Supply Chain Security & Disruptions.

1. Supply Chain
Security & Disruptions

2. Overview
The supply chain network is inherently
vulnerable to disruptions, the failure of any one
element could cause the whole network to fail

4. Sources of Supply Chain Disruptions
• Extraneous disruptions
– Natural disasters
– Terrorist attacks
– Strikes
– Economic factors
• Internal disruptions
– Supply Chain partner problems
– Changes in product requirements
– Problems in product quality

5. IT Sources
• Errors/Omissions
– Human
– Software/Programming
– Accidental Data Entry/Destruction of Data
– Protocol/routing Errors
• Misuse/Sabotage
– Sabotage/Vandalism
– Abuse/Misuse of Resources
– Insiders
– Unauthorized Changes
• IT Specific Disruptions
– Malware, Virus, Worm, Trojans, Logic/Time Bombs
– Hacking, Denial of Service Attacks
– Password Sniffing
– Espionage/Eavesdropping

6. Factors to Consider
• Geographic location
– Infrastructure
– Security
– Natural Disaster Zones
• Sourcing strategies
– Location
– Number of partners
– Viability of partners
– Long-term relationship
– Dominance of partners
– Single vs Multiple Sourcing

7. • Distribution Strategies
– Intermediate Stocking Points
• 3PL vs. Owned
• Location
• Number
– Shipping Modes/Routes
• Water, Rail, Road, Air
• Intermodal operations
• Viability of Routes
– Panamax, Super-Panamax Issues
– Deepwater Port Solutions
Factors to Consider

8. • Dealing with disruptions
– Liability and Insurance
• International Shipping Contracts must follow
UCC/Incoterms
– Three Main Aspects
• Presence/Extent of Contingency Plans
• Response Time to Disruptions
• Response Time for Recovery
Factors to Consider

9. 1. Who pays the carrier
2. When legal title to goods being shipped passes to the
buyer
3. Who is responsible for preparing and pursuing claims
with the carrier
4. Who routes the freight
Since deregulation of the transport sector, purchasers
are increasingly taking control of transport arrangements
as a means of controlling costs
Terms of Sale
Selection of the FOB Point

10. Terms of Sale: Possible FOB Points
Title passes
to buyer
Terms of Sale: F.O.B. Origin, Freight Collect
Freight charges paid
by buyer
Seller Buyer
Buyer - Pays freight charges
Buyer - Bears freight charges
Buyer - Owns goods in transit
Buyer - Files claims (if any)
Seller - Pays freight charges
Seller - Bears freight charges
Buyer - Owns goods in transit
Buyer - Files claims (if any)
Terms of Sale: F.O.B. Origin, Freight Prepaid
Title passes
to buyer
Freight charges paid
by seller
Seller Buyer
Terms of Sale: F.O.B. Origin, Freight Prepaid and Charged Back
Title passes
to buyer
Freight charges paid
by seller
Seller Buyer
Seller - Pays freight charges
Buyer - Bears freight charges
Buyer - Owns goods in transit
Buyer - Files claims (if any)
…then collected from buyer
by adding amount to
invoice

11. Terms of Sale: Possible FOB Points
Title passes
to buyer
Terms of Sale: F.O.B. Destination, Freight Collect
Seller Buyer
Buyer - Pays freight charges
Buyer - Bears freight charges
Seller - Owns goods in transit
Seller - Files claims (if any)
Terms of Sale: F.O.B. Destination, Freight Collect and Allowed
Title passes
to buyer
Freight charges paid
by buyer
Seller Buyer
Buyer - Pays freight charges
Seller - Bears freight charges
Seller - Owns goods in transit
Seller - Files claims (if any)
Seller - Pays freight charges
Seller - Bears freight charges
Seller - Owns goods in transit
Seller - Files claims (if any)
Terms of Sale: F.O.B. Destination, Freight Prepaid
Title passes
to buyer
Freight charges paid
by Seller
Seller Buyer
Freight charges paid
by buyer
…then charged to seller by
deducting amount from
invoice

12. The Fire that Changed an Industry
• March 17th, 2000 = Phillips Chip Mfg. plant in
Albuquerque hit by a fire caused by power
fluctuation.
– Fire put out in about 10 minutes
– 8 trays of silicone wafers destroyed  Chips for
several thousand cell phones
• Chip production needs a clean facility
– <1 dust speck/cubic foot
– Fire, smoke, water contaminated millions of chips

13. Immediate Actions
• Phillips Actions
– Cleanup to take at least a week
– 40% of shipments to Nokia and Ericsson
– March 20th call to major customers
• Nokia Actions
– Helsinki plant missed a routine input from Phillips
– Information passed on to plant’s purchasing mgr.  Nokia’s top component
purchasing mgr.
 Senior VP of Operations, Logistics and Sourcing
 Did not believe in Phillips’ one-week estimate
 Changed weekly monitoring to daily monitoring of five parts made in New
Mexico
 Part of the enhanced monitoring process developed over 5 yrs.
• Ericsson Actions
– No sense of any discrepancy in Phillips deliveries
– No reason to disbelieve Phillips’ estimates

14. Follow-up Actions from Nokia
• Executive action with daily conversation with Phillips
executives
• March 31st – Phillips revised estimate of 6 wks.
• Eventual effect of several million mobile phones
• Three teams
– 1st group focused on developing alternative plans at the
CEO level – Phillips dedicated capacity from Eindhoven and
Shanghai plants
– 2nd group focused on redesigning chips so they could be
made at other Phillips and non-Phillips plants
– 3rd group focused on finding alternate manufacturers. Two
suppliers responded within five days.

15. Phillips = Nokia Status
• Phillips Semiconductor Division
– Several acquisitions from IBM
– 40% boost in capacity over 1999
– 17 plants, 80 million chips/day, worldwide sales of
mobile phones of 80%
– Year 2000: Chip volume up by 33%, Revenue up by
50%, Operating Income up by 119%
• Cellphone makers
– Annual growth of 40%
– Same chips used for laptops and other devices
– Multi-year projection of component shortage

16. Ericsson Status/Actions
• End of March
– First appreciates the gravity of the situation
– Still did not respond quick enough
– Head of mobile phone division did not get
involved until early April

17. Financial Picture
• 3rd Quarter profits increased by
42%
• Global market share increased
to 30%
• 2nd Quarter operating loss of
$200m
• End of year divisional loss of
$1.6B
• 3% loss of market share
• Outsourcing of cellphone mfg to
Flextronics.
• Plants in Brazil, Malaysia,
Sweden, U.K., U.S. taken over
• April 2001 – Sony Ericsson
created.
• Overall 2004 
– Lower revenue 52%
– Lower total assets 30%
– Lesser employees 52%

18. Findings from multiple studies
• Higher security/less disruptions with
– Risk Pooling strategies
• Uncertain demand
• Complementary demand
– Lesser product variety
• Component/Part commonality
• Bulk discounts
• Better control
• Fewer base components – Apple, Chipotle

19. Apple iPad = How Many SKUs?
Air2/Mini3 – 8 Components; 18 Choices
• Three Colors – Silver, Gold, Space Grey
• Three Storage Capacities – 16, 64, 128 GB
• Two Connectivity – Wifi, Wifi + Cellular
Air/Mini2 – 9 Components; 20 Choices
• Two Colors – Silver, Space Grey
• Two Storage Capacities – 16, 32GB
• Two Connectivity – Wifi, Wifi + Cellular (4 
T-Mobile, Verizon, Sprint, AT&T)

20. Chipotle
• 4 kinds of meat/tofu – Chicken, Steak, Carnitas, Sofritas
• 2 kinds of rice
• 3 types of Salsa
• 2 types of Beans
• Additional ingredients
– Lettuce
– Cheese
– Sour cream
– Grilled Veggies – Onions, Peppers
– Guacamole
• < 20 unique items
• > 200 customizations

21. Post – 9/11 Scenarios
Customs-Trade Partnership Against Terrorism (C-TPAT)
• U.S. Customs and Border Protection
• Public-Private Partnership (PPP)
• Voluntary yet incentive based system
• Timeline
– Proposed November 2001
– Implemented April 2002
– 7400 partners November 2004
– 10570 partners July 2013
• Domestic Importers
• Carriers
• Foreign Manufacturers
• 3PL Logistics
• Custom Brokers
• Port Authorities and Terminal Operators

22. Benefits of C-TPAT Certification
• Reduced number of inspections/border waits
• C-TPAT supply chain specialist liaison
• Access to members thru Status Verification Interface
• Self-policing, self-monitoring security activities
• Attractive negotiation rates
• Free and Secure Trade (FAST) lanes – Canadian and
Mexican borders
• Lesser penalties for highway carriers
• Attendance at supply chain security training seminars