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Supply Chain Risk Mitigation
Supply Chain Risk Mitigation
Supply Chain Risk Mitigation
Supply Chain Risk Mitigation
Supply Chain Risk Mitigation
Supply Chain Risk Mitigation
Supply Chain Risk Mitigation
Supply Chain Risk Mitigation
Supply Chain Risk Mitigation
Supply Chain Risk Mitigation
Supply Chain Risk Mitigation
Supply Chain Risk Mitigation
Supply Chain Risk Mitigation
Supply Chain Risk Mitigation
Supply Chain Risk Mitigation
Supply Chain Risk Mitigation
Supply Chain Risk Mitigation
Supply Chain Risk Mitigation
Supply Chain Risk Mitigation
Supply Chain Risk Mitigation
Supply Chain Risk Mitigation
Supply Chain Risk Mitigation
Supply Chain Risk Mitigation
Supply Chain Risk Mitigation
Supply Chain Risk Mitigation
Supply Chain Risk Mitigation
Supply Chain Risk Mitigation
Supply Chain Risk Mitigation
Supply Chain Risk Mitigation
Supply Chain Risk Mitigation
Supply Chain Risk Mitigation
Supply Chain Risk Mitigation
Supply Chain Risk Mitigation
Supply Chain Risk Mitigation
Supply Chain Risk Mitigation
Supply Chain Risk Mitigation
Supply Chain Risk Mitigation
Supply Chain Risk Mitigation
Supply Chain Risk Mitigation
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Supply Chain Risk Mitigation

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How much do you really know about your suppliers? How could your supply chain be impacted by a natural disaster, another recession, or limited inventories? …

How much do you really know about your suppliers? How could your supply chain be impacted by a natural disaster, another recession, or limited inventories?

Global supply chains have been brought to their knees in recent years as the result of host of massively disruptive events including devastating natural disasters, economic crisis, turbulent commodity prices, product recalls, and other unforeseen disruptions. These catastrophic events including Hurricane Irene, the eruption of the Eyjafjallajokull volcano in Iceland, the Japan earthquake and tsunami, and the most recent Thailand flooding have put many suppliers out of business, leaving manufacturers stranded and production lines halted.

Executives are becoming increasingly aware of the risks of doing business on a global scale and are experiencing first-hand the havoc these supply chain disruptions pose to their bottom lines, brand reputation, and stock value.

Join Supply & Demand Chain Executive and IHS as they share expertise, tools, and best practices in supply chain risk mitigation, and supplier risk scoring. Speakers will discuss why managing risk in the supply chain needs to be a multidimensional approach taking into account:

Materials risk, knowing where volatile raw material prices are headed
Electronic Parts risk, ensuring the sustainability and authenticity of the components within your supply chain
Supplier risk, understanding what potential obstacles your suppliers might face

Global supply chains need this critical information now more than ever. Don't miss this chance to hear industry experts share actionable advice on leading tools and best practices for supplier risk management.

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  • 1. Welcome to Today’s WebcastSupply Chain Risk Mitigation:Minimizing Exposure to Supplier Failure, Volatile Commodity Prices, andManufacturing DisruptionsMarch 15, 2012Copyright © 2012 IHS Inc. All Rights Reserved.
  • 2. Today’s Speakers Katie Lewis  Director, Procurement & Sourcing Solutions, IHS Inc. Eric Pratt  Senior Director, Pricing & Competitive Analysis, IHS Inc. John Mothersole  Principal, Industry Practices Group, IHS Inc. Barry Hochfelder  Editor, Supply & Demand Chain ExecutiveCopyright © 2012 IHS Inc. All Rights Reserved. 2
  • 3. Join the Conversation Follow IHS on Twitter… Get the latest supply chain news, updates and trending topics from @IHS_SupplyChain Live Tweet today’s webcast: #IHSWebcastCopyright © 2012 IHS Inc. All Rights Reserved. 3
  • 4. Supply Chain Risk Mitigation:Parts, Materials, & Suppliers  Katie Lewis - Director, Procurement & Sourcing Solutions, IHS Inc.  Eric Pratt - Senior Director, Pricing & Competitive Analysis, IHS Inc.  John Mothersole - Principal, Industry Practices Group, IHS Inc.
  • 5. Early Survey Findings Reveal Priorities Greatest Supply Chain Focus Areas Negotiating Contracts/Individual Supplier Relationships Managing Inventory Levels Gaining Greater Visibility into the Supplier Network Material Risk Management/Hedging Low Cost Country Sourcing Benchmarking Geographic Mapping of Supplier Mfg Parts Management 0% 10% 20% 30% 40% 50% 60% 70% IHS Inc and Supply & Demand Chain Executive magazine 2012 preliminary Supplier Risk Survey results (data collection is ongoing)Copyright © 2012 IHS Inc. All Rights Reserved. 5
  • 6. Segmenting Supply Chain Risk • Resting Risk • Supplier Segmentation – Partner, Critical, Bottleneck, Transactional • Fragmentation of Supply • Conflict Metals or soon-to-be Non-Compliant substances in Supply Chain • EOL and PCN alerts • Counterfeit Parts • Reactive Risk • Natural Disaster Disruptions • Political Disruptions • Supply Disruption Alerts/Notices specific to supplier • Cost – rising & volatile prices for key material inputsCopyright © 2012 IHS Inc. All Rights Reserved. 6
  • 7. Parts & Components: Resting RiskManaging Scheduled Variations Eric Pratt Senior Director, Pricing & Competitive Analysis, IHS Inc.
  • 8. Product Life Cycles & Technical Documents Maturity Decline Growth Phase-Out Introduction Obsolete New Product Introduction End of Life (EOL) or Product Change Notification (PCN) (NPI) Discontinuance (PDN) New Product Introduction End of Life (EOL) or Product Change Notification (PCN) (NPI) DiscontinuanceCopyright © 2012 IHS Inc. All Rights Reserved. 8
  • 9. Insight: IHS Analyzes NPI, PCN, EOL Data Business Driver Stated by Manufacturers LOW DEMAND, LOW SALES Demand LOW INVENTORY Demand-Side Economics LOW FORECAST … PB-Free Conversion Environment REACH CONVERSION Compliance and Sustainability ROHS CONVERSION … DIE CHANGE, MANUFACTURING PROCESS CHANGE Technology NEW VERSION, TECHNOLOGY INNOVATION Innovation, Technology, QUALITY ISSUES and Manufacturing OBSOLETE MFG PROCESS, OBSOLETE TECHNOLOGY … COMPANY ACQUISITION Organization FAB/FACILITY CLOSURE Consolidation / Rationalization of PRODUCT RATIONALIZATION/CONSOLIDATION Company and its Products … SHORTAGE OF MATERIAL Supply SUPPLIER OBSOLESCENSE Supply-Side Economics …Copyright © 2012 IHS Inc. All Rights Reserved. 9
  • 10. Insight: PCN/EOL Correlate with Market Trends, Business Drivers, and Volatility Component PCN 40% CAGR from 1997-2010 Lead-free creates 20% new EOL 2006-2007 End of Life (EOL) Specific to RoHS/Pb-free Environmental Compliance 2003 2004 2005 2006 2007 2008 2009 Component EOL 40% CAGR from ‘97 to ‘10 Demand weakness 90% of EOL in 2009 2,600 2,500 2,400 2,300 Semiconductor MSI (Right Scale) 2,200 End of Life Parts % of Total Parts 2,100 2,000 1,900 .80 1,800 .75 1,700 1,600 .70 1,500 .65 1,400 .60 1,300 .55 1,200 .50 1,100 .45 1,000 .40 900 .35 800 .30 .25 IHS EOL insight found “demand side” primary reason for 90% of EOL .20 actions in 2009, vs. more typical 15-20% citations during 2004-2008 .15 .10 Millions Square Inches Silicon Processed - Semi Parts: IHS Electronics Database .05 .00 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Charts Courtesy of IHS Inc., 2011Copyright © 2012 IHS Inc. All Rights Reserved. 10
  • 11. Today, Counterfeits Are A Big Deal Risks to Company, Brand, and Performance What is the Impact of Counterfeit Electronics? (% Respondents) Undermine compliance claims 44% COMPANY Compromise device/product security 37% BRAND Expose contractual liability 42% & Expose product safety / legal liability 55% Damage brand / reputation 71% PERFORMANCE OPERATIONS Product launch delays 36% PRODUCT Production line stoppages 57% & Customer returns/recalls 67% Product quality/reliability failures 84% Increase product dev’pt time/costs 38% FINANCIAL Add to unit costs 51% Inhibit sales / customer sat 62% & Reduce expected product life 64% Increase warranty/maint. costs 65% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% Source: Benchmarking Counterfeit & Inferior Grade Components, Supply & Demand Chain Executive & IHS Inc., April 2009Copyright © 2012 IHS Inc. All Rights Reserved. 11
  • 12. Insight: Counterfeit Incidents vs. Revenues 2001 – 2011 ERAI Accounted for Over 90% of High Risk and Suspect Counterfeit Parts Verified and Reported from 2001-2011Copyright © 2012 IHS Inc. All Rights Reserved. 12
  • 13. Reactive RiskManaging Supply Chain Disruption: Thailand & Japan
  • 14. Thailand Flood -Update • Over 800 fatalities • More than one-third of Thailand flooded • 7 million people affected • 14,000 factories flooded An aerial view of the Chaophraya River on Oct. 12, 2011 in Ayutthaya province, central Thailand. (AP Photo) The disaster in Thailand disrupted the supply chains of many industries. • Direct Impact: Automotive production, Analog IC & Discrete Semiconductor manufacturing, HDD manufacturing and assembly, Electronics Assembly – PCs, digital cameras • Indirect Impact: PC, DRAM, Set Top Boxes, ServersCopyright © 2012 IHS Inc. All Rights Reserved. 14
  • 15. Supply and Demand Analysis Supply/Demand Analysis SHIPMENTS CHANGE % ASPS CHANGE % DAYS OF INVENTORY CHANGE % 40.00% 30.00% 20.00% 10.00% Percentage 0.00% Toshiba plant before flood Q1 10 Q2 10 Q3 10 Q4 10 Q1 11 Q2 11 Q3 11 Q4 11 Q1 12E -10.00% -20.00% -30.00% -40.00% Source: IHS Toshiba plant during flood Supply and Demand Analysis:  Q4-11: Total Q4 HDD shipment dropped 29% QoQ. Price has increased ~28% QoQ in Q4-11.  Q1-12: IHS expects Q1-12 shipment and inventory to improve due to increased production from non-flooded HDD makers and component manufacturers. Price may start to decline for certain drives.  2012: Situation will continue to improve. Inventory will increase and prices will gradually decline 3- 10% QoQ. Overall supply/demand equilibrium in Q312. Almost 12 months!Copyright © 2012 IHS Inc. All Rights Reserved. 15
  • 16. Disaster Effect: Japan Crisis To what extent has your company’s increased How have prices changed for impacted normal purchasing for commodities, materials, commodities, materials, or components? or components believed to be impacted? Not at all 9.2% Significant decrease in prices 0.0% Somewhat 21.7% Slight decrease in prices 1.7% Moderately 34.2% No change to prices 24.2% Significantly 6.7% 60%+ Slight increase in prices 40.8% Very significantly 2.5% Significant increase in prices 4.2% 45% Not applicable 25.8% Not applicable 29.2% How have you or your suppliers increased the Which of the following do you believe are true? use of open market or other independent supply chains to source critical parts? Prices are/or will increase for commodities, 69.2% materials, components or services we need Material shortages or obsolescence will 49.2% Not at all 18.3% increase Somewhat 24.2% Counterfeiting of electronics will increase 55.0% Moderately 10.8% Significantly 8.3% 40%+ We will use new suppliers or open market 27.5% sources to satisfy demands Very significantly 1.7% Not applicable 36.7% Other 7.5% Source: IHS Online PollCopyright © 2012 IHS Inc. All Rights Reserved. 16
  • 17. PCNalert: Actual PCN Show Disaster ImpactCopyright © 2012 IHS Inc. All Rights Reserved. 17
  • 18. PCNalert: Illustrate Material/Price VolatilityCopyright © 2012 IHS Inc. All Rights Reserved. 18
  • 19. Material RiskWhat Was Reactive Becomes Routine:Rising Commodity Volatility John Mothersole Principal, Industry Practices Group, IHS Inc.
  • 20. What Has Changed? • Commodity prices exploded from 2002 to 2011 • Average annual growth rate of 15% • Why should we care about commodity prices? • This surge in prices has impacted profitability and complicated budget planning - elevating purchasing’s role • Higher prices joined by higher volatility in recent years • Upside risk and downside risk combine to create wild gyrations in prices on a month to month basis • Emerging markets have exploded onto the global economy • Influence will continue to grow over the next decade • Resource nationalism is becoming a factor • Investors are now firmly entrenchedCopyright © 2012 IHS Inc. All Rights Reserved. 20
  • 21. Copper Versus Gold Prices Which to Choose? 10000 2000 8000 1600 6000 1200 4000 800 2000 400 0 0 2000 2002 2004 2006 2008 2010 2012 Copper, $/metric ton, left Gold, $/troy ounce, rightCopyright © 2012 IHS Inc. All Rights Reserved. 21
  • 22. Price Volatility Has Increased Standard Deviation in Monthly Price Changes* 10.0 9.0 8.0 7.0 6.0 5.0 4.0 3.0 1982-85 1986-89 1990-93 1994-97 1998- 2002-05 2006-09 2010- 2001 2011 *Gold, silver, oil, aluminum, copper, coffee, sugar, rubber, cotton, corn, w heat, lumber, steel scrap, steel plate, HR carbon steel sheetCopyright © 2012 IHS Inc. All Rights Reserved. 22
  • 23. The ‘West’s’ Influence is Waning Share of world GDP, measured in US dollars 2010 2020 Other Asia, Other Asia, Mideast, Mideast, Pacific Pacific Africa Africa 20.5% 33.8% 5.8% 6.1% Japan 8.7% North Emerging North America Europe America 20.1% Japan 6.4% 27.1% 5.7% Other Western Other Emerging Americas Western 7.1% Europe Americas Europe Europe 25.2% 6.3% 7.5% 19.6% US 22.9% US 16.9% China 9.4% China 19.6% India 2.7% India 5.5%Copyright © 2012 IHS Inc. All Rights Reserved. 23
  • 24. Is the Investment Climate Worsening? Fraser Institute Global [Mining] Policy Potential Index 52 Lower score signals less attractive 48 mining environment 44 40 36Copyright © 2012 IHS Inc. All Rights Reserved. 24
  • 25. Country Risk AnalysisCopyright © 2012 IHS Inc. All Rights Reserved. 25
  • 26. Quantified Risk Correlates With VolatilityCopyright © 2012 IHS Inc. All Rights Reserved. 26
  • 27. The Role of Investors 4.5 65 4.0 75 3.5 3.0 85 2.5 2.0 95 1.5 105 1.0 0.5 115 1996 1998 2000 2002 2004 2006 2008 2010 2012 IHS Global Insight Industrial Materials Price Index, 2002=1.0, left scale Trade Weighted Value of U.S. Dollar, 1973:3=100,inverted, right scaleCopyright © 2012 IHS Inc. All Rights Reserved. 27
  • 28. Takeaways • Commodity prices exploded since 2005 • Global economy continues to struggle from the Great Recession; however prices have almost regained previous peaks • A new higher cost profile has been placed under many commodities • Volatility has increased significantly – and is likely a permanent feature of supply chains • This raises the need to not just track commodity prices but also the corresponding factors that drive prices • Build a cost profile of your key materials • Identify key production centers and raw material exporters • Be aware of changes and potential changes in policy – these do influence investor flows • Be prepared for volatility • Formal hedging strategies should be considered if not already in placeCopyright © 2012 IHS Inc. All Rights Reserved. 28
  • 29. Supplier RiskManaging Risk in the Supplier Network Katie Lewis Director Procurement & Sourcing Solutions, IHS Inc.
  • 30. Risk Survey (Preliminary) Results Significance of Managing Supplier Risk to Most Pressing Supplier Risks Operational Plan Supply Delay/Disruption Extremely Significant Quality Very Significant Cost Moderately Significant Reliability Environmental Compliance Not Very Significant Counterfeit Risk Not At All Significant Supplier Bankruptcy 0% 10% 20% 30% 40% 0% 10% 20% 30% 40% 50% 60% 70% 80% IHS Inc and Supply & Demand Chain Executive magazine, 2012 Preliminary Survey Results (survey is on-going) • Survey results confirm supplier risk management is integral to 2012 operational plans • Delays and disruption are the biggest concern, with quality and cost following closely behindCopyright © 2012 IHS Inc. All Rights Reserved. 30
  • 31. Understanding the Supplier Network Supplier Relationship Management • Building Partnerships • Gaining Visibility • Understanding Risk • Avoiding Disruption • Achieving Cost SavingsCopyright © 2012 IHS Inc. All Rights Reserved. 31
  • 32. Assessing Supplier Risk • The impact of a disruption to the supplier relationship should influence your relationships with suppliers • Balancing risk and cost is integral to effective supplier managementFor the most integral and high-value inputs to your supplychain, grow strategic partnerships with your suppliers Partner Value of SpendFor lower value, but still integral inputs comingfrom a short list of suppliers, close inventory Bottleneckmonitoring is requiredFor highly competitive commodities andparts, strategic timing of buys, effective Substitutes Availablecontract negotiation, and benchmarkingmean cost savingsCopyright © 2012 IHS Inc. All Rights Reserved. 32
  • 33. Thailand Floods I read in the news that flooding during the monsoon season in Thailand has impacted manufacturing facilities in the region. •Will it impact my supply chain? •What producers could be impacted? •What facilities are in the path of the floodwaters? •Could these disruptions impact my production schedule?Copyright © 2012 IHS Inc. All Rights Reserved. 33
  • 34. Thailand Floods What if I knew instantly which of my suppliers had manufacturing facilities in the region? My suppliers are clearly marked, so I can measure the impact to my supply chain If I know which suppliers were affected, and which ones supply my production lines, I can react quickly when disaster strikes.Copyright © 2012 IHS Inc. All Rights Reserved. 34
  • 35. Managing the Supplier Network Know Your Suppliers • Tier 1• Make informed decisions, balancing cost and risk based on detailed supplier information • Tier 2• The majority of manufacturers do not have tier 2 or 3 visibility, increasing the risk of unforeseen disruptions • Tier 3Copyright © 2012 IHS Inc. All Rights Reserved. 35
  • 36. Supply Chain Risk Ratings • Supplier Database • Financial viability • Revenues • Cost of Goods Sold • Debt • Security of Supply • Capacity • Inventories • Diversity of production facilities • Counterfeit notices, responsiveness, correctness • Quality • Reliability • Innovation and Investment • Capital Expenditure • Growth Prospects • Geographic risk based on production • Diversification • Cost/Productivity balance • Infrastructure obstaclesCopyright © 2012 IHS Inc. All Rights Reserved. 36
  • 37. IHS Connect: Supply Chain WorkbenchCopyright © 2012 IHS Inc. All Rights Reserved. 37
  • 38. Questions? Katie Lewis  Director, Procurement & Sourcing Solutions, IHS Global Insight Eric Pratt  Senior Director, Pricing & Competitive Analysis, IHS Inc. John Mothersole  Principal, Industry Practices Group, IHS Inc. Barry Hochfelder  Editor, Supply & Demand Chain ExecutiveCopyright © 2012 IHS Inc. All Rights Reserved. 38
  • 39. For More Information Send questions and requests for information to: SupplierRisk@ihs.com @IHS_SupplyChain IHS - Design & Supply Chain IHS_SupplyChainCopyright © 2012 IHS Inc. All Rights Reserved. 39

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