Supply Chain' organised by Management Development Center at Energy Acres, UPES Dehradun

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Outcome Driven Supply Chain - Part 1

  1. 1. Outcome Driven Supply Chain Dr. Etinder Pal Singh Feb 24, 2012 Presented at MDP organized by Center for Management Development & UPES Dehradun
  2. 2. A request Keep an open mind andAsk lots of questions
  3. 3. REMEMBER!• Today’s supply chain is a result of actions taken in the past.• Tomorrow’s supply chain will be the result of actions that we take today.
  4. 4. Risks in supply chains?
  5. 5. Most important risks faced by multinational firmsAon Global Risk Management Survey 2009(Survey among 550 multinational companies > $ 1 billion revenue) – Economic slowdown – Regulatory / legislative change – Business interruption risks Supply chain risks – Increasing competition mentioned three times – Raw materials / commodity prices in Top 10! – Damage to reputation – Cash flow / liquidity risk – Supply chain failure – Third party liability – Difficult to attract top talent
  6. 6. Natural disasters reported 1900-2008Source: EM-DAT (2010)
  7. 7. Risks in the supply chain – an example The Albuquerque accident• March 2000• Philips semi-conductor plant in Albuquerque, New Mexico, USA – Sole-supplier of radio-frequency chips to Nokia and Ericsson• Lightning strike lead to small fire in clean rooms at Philips plant• Sprinkler installation activated in clean rooms• It took 3 weeks before production was up and running again• After 6 months, production yields were only 50%• It took years before new equipment was delivered and installed
  8. 8. Some developments and trends in supply chain management• Globalisation and global sourcing – Longer, more complex supply chains – Volatile markets• Strong focus on achieving efficiency and economies of scale – Lean, JIT-processes – Centralised distribution and manufacturing – Single-sourcing / reduction number of suppliers – Shorter lead-times and delivery cycles – Working capital optimisation• Outsourcing and off-shoring non-core activities – Loss of control Source: Christopher (2005), Husdal (2009)
  9. 9. 4 constructs that we need to deconstructUsually, research in the field of supply chain risk consists of 4 constructs – Supply chain risk – Supply chain disruption – Supply chain vulnerability – Supply chain risk management (and resilience) Source: Wagner and Bode (2008)
  10. 10. Supply chain risk • Risk is a concept with a lot of different definitions • 2 main perspectives: – Exposure to uncertainty (everyday usage e.g. “it is risky to drink and drive”) – Outcome of an event (e.g. higher total costs and longer lead-times after a fire in a warehouse: – Risk = Probability * Consequences) • What can happen? (risk sources) • How likely is it that it will happen? (probability) • If it does happen, what are the consequences? (consequences)Source: Jüttner et al. (2003); Zsidisin and Ritchie (2008)
  11. 11. Analysing supply chain risks• Firms commonly visualise unforeseen and unwanted events by means of a risk- matrix• A risk-matrix has 2 dimensions: probability and consequences (impact)• Problem: it relies heavily on risk perception. Source: Sheffi & Rice Jr. (2005)
  12. 12. Risk perception• Depends on: – Time/moment – Experience/knowledge – Place – Risk attitude / appetite – Position – Possibilities to decide – Big bang or small incidents
  13. 13. Supply chain risk sources • Where can risks originate from? Risks internal to the firm Supply risk Supply risk Processrisk Process risk Demandrisk Demand risk Controlrisk Control risk Environmental riskSource: Christopher & Peck (2004)
  14. 14. Supply chain risk sources • Where can risks originate from? Machine break-down Employee strike Volatile customer-demand Wrong order-forecast Risks internal to the firm Supply risk Supply risk Processrisk Process risk Demandrisk Demand riskBankruptcy of supplierQuality problems at supplierTransportation failure Controlrisk Control riskNatural disastersPolitical instability Order quantity policies Quality controlSevere weather conditions Environmental risk Source: Christopher & Peck (2004)
  15. 15. Supply chain disruptions• “Supply chain disruptions are unplanned and unanticipated events that disrupt the normal flow of goods and materials within a supply chain”• Supply chain disruptions: the occurrence of risk• Consist of: a trigger and the situation that emerges afterwards. Supply chain disruption Triggering event Consequential situation Supply chain Time risk Exposure to risk Occurrence of risk Source: Craighead et al. (2007), Wagner and Bode (2008)
  16. 16. Most frequently occurring disruptions in 2008-20091. Sudden drop in customer demand3. Quality issues at the supplier5. Poor logistics performance of suppliers (delivery dependability)7. Severe weather conditions9. IT-infrastructure problems (hardware, software)Source: TNO-onderzoek: Risico’s en Kwetsbaarheden in Logistieke Ketens (2010)
  17. 17. What are the consequences of a disruption?Higher costBad performanceLost salesLower profitsBankruptcyFear, dangerDamage to reputationFor whom?The company itselfSuppliersCustomersSociety

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