Risk management in supply chain

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Risk management in supply chain

  1. 1. Risk-based inventory classification<br />OperationsPlanning.net<br />Alex Rivlin <br />
  2. 2. Agenda<br />Agenda<br />Goals of risk management<br /> Process of risk management<br /> Inventory risk management<br />
  3. 3. Goals of risk management<br />Goals of risk management<br />Reduce loss of sales<br /> Reduce expenses <br />Levels of risk management<br />Maturity of risk management<br />Drop in demand<br />Expedite charge<br />Management $$<br />E & O<br />Expedite charge<br />Management $$<br />Types of risks<br />Missed Schedule<br />Out of Stock<br />Ability to grow<br />
  4. 4. Agenda<br />ouch<br />No problems<br />
  5. 5. Supply Chain Risk Management – history and background<br />Philips fire<br /><ul><li>Philips FAB in New Mexico manufactured RF chips for cell phones.
  6. 6. Ericsson and Nokia accounted for 40% of production.</li></ul>Philips realized that extent of the damage is higher than expected<br />
  7. 7. Supply Chain Risk Management – history and background<br />Cisco example<br />Gartner, “Case Study: Cisco Addresses Supply Chain Risk Management”, 2010<br />
  8. 8. Supply Chain Risk Management – takeaway<br />Or you invent all of the above after the fact?.....<br />
  9. 9. Agenda<br />Agenda<br />Goals of risk management<br /> Process of risk management<br /> Inventory risk management<br />
  10. 10. Inventory related risks: Sample supply chain<br />Inventory related risks: controls and prevention<br /> Lets consider simple supply chain and identify controls that are required to monitor and minimize inventory related risks<br />Sample supply chain<br />Spend<br /> NOTES: Raw materials RM-1 and RM-2 are converted to Item 1 via operation S1.<br /> Item1 is combined with subassembly PP-1 or PP-2 to produce Item1-1, Item1-2, Item1-3 via operation S2<br /> The above items are converted to final items Item1-1-1 … Item1-3-4<br />
  11. 11. Supplier side risk: sample supply chain<br />Inventory related risks: controls and prevention<br /> Lets consider simple supply chain and identify controls that are required to monitor and minimize inventory related risks<br />Sample supply chain<br />Spend<br /> On sales side ABC is assigned by sales volume, on supplier side – by spent<br />
  12. 12. Supplier side risk : sample supply chain<br />Closer look<br />Sample supply chain<br />Spend<br />Affects 95%<br />Of sales<br /> Supplier side risk – PP-3 affects 95% of sales. If supplier delays/cancells/defaults on their commitment...<br /> Ensure healthy pipeline; establish second source.<br />
  13. 13. Supplier side risk: sample supply chain<br />Zoom in<br />Sample supply chain<br />We get healthy and reliable<br />Profit. Supplier gets 0.1<br />And has to invest 1.9<br />Affects 95%<br />Of sales<br /> .<br />PP-2 costs $2. Supplier's fee is $0.01, and parts they need to buy are $1.99... Supplier may not carry enough<br /> Inventory to support volume, which affects $20 revenue for the company.<br /> Monitor supplier's inventory and ensure supplier has enough cash to deliver the goods.<br />
  14. 14. Supplier side risk categorization<br />Source: “Cisco addresses supply chain management”<br />http://www.cisco.com/web/strategy/docs/manufacturing/Cisco_Case_Study_AMR_10-0917.pdf<br />
  15. 15. Customer side risk : sample supply chain<br />Zoom in<br />Sample supply chain<br />Spend<br />Our highest runner is used<br />By ONE customer and for<br />ONE design only<br />Used by one<br /> customer<br /> .<br />Item 1-1-1 : If anything happens with customer's design, our entire WIP can become obsolete.<br />Item 1-3-3 : If anything happens with [our relationships with ] the customer – back end wip will be obsolete<br />
  16. 16. Customer side risk categorization<br />
  17. 17. Summary<br />Summary : Successful risk management is:<br />Established practice<br /><ul><li>Supported by reliable process
  18. 18. Dedicated to direct attention to right risk areas
  19. 19. Includes teams from supplier, company, and customers
  20. 20. Well communicated and transparent
  21. 21. Has access to senior and executive level management</li>

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