Biotech Risk Webinar Presentation

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Presentation for the Bio Supply Management Alliance webinar "Identifying Risks in the
Biotech Global Supply Chain:
TECHNIQUES AND CHALLENGES"

This webinar was presented on June 18, 2009. The sponsors for the webinar were Marsh, Deloitte, and APICS Golden Gate Chapter

This Webinar was presented on Thursday, June 18, 2009.

The audio can be found on http://www.biosupplyalliance.org/identifying-risks-webinar.html
Duration: 110 Minutes

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Biotech Risk Webinar Presentation

  1. 1. Risk Identification Mistakes to Avoid Rita Mulcahy, PMP © 2007 RMC Project Management, Inc.
  2. 2. About Rita Mulcahy, PMP • Founder and CEO of RMC Project Management, Inc., one of the fastest-growing project management training companies in the world • Founder and CEO of RMC Publications, Inc. • An internationally recognized expert on project management • 15 years and $2.5 billion worth of hands-on project experience • Products and classes have helped hundreds of thousands of project managers world wide 2
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  9. 9. Do Something Now! For More Free Tips on How Risk Management Can Protect Your Business log on to our Web site: www.rmcproject.com/risk - AND - Purchase Rita’s Book ® Risk Management Tricks of the Trade Visit our Web site and use for only $38 (List Price $69) this Coupon Code: (BIOSUPPLY5) Free Tips on Risk at www.rmcproject.com/risk: •Tricks for Avoiding Risk Stumbling Blocks •How to Use the Risk Book to Help You Pass the PMP® Exam •Top Five Risk Errors That Can Ruin Your Career •Is Your Lack of Risk Management Knowledge Hurting You? © 2007 RMC Project Management, Inc.
  10. 10. Biotech Supply Chain Academy Risk Identification: Improving the Health of your Supply Chain June 18, 2009 - 10 -
  11. 11. A Risk Intelligent Approach  Recognizes and manages the full spectrum of risks the organization faces  Minimizes “siloed” behavior that can obscure an integrated view of risk  Allocates proportionally more resources to the most strategic and pertinent risks  Considers effective risk management to be an organization-wide responsibility and competency  Anticipates and prepares integrated responses to risks  Manages risk with a view toward maximizing the upside of strategic decisions while minimizing the downside  Acknowledges the need to take intelligent risks to create value - 11 -
  12. 12. Deloitte’s Risk Intelligence Map - 12 -
  13. 13. Scope of Supply Chain Risks Risk Intelligence Strategy & Operations / Governance Compliance Reporting Planning Infrastructure Supply Chain Planning Sourcing Production Delivery Returns  Inaccurate demand /  Inability to procure  Inefficient production  Unreliable 3PL service  Poorly defined / supply forecast goods / raw materials planning process providers unenforceable return and cost effectively and credit policies  Inadequate capacity  Inadequate quality control  Failure to optimize lead constrain volatile planning measures time for supplies /  Inefficient return handling material costs distribution processes  Inaccurate costing  Inability to control  Inadequate supplier considerations variations in production  Inappropriate network  Poor forecasting / trend selection process design analysis of returns  Inability to determine and  Inability to manage third  Inadequate quality of maintain optimal safety party manufacturers  Inefficient order  Inadequate planning for goods and raw materials stock management and reverse logistics  Lack of operational  Over-reliance on sole verification process  SKU proliferation uniformity across  Inefficient recall source vendors production facilities  Inefficient inventory and management processes  Inability to manage channel management  Inefficient warehousing /  Inadequate chargeback contract compliance and processes inventory management reconciliation processes sustain sourcing savings processes  Breakdown in cold chain integrity  Lack of manufacturing flexibility to react to  Product diversion disruptions - 13 -
  14. 14. Impact of Life Events on a Company’s Risk Profile Pipeline 1. Search and Development Supply Chain Risk 2. Product Commitment 1 Clinical supply risk Life Events 3. Scale Manufacturing Capability 2 Raw material quality 4. Commercialization 3 Managing contract manufacturers 4 Forecast accuracy 5. Merger, Acquisition & Divestiture 5 Supply chain integration 6 Cold chain integrity * 6. Unexpected Occurrences Growth Stage - 14 -
  15. 15. Supply Chain Risk Assessment Approach Administer Develop Identify Areas Populate Supply Chain Mitigation of High Risk Risk Dashboard Health-Check Strategies Key Activities  Interview / survey key  Assess the impact of key  Assess performance  Develop mitigation stakeholders across the risks to the organization across risk categories strategies to address high organization  Evaluate the vulnerability  Define performance risk areas  Compile data for each for key risks and issues for key risks  Define scope of supply chain risk category understand the speed of  Provide risk summary implementation strategies  Identify risk themes across onset and areas requiring  Estimate cost of risk categories  Prioritize supply chain mitigation measures mitigation / management risks for each theme  Develop initiative roadmap Output Completed health-check Risk assessment Supply chain risk Risk mitigation questionnaire matrix dashboard(s) recommendations High Supplier Risk Dashboard: Sample Company January 23, 2009 Mitigation Recommendations Supplier Risk Dashboard: Sample Company Firm Supplier Selection and Management January 23, 2009 Supplier Financial and Operational Performance Mitigation Recommendations 3 Dimension Firm Supplier Selection and Management Performance Summary Rating Supplier Financial and Operational Performance Dimension Performance Summary Rating Dimension Performance Summary Rating Dimension Performance Summary Rating Supplier Selection and Supplier selection does not Late or Missed 3 of 2000 supplier have had late Qualification Supplier Selection and include detailed financial review Supplier selection does not ShipmentsMissed Late or shipments in supplier have had late 3 of 2000 12 months 1 Qualification include detailed financial review Shipments shipments in 12 months Impact (Inherent Risk) Supplier-related 1 delayed shipment resulted in 4 Supplier Information Supplier DB does not include Systems Information financial performance info Supplier Supplier DB does not include Disruptions in past 12 Supplier-related assembly lineshipment resulted in 1 delayed stoppage Systems financial performance info months Disruptions in past 12 assembly line stoppage 2 % of Supply Base 20% of materials are sourced months Capacity Utilization Supplier cap utilization is from LCC % of Supply Base from LCCsmaterials are sourced 20% of Capacity Utilization between 50% and 80% is Supplier cap utilization from LCC from LCCs between 50% and 80% Medium % of Supply that is Very limited single-source Process Compliance LCC suppliers are not following Single-Sourcedthat is % of Supply components single-source Very limited (Manufacturing, Process Compliance safety and storage processes LCC suppliers are not following Single-Sourced components Safety, Storage, etc) (Manufacturing, safety and storage processes Supplier Monitoring Supplier monitoring is limited Safety, Storage, etc) Supplier Quality 2 major recalls in past 12 months Programs Monitoring only done for engineered limited Supplier Supplier monitoring is parts Issues (Defects, Supplier Quality 2 major recalls in past 12 months Programs only done for engineered parts Recalls) (Defects, Issues Supply Base Location Despite being in LCCs supply Recalls) Financial Health Some exposure associated with Risk Supply Base Location base is in large cities Despite being in LCCs supply (Profit and Z-score) Financial Health automotive industryassociated with Some exposure Risk base is in large cities (Profit and Z-score) automotive industry Supply Base Geopolitical risk is high for A/R and A/P Suppliers are paying and Geopolitical Risk Supply Base Indonesian suppliers high for Geopolitical risk is Performance receiving payment on time A/R and A/P Suppliers are paying and Geopolitical Risk Indonesian suppliers Performance receiving payment on time Supplier Risk Summary Supplier Risk Summary High Risk Supplier Summary At Risk Commodity Summary Overall Supplier Risk Needs High Risk Supplier Summary At Risk Commodity Summary Overall Supplier Risk Needs  20% of the supply base is located in distant  Wiring harnesses are at high risk for  Improvement needed in supplier monitoring geographies (LCCs) from which  20% of the supply base is located in distant shortage due to supplier affiliation with  Wiring harnesses are at high risk for across all suppliers  Improvement needed in supplier monitoring transportation costs are from which geographies (LCCs) increasing automotive industrysupplier affiliation with shortage due to across all suppliers  Process compliance issues in LCCs as well Low transportation costs are increasing  3 electronics suppliers are closely affiliated automotive industry  Hydraulic cylinder capacity utilization in as Process compliance issues in LCCs as well  quality issues with the automotive industry and at risk for  3 electronics suppliers are closely affiliated supply base is at 98%, additional demand  Hydraulic cylinder capacity utilization in as quality issues  Review supplier delivery failure root cause bankruptcy automotive industry and at risk for with the if one of the Big 3 declare willsupply base is at 98%, additional demand not be accommodated by existing supply analysis process and buffer failure root cause  Review supplier delivery inventory levels bankruptcy (outstanding A/R) 3 declare bankruptcy if one of the Big base not be accommodated by existing supply will analysis process and buffer inventory levels bankruptcy (outstanding A/R)  1 critical sole-source supplier has a Z score base Low Medium of less than sole-source supplier has a Z score  1 critical 1.8 of less than 1.8 Copyright © 2008 Deloitte Development LLC. All rights reserved. 7 Confidential © 2008 Deloitte Development LLC. All rights reserved. Copyright <Firm Name> 7 Vulnerability (Residual Risk) Confidential <Firm Name> - 15 -
  16. 16. Supply Chain Health-Check ILLUSTRATIVE Sourcing Health-Check Survey:  Supply base profile - To develop baseline spend and supplier profile data - Identification of risk factors, nature, and degree of risk factors - Historical supplier failures  Supplier management practices - Gain an understanding of existing supplier selection, tracking, and control mechanisms - Identify weaknesses and areas of “risk leakage”  Risk management practices - Risk ownership and organizational structure - Existing risk controls and monitoring practices - 16 -
  17. 17. Risk Assessment Matrix ILLUSTRATIVE Managing Contract Manufacturers High 3 1 4 2 Medium Impact Size reflects Speed of Onset: Low Medium Low High Low Medium High Vulnerability Vulner- Speed of Stakeholder Group Impact ability Onset 1 Executive Team 72 68 60 2 Business Unit / Product Lead 65 51 57 3 Supply Chain Manager 79 71 83 4 Legal / Compliance 70 59 55 - 17 -
  18. 18. Supply Chain Risk Dashboard ILLUSTRATIVE Supplier Risk Dashboard: Sample Company January 23, 2009 Firm Supplier Selection and Management Supplier Financial and Operational Performance Dimension Performance Summary Rating Dimension Performance Summary Rating Supplier Selection and Supplier selection does not Late or Missed 3 of 2000 supplier have had late Qualification include detailed financial review Shipments shipments in 12 months Supplier Information Supplier DB does not include Supplier-related 1 delayed shipment resulted in Systems financial performance info Disruptions in past 12 assembly line stoppage months % of Supply Base 20% of materials are sourced Capacity Utilization Supplier cap utilization is from LCC from LCCs between 50% and 80% % of Supply that is Very limited single-source Process Compliance LCC suppliers are not following Single-Sourced components (Manufacturing, safety and storage processes Safety, Storage, etc) Supplier Monitoring Supplier monitoring is limited Supplier Quality 2 major recalls in past 12 months Programs only done for engineered parts Issues (Defects, Recalls) Supply Base Location Despite being in LCCs supply Financial Health Some exposure associated with Risk base is in large cities (Profit and Z-score) automotive industry Supply Base Geopolitical risk is high for A/R and A/P Suppliers are paying and Geopolitical Risk Indonesian suppliers Performance receiving payment on time Supplier Risk Summary High Risk Supplier Summary At Risk Commodity Summary Overall Supplier Risk Needs  20% of the supply base is located in distant  Wiring harnesses are at high risk for  Improvement needed in supplier monitoring geographies (LCCs) from which shortage due to supplier affiliation with across all suppliers transportation costs are increasing automotive industry  Process compliance issues in LCCs as well  3 electronics suppliers are closely affiliated  Hydraulic cylinder capacity utilization in as quality issues with the automotive industry and at risk for supply base is at 98%, additional demand  Review supplier delivery failure root cause bankruptcy if one of the Big 3 declare will not be accommodated by existing supply analysis process and buffer inventory levels bankruptcy (outstanding A/R) base  1 critical sole-source supplier has a Z score of less than 1.8 Copyright © 2008 Deloitte Development LLC. All rights reserved. 7 Confidential <Firm Name> - 18 -
  19. 19. Questions - 19 -
  20. 20. Webex Document Best Practices Supply Chain Risk Identification Gary S. Lynch, CISSP Marsh Global Leader & Managing Director Supply Chain Risk Management Practice 212 345 6053 gary.lynch@marsh.com Marsh- All Rights Reserved www.marsh.com
  21. 21. Today’s Discussion focuses on one element of Supply Chain Risk Management - Risk Identification Risk Risk Risk Pricing, Risk Prevention, Segmentation/ Identification, Measurement, Mitigation, SKU Analysis, & & & Rationalization Evaluation Modeling Financing  Alignment  Priotization  Impact Modeling Electronics Machinery Services Manufacturing & Service Products Marsh 21
  22. 22. Supply Chain Risk Identification has traditionally been performed on a static and/or historical view… failures Supplier (financial, production, design, etc.) Spoilage Delivery delays Raw Materials Poor packaging Price, currency, and Improper interest rate Manufacturing handling fluctuations Unanticipated Counterfeiting/diversion or cargo supply placement constraints, allocation, Filling & Packaging price Diversion/ increases gray market Unanticipated Distribution demand surge Political Center or drop-off upheaval Natural hazards Wholesaler Infrastructure outages (fire in Work plant, power grid Theft Consumer Pandemic stoppages down, etc.) Labor disputes Source: Marsh Marsh 22
  23. 23. …and typically applied to the latest event (Risk De Jour)  Volatility – Energy – Foreign exchange – Commodity pricing  Trade credit issues  Pandemic threat  Regulatory change – Nationalization – Customs  Information and cyber-based  CHANGE…COMPLEXITY…SPEED…VARIABILITY Marsh 23
  24. 24. Economic & Financial Political & Social Brand/Org Reputation Weather Environmental & • Economic collapse • Government policy and/or attitude change • Product & service • Hurricane, typhoon, tropical cyclone Man-Made • Currency devaluation • Confinement or imprisonment of • Liability, recall & failure • Rising water, wind, projectiles employees/family • Chemical, biological, radioactive, and/or • Labor disputes, strikes or unrest • Obsolescence • Earthquake nuclear • Lawlessness & hostile demonstration • Labor shortage • Counterfeiting • Tornado & waterspouts • Fire and/or explosions • Regulatory change • Major decline in stock price, earnings or • Organization • Rising water (flood, tidal wave, tsunami - • Water/soil contamination significant volatility • Civil unrest non hurricane caused) • Government or regulatory • Public utility failures • Major market fluctuations • Government expropriation or renegotiation investigation • Wildfire of royalty streams • Asbestos & mold • Decline in major earnings • Special interest group (NGO) protest • Mudslides • Government change in tax regime or inquiry • Emissions levels & waste clean-up • Cash flow/liquidity crunch • Extreme heat • Unfavorable dividend & share sale proceed • Community action as a result of • Noise/dust pollution • Hostile takeover • Extreme cold transfer organization’s product, people and/or • CO2 and/or other hazardous gas and liquid • Bankruptcy technology • Climate change • Military coup emissions • Other financial: derivatives, investment, • Human rights abuses • Unilateral expropriation • Liquefaction credit, interest rates, transfer velocity, • Rumors, gossip & hoaxes collateral • Nationalization • Building, mine, facility collapse or • Libel & slander condemned • Poor customer satisfaction • Water leaks and/or floods • Marketing blunder • Insect infestations Strategy Psychopathic, Criminal & Terrorist Many organization’s risk • Unanticipated competition • Product tampering • Product misplacement • Terrorist acts • Disintermediation identification process is about • Arson & explosion • Poor marketing strategy • Industrial/economic espionage • Poor sales strategy • Sabotage • Failure to innovate • Kidnap looking for a particular threat • Extortion • Fraud • Theft in a complex supply chain • Terrorist using product or materials as weapon • Workplace violence network • Suspicious mail/package • Counterfeiting Source: Gary S. Lynch, “Single Point of Failure”, Wiley 2009 Informational Technology Operational Compliance & Governance Health • Loss of proprietary and/or confidential • Technology hardware failure • Project management failure • Non-compliance (labor, environment, • Epidemic or pandemic (e.g. TB, SARS, data (e.g. privacy, trade secrets) security, safety, quality, etc.) Avian Flu) • Technology software failure (rogue code, • Out of stock • Information integrity and quality issues viruses, poor quality) • Legal • Long-term health issues • Sourcing failure • Loss of key customer, supplier, marketing, • Capacity issues • Regulatory production, and/or financial data • Pricing misalignment • Performance issues • Statutory • Change control failure • Other malicious acts • Contractual • Transportation/logistics accident • Technology obsolescence and/or lack of • Class action or mass tort lawsuits relevance • Walkouts, slowdowns & strikes • Corporate governance issues and • Disruptions, delays (piracy, seizure) whistleblowers Labor • Leakage • Executive misdeeds, bribes, offenses, • Restricted access security and/or code of conduct violations • Human resource failures • Infrastructure deterioration or • Oversight, over-extended authority, • Defections & resignations obsolescence accidents, errors, & commissions • Inability to attract/retain talent • Labor & skills shortage • Sexual harassment, workplace discrimination, wrongful dismissal Marsh 24
  25. 25. However, this approach can be quite challenging, limiting and inefficient Risks are identified:  Based on what’s known and/or past performance  Usually within narrow boundaries instead of across the entire scope of the supply chain  And impacts are usually presented quantifiably rather than a combination of quantified and qualified  But the identification is only as good as the “third party” that conducted review  But a provision for the impact of constant, rapid change is not considered Marsh 25
  26. 26. Best practices today are moving away from the static or historical view…  Static methods (today) – Audit – Assessment – Simulation – Actuarial and similar quantitative techniques – Benchmarking – Monte Carlo Marsh 26
  27. 27. … and evolving into a more proactive and integrated model Dynamic & Integrated Intelligence based (learning) Anticipatory, Instinctive & Transparent Predictive (collective intuition) Trigger & Proactive Demand Driven Static Reactive Passive Marsh 27
  28. 28. These risk identification are then applied to the extended supply chain, at a detailed (resource) level T3 T2 Mill S S T3 T1 T3 T2 Mill Mining Auto OEM Buy/Sell S S Co. T3 S T1 OEM T2 Mill S T3 Mining T1 S Co. Mill T3 T2 S T3 T2 Mill Source: Marsh, Inc. Technology & Physical People Relationships Processing Assets Marsh 28
  29. 29. But all identification techniques must support and feed the entire risk management “system”  Preparation, risk management, before the risk is triggered  Reaction, risk management, when the risk is realized  Maintenance, risk management, when the risk is being monitored, measured or validated  Optimization, risk management, when measuring the efficiency and effectiveness of the program Marsh 29

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