Risk Management in supply chain


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Risk Management in supply chain

  1. 1. Mastering Supply Risk “Everybody needs to do it” 24 december 2009 Drs. M. Nieuwboer CSCP
  2. 2. 24 december 2009 Everybody needs to use supply risk management! <ul><li>On average, news of a supply risk is associated with a nearly 11% decrease in stock price. The stock market reaction is negative for 75% of the announcements. </li></ul><ul><li>79% of all companies wants to have SC risk management. </li></ul><ul><li>96% of the companies in process industries is using some form of supply risk management. </li></ul><ul><li>84% of supply managers sees benefits is thorough risk-understanding </li></ul><ul><li>Supplier failure is seen as the No 1. threat. </li></ul><ul><li>Supply risks will increase in a globalizing world </li></ul>Are you using supply chain risk? <ul><li>And they have learned it the hard way: </li></ul><ul><li>Daimler-Chrysler, Volvo, Jaguar, Toyota </li></ul><ul><li>Cisco, Ericson </li></ul><ul><li>Nike </li></ul><ul><li>Shell, Arkema, Huntsman </li></ul>
  3. 3. 24 december 2009 An integrated approach to supply chain risk management Risk management is a continuous process Risk management is a cross-functional activity
  4. 4. December 2008 Integrate your risks strategies with your long term corporate strategies. What do you want to do and which risks do you want to know? 1. Define and revise your risk strategy Result: Formalized and aligned risk management strategy
  5. 5. December 2008 <ul><li>High level document which describes companies view on risk. </li></ul><ul><li>Rules and procedures about risk management. </li></ul><ul><li>Roles and responsibilities overview, agreed by top management. </li></ul><ul><li>Impact analysis refined risk strategy. </li></ul>Deliverables: Define and revise your risk strategy Result: Formalized and aligned risk management strategy
  6. 6. December 2008 <ul><li>Set criteria for categorizing products and processes in portfolio. </li></ul><ul><li>Collect high level data for risk score-cards (f.i. RPI). </li></ul><ul><li>Analyze product and process portfolio. </li></ul><ul><li>Estimate probability and impact. </li></ul>2. Quick Scan Result: Each product group and process is categorized
  7. 7. December 2008 <ul><li>Prioritize product groups </li></ul><ul><li>Establish supplier dependency for selected groups (bottom / top line impact) </li></ul><ul><li>Analyze market dynamics </li></ul><ul><li>Assessment of supplier reliability </li></ul>2.1 Product and process profiling Result: A dashboard & analysis for each product group and process
  8. 8. December 2008 <ul><li>Deep analysis of the value chain for selected processes and products </li></ul><ul><li>Value chain mapping for thorough risk understanding </li></ul><ul><li>Complete risk matrix </li></ul>2.2 Value chain analysis Result: Deep understanding of value chain and sources of risk
  9. 9. December 2008 <ul><li>Supply risk overview and prioritization </li></ul><ul><li>Detailed probability/impact matrix </li></ul><ul><li>Financial impact calculation </li></ul><ul><li>Analyzed product and process portfolio. </li></ul><ul><li>Calculation of probability and impact. </li></ul>Deliverables Result: Each product group and process is categorized
  10. 10. December 2008 Example Deliverables examples probability Impact
  11. 11. December 2008 <ul><li>Prepare treatment plan for selected risks. </li></ul><ul><li>Visualize benefits en costs treatment </li></ul><ul><li>Sign-off by senior management </li></ul><ul><li>Implement treatment </li></ul>3. Supply risk treatment Result: Reduction and acceptation of risks.
  12. 12. December 2008 <ul><li>Review risk management approaches </li></ul><ul><li>Check compliance with new risk management strategies </li></ul><ul><li>If required fine-tune methodology </li></ul>4. Monitor Result: Alignment of treatment, actual situation and corporate strategy
  13. 13. December 2008 Drs. Michael Nieuwboer CSCP is as a senior supply chain consultant at Coppa , specialized in (global) sourcing, risk management and logistics. Michael worked on projects in the EU, USA and Asia. Michael has gained large expertise in the Hightech and process industry He has had his education mainly at the Cranfield University and Radboud University. He is also a columnist for supply chain online and has won an external achievement award. In his spare time, he likes to work with old Porsches or play football at his club NEC . About the author For more information: [email_address] or 0031-(0)628902893
  14. 14. Examples of interruptions <ul><li>* Hurricanes. Hurricane Floyd flooded a Daimler-Chrysler plant producing suspension parts in Greenville, North Carolina (USA). As a result, seven of the company's other plants across North America had to be shut down for seven days. </li></ul><ul><li>* Diseases. The foot-and-mouth disease in the UK in 2001 affected the agriculture industry more than its last outbreak 25 years ago. The reason for this was that former local and regional supply networks had become national and international, and that the industry was much more consolidated (Jüttner et al, 2002). But many other industries were also affected: luxury car manufacturers like Volvo and Jaguar had to stop deliveries due to lack of quality leather supply. </li></ul><ul><li>* Fires. Toyota was forced to shut down 18 plants for almost two weeks following a fire in February 1997 at its brake-fluid proportioning valve supplier (Aisin Seiki). Costs caused by the disruption were estimated to be $195 million and sales loss was estimated to 70,000 vehicles (~ $325 million) (Converium, 2001). </li></ul><ul><li>* Demand. Rapidly weakening demand coupled with locked-in supply agreements made Cisco take a $2.5 billion inventory write-off in Q2 2001. </li></ul><ul><li>* Supply. Inaccurate supply planning led Nike to an inventory shortage of &quot;hot&quot; footwear models and the sales for Q3 2001 were $100 million off target. </li></ul><ul><li>* Supply chain capacity risks. In a situation where demand is very uncertain, and the capacity bottleneck is far upstream from the market place, the risk of investing in more capacity could be a joint issue for the whole supply chain, and different instruments for supply chain risk sharing can be used. </li></ul>24 december 2009