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