This quote was approved for external use (exactly as written) by Gartner Vendor Relations on November 30, 2006.
Motivational slide – some statistics
Risk is not in itself a bad thing! A company that seeks to avoid all risks will fail and fade away as non competitive. A company taking to many and even uncontrolled risks will experience some very costly events that also might wipe out their entire business. Taking certain risks can be very rewarding. The higher the risk the better the rewards if managed. There is money to be made if you can handle risks! What if you are 10% better than your competition at handling risks and the potential costs of them if they would hit you with full impact?
Other vendors provide business intelligence solely in the form of historical reports that give you hindsight, but limited insight. SAS takes you Beyond BI™ by helping you understand the past, monitor the present, and predict outcomes as you move your business ahead. SAS delivers this through our technology and expertise in data integration, analytics, targeted business solutions and industry solutions. No matter what your intelligence needs are today, SAS can help you to position your company for the future by providing you with the solutions that you need to gain a true competitive advantage.
When a severe supply chain disruption occurs it is usually preceded by some indicators of – “what is to come”. It is during the Detection & Response period one can set in motion mitigation plans. In fact if predictors are good one could even avoid the entire impact of the disruption. The SAS Global Event Data base with more than 15.000 logged events that has each cost corporations more than $ 1 million, one can find that for manufacturing the mean average total impact is approx. $120 million. For financial institutions the mean average cost is half of that. We can learn from them! This statistically supported graph shows – “At present!” What we can now give you is –”In the future” risk management capabilities. The detection and response times will shorten and time for recovery will be minimized. Thus avoiding full impact or even potentially avoid impact entirely. So what are the questions that need answers and what is it that keeps the executives awake at night? What are the pains they feel?
State of Supply Risk Management
Supply Risk Roundtable April 23rd 2008
Introductions Dr. Kevin McCormack www.drkresearch.org
DRK SCRD Percipio Profit Point 17 th Floor iCognitive Lean Institute Process Management Research Center Tom Davenport Shanghai Consulting Supply Chain Resource Consortium NC State University ESRI SAS Vlerick Leuven Gent Management School Belgium Independents Associates IACCM ISM QUT Australia Babson College MA University of OK Supply Chain Council SCM Club Neurametrics Singapore Shanghai Europe Portland, OR Phil. PA TX NC TBD BPM Network University of Ljubljana Slovenia UMFG Brazil Hilbert Orion NJ NIPE Research, Publication, Knowledge Transfer (education, consulting) University of Zagreb Croatia
Dr. Kevin McCormack is President of DRK Research and an Adjunct Professor at NC State University and the University of Oklahoma . Dr. McCormack has over 30 years of business leadership, teaching, research and consulting experience. His experience covers many national and international industry segments and a broad range of business processes. He has been a member of or has successfully conducted engagements with several government agencies and major companies in the food, forest products, pharmaceutical, chemical, consumer products, high tech and the plastics industry. Some of his clients have been Kraft, Philip Morris, CPC International, Cargill, Texas Instruments, USMC, Phillips Petroleum, Chevron-Phillips, Shell, Columbia Forest Products, Dow Chemical, Warner-Lambert, Standard Charter Bank, Microsoft, Intel, Tektronix, several state governments, Borden Chemical, California Public Employees Retirement System (CalPERS), Wal-Mart, Campbell’s, General Mills, Fairchild Industries and PepsiCo. He has written five books and numerous articles on Supply Chain Management and business strategy.
Gartner Magic Quadrant for Basel II Applications Magic Quadrant Disclaimer The Magic Quadrant is copyrighted November 22, 2006 by Gartner, Inc. and is reused with permission. The Magic Quadrant is a graphical representation of a marketplace at and for a specific time period. It depicts Gartner’s analysis of how certain vendors measure against criteria for that marketplace, as defined by Gartner. Gartner does not endorse any vendor, product or service depicted in the Magic Quadrant, and does not advise technology users to select only those vendors placed in the “Leaders” quadrant. The Magic Quadrant is intended solely as a research tool, and is not meant to be a specific guide to action. Gartner disclaims all warranties, express or implied, with respect to this research, including any warranties of merchantability or fitness for a particular purpose. This Magic Quadrant graphic was published by Gartner, Inc. as part of a larger research note and should be evaluated in the context of the entire report. The Gartner report is available upon request from SAS. Source: Magic Quadrant for Basel II Software Applications, 2006, Douglas McKibben, David Furlonger.
Chartis Group – Operational Risk Management Systems 2006
No. of Suppliers 0 5000 10000 5000 10000 No. of Supply SKUs or parts Highly Competitive (High Buyer Power) Concentrated (High Supplier Power) Highly Complex / Competitive (High Buyer Leverage) Concentrated / Invested (High Supplier Power) SC Complexity Your Company
State of Supply Risk Management (SRM) Dr. Kevin McCormack www.drkresearch.org
Importance of Supply Risk <ul><li>82% of companies are concerned about the risk in their Supply chain… </li></ul><ul><li>… but only 11% actively manage them (Aberdeen Research) </li></ul><ul><li>Almost two-thirds of respondents to McKinsey's latest global survey say the risks to their supply chain have increased over the past five years. </li></ul><ul><li>A significant number of executives say their company doesn't spend enough time or resources on mitigating risk. </li></ul><ul><li>Nearly one-quarter say their company does no formal risk assessment (McKinsey) </li></ul><ul><li>50% of the executives expect risks associated with raw-material supplies or parts to increase over the next three years </li></ul><ul><li>36% anticipate increased risk of service failures due to longer supply chains and lead times </li></ul><ul><li>94% said the disruption impacted profitability (Accenture) </li></ul>
Risk Defined Risk in general can be defined as a collection of pairs of likelihood (L) and outcomes / impact (O) of events. The distribution pattern of the (likelihood; outcome) pairs is called a risk profile . Definitions of risk must also have a time dimension or a specific time horizon (day, month, year, etc.) and a specific perspective or view that defines the unit of analysis (boundaries, what’s not included, etc.).
Risk Defined <ul><li>The International Organization for Standardization (ISO, 2002) defines two of the essential components of risk: </li></ul><ul><li>1. losses (along with related amounts) and </li></ul><ul><li>2. uncertainty of their occurrence. </li></ul><ul><li>In the financial industry, operational risk is defined as the risk of loss resulting from inadequate or failed internal processes, people and systems or from external events (New Basel Capital Accord, 2006) . </li></ul>
Risk Events and Disruptions <ul><li>Supply Chain Disruptions – any event that negatively impacts the intended functioning of the supply chain. </li></ul><ul><li>Discrete Events (yes/no) </li></ul><ul><ul><ul><li>Internal (machine break down, fire, strike, product failure) </li></ul></ul></ul><ul><ul><ul><li>External (weather related, earthquake, etc.) </li></ul></ul></ul><ul><li>Continuous Events (a matter of degree) </li></ul><ul><ul><ul><li>Internal (performance metrics variability, warranty trends) </li></ul></ul></ul><ul><ul><ul><li>External (supply / demand shifts, economic factors) </li></ul></ul></ul>SCOR 9.0 for Risk Management Training
Evolution of Supplier Development Supply Network Management Time Supply Base Performance/Capability Higher TOTAL QUALITY MANAGEMENT SUPPLY BASE ASSESSMENT SUPPLY BASE REDUCTION REACTIVE SUPPLIER DEVELOPMENT STRATEGIC SUPPLIER DEVELOPMENT Lower Evolutionary Strategies
Evolution of Strategic Sourcing Operate Consolidate Integrate Optimize Innovate Organizational Maturity Performance, ROI, Value Supply Risk Management Forecasting Data Mining Text Mining Spend Analysis Data Quality Data Cleansing Supply Base Optimization Supplier Ranking Data Analysis Commodity Classification Master Data Management Performance Management
Foresight vs. Hindsight Predictive Analytics Optimization Predictive Modeling Forecasting Reporting / OLAP Data Management Data Access What’s the best that can happen? How much and where? What will happen next? What happened? How many, how often? Intelligence Business Value
Performance Time Preparation Initial Impact Recovery Sustaining Impact >0 Disruption Event Full Impact Supply Risk Disruption Profiles “ At present” Ave: $120,000,000 Preparation Initial Impact Detection and Response Recovery - minimized Sustaining Impact = 0 Full Impact – Avoided! “ In the future” Estimated Ave: $1,200,000 Detection and response
Issues from Survey <ul><li>What are the major issues facing your company regarding Supply Chain Risk? </li></ul><ul><li>- Accurate Data and classification </li></ul><ul><li>- Information shared up and down the supply chain </li></ul><ul><li>- Resources focused on "putting out fires" </li></ul><ul><li>- Global view of supply Data collection, systems. </li></ul><ul><li>- Processes to be proactive Major risk are associated with food safety and quality issues throughout the supply chain. </li></ul><ul><li>- Other risks are sourcing from single supplier/facility. </li></ul><ul><li>- Financial health of the supply base may pose challenges </li></ul><ul><li>- companies closing facilities and cutting down production due to higher/unaffordable costs. </li></ul><ul><li>- Managing complexity Managing deeper into the supply chain to find the weakest link </li></ul><ul><li>- No set process regarding Supply Chain risk and the supporting the remanufacturing infastructure. </li></ul><ul><li>- Oil Availability and Cost Export Containers reducing volumes and raw material price escalation </li></ul><ul><li>- Supplier "non performance" </li></ul><ul><li>- The major difficulty is predicting demand for our products. This cascades into difficulty predicting the demand we will place upon our suppliers. </li></ul><ul><li>What are the major barriers in your company that prevent the development of effective programs to improve Supply Chain Risk? </li></ul><ul><li>Management view of value added (focus on immediate returns) </li></ul><ul><li>A rigid, tops-down planning process is an impediment. </li></ul><ul><li>Availability of accurate data and lack of resources to follow thru on plans to mitigate risk. </li></ul><ul><li>Corporate Guidelines </li></ul><ul><li>Data gathering from suppliers Knowledge management </li></ul><ul><li>Resources IT is outsource and it is very difficult to get programs developed to manage Supply Chain Risk </li></ul><ul><li>Not enough resources dedicated to the needed tactical activities </li></ul><ul><li>Senior Management "buy in" to prioritize and assign staff resources to develop cohesive supply chain risk processes and plans </li></ul><ul><li>Thoughts that the Supply Chain Risk is already covered. </li></ul>