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Supply Chain Risk Management

Minimising Risk Exposure in Supply Chain

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Supply Chain Risk Management

  1. 1. Supply Chain Risk Management Minimising Risk Exposure in Supply Chain Anand Subramaniam
  2. 2. <ul><li>“Only those who risk going too far can possibly find out how far one can go.&quot; </li></ul><ul><ul><li>- T.S. Eliot </li></ul></ul>
  3. 3. Highlights <ul><li>Supply Chain (SC) Today.. </li></ul><ul><li>SC & Risk - Realities </li></ul><ul><li>Internal & External Drivers </li></ul><ul><li>Managing Risk Exposure </li></ul><ul><li>Risks Managing Suppliers </li></ul><ul><li>Risk Planning </li></ul><ul><li>SC Risk Framework </li></ul><ul><li>Risk – Tools, Techniques, Checklists </li></ul>
  4. 4. Supply Chain Today… Challenges
  5. 5. Supply Chain Today..
  6. 6. Supply Chain Today.. Riskier !! <ul><li>Faster (Growth, Innovation) </li></ul><ul><li>Stronger (Competition) </li></ul><ul><li>Cheaper (Lean, Efficient, Savings $$) </li></ul><ul><li>Quicker (JIT, Short Product Lifecycle, Agile) </li></ul><ul><li>Shorter (Effective, Lead Times) </li></ul><ul><li>Wider (Globalisation) </li></ul><ul><li>Lesser ( Back up Vendor, VMI, Resources) </li></ul><ul><li>Changing (Demands, CPFR, Technology) </li></ul><ul><li>Heavier ( Requirements, Workload) </li></ul>
  7. 7. Risk Exposure – SC Network Design Top Pressures Driving Supply Risk Management 82% 79% 78% 77% 73% 70% 69% 59% 58% SC Disruption within past 24 mos Longer lead times Pressure from executives Customer pressures Global sourcing Lean/JIT initiatives Supply assurance outweighs cost Supply base reduction Regulatory pressures Transportation constraints 73% 20% 12% 10% 8% Supply Chain Price Fluctuations Labor Issues IT Systems Mgt Malfeasance 8% #1 Threat Factor To Revenue Source: Managing Business Risk 2006 & Beyond, FM Global & Harris / USA Today, 2006 Survey 602 Global CFOs / Financial Executives
  8. 8. AMR Research 2008 on Risk Change in level of risk from 1 year ago
  9. 9. Supply Chain disruption would mean.. <ul><li>“ Survival of the fittest” </li></ul><ul><li>Increase in cost / losses </li></ul><ul><li>Loss of reputation / image </li></ul><ul><li>Civil and criminal penalties </li></ul><ul><li>Liquidation / Chapter 11 </li></ul><ul><li>Customer unhappy & lost to competition </li></ul><ul><li>Fall in revenue, profit, market share </li></ul>
  10. 10. AMR Research 2008 - SC Risk Mitigation 44% 33% 31% 29% 27% 42% 27% 10% 4% 10% 12% 5% 14% 10% Performance-based contracts with suppliers or service providers Increase in IT investment for better visibility across the supply chain Closer collaborative relations with trading partners Utilising modeling tools (optimisation, simulation) to be proactive about risk by conducting what-if analysis Outsourcing logistics function Dual/multi sourcing strategies and using redundant suppliers Outsourcing manufacturing function Top 10 methods used to mitigate risk Most successful method used to mitigate risk
  11. 11. Supply Chain & Risk - Realities
  12. 12. SCM Components.. Ideal World !! Store In-Stock Channel Design Network Rationalisation Flow of Merchandise Distribution Operations/ Transportation Planning, Buying, Allocation Supporting Infrastructure Right goods, right place, right time, right cost The optimum combination of facilities and transportation modes that achieve service targets The cost effective Distribution Channels at the lowest cost Synchronised flow of merchandise to optimise inventories and meet customer demand The most appropriate operational linkage between client and vendors Functions and processes consistent with vendor operating strengths and needs The most appropriate information systems and support areas to plan and manage the flow of goods strategy
  13. 13. Industry Challenges <ul><li>Attracting and retaining employees </li></ul><ul><li>Workforce productivity </li></ul><ul><li>Data security </li></ul><ul><li>Network interruption </li></ul><ul><li>Working Capital </li></ul><ul><li>Cost allocation </li></ul><ul><li>High consumer debt </li></ul><ul><li>Globalisation </li></ul><ul><li>Foreign sourcing/outsourcing </li></ul><ul><li>Vendor indemnification management </li></ul><ul><li>Product recall </li></ul><ul><li>Creating a “customer experience” </li></ul><ul><li>Consolidation </li></ul><ul><li>Innovation </li></ul><ul><li>Training </li></ul><ul><li>Business continuity </li></ul><ul><li>“ Shrink” and other product losses </li></ul><ul><li>Workplace violence </li></ul><ul><li>High cost of employee benefits </li></ul><ul><li>Employment practices </li></ul><ul><li>Logistics and transportation issues </li></ul><ul><li>Brand integrity </li></ul><ul><li>Quality assurance </li></ul><ul><li>Supply chain disruptions </li></ul><ul><li>Product/brand mix complexity </li></ul>2 6 7 4 3 9 8 1 10 5 High Low Relative Cost Manage Business Impact 11 High 12 13 14 15 16 17 18 19 21 20 24 22 23 25
  14. 14. Risks Impact - Strategy / Initiatives Shareholder Benefits Asset Utilisation Plant Specialisation <ul><li>Product Profitability </li></ul><ul><li>Customer Value-based pricing </li></ul><ul><li>Matching strengths with segment </li></ul><ul><li>Product rationalisation </li></ul><ul><li>Customer survey implications </li></ul><ul><li>Shorten concept-to-market </li></ul><ul><li>Link demand chain to supply chain </li></ul><ul><li>Better architecture design </li></ul><ul><li>Capital appropriations </li></ul><ul><li>Selective outsourcing </li></ul><ul><li>Make/buy decisions </li></ul><ul><li>Retire unused assets </li></ul><ul><li>Capacity utilisation </li></ul><ul><li>Non-value adding elimination </li></ul><ul><li>Portfolio Management </li></ul><ul><li>Sales and Operations planning </li></ul><ul><li>Business resource planning </li></ul><ul><li>Best practice documentation </li></ul><ul><li>Safety stock reduction </li></ul><ul><li>Virtual inventory tracking </li></ul><ul><li>Redundant shipping elimination </li></ul><ul><li>Emergency shipping reduction </li></ul><ul><li>Reconciliation costs </li></ul><ul><li>Distribution/logistics improvement </li></ul><ul><li>Service cost analysis </li></ul><ul><li>Transportation routing and scheduling </li></ul><ul><li>Manufacturing flexibility </li></ul><ul><li>Plant yields </li></ul>Profit / Revenue Growth Cost/ Productivity Improvement Capital Asset Evaluation Selling/Pricing Selectivity New Product Development Market/ Customer Segmentation Infrastructure Optimisation Acquisition Divestiture Inventory Management Shipping Efficiency Error Elimination Manufacturing Efficiency Strategy Initiatives Risk / Opportunity
  15. 15. Risks – Managing Stakeholder … Supplier SC Disruption Capacity / Quality Supplier Performance Supplier Environment Financial Distress Product / Process innovation Relationship Regulatory Disaster Customer Environmental Volume / Product mix Brand / Reputation Data Sharing Product Liability Legal Liability Market Mix Disasters Quality Internal Environmental Legal / Financial Technical / Operational Staff Turnover /OH&S SC disruption history Capacity / Sourcing Quality / Delivery Spend Leverage Innovation
  16. 16. Risk Management Realities… Insurance Not Purchased Political Risk Environmental Advertiser’s Liability Professional Liability E-Commerce Liability Certain lines of Products Patent Infringement Product recall Non-Owned Terrorism Liability Insurance Not Available War / Strike Reputational Terrorism Biological Nuclear / Radiation Regulatory Fines & Penalties Poor Business Judgment Supply Chain Interruption Loss of Market Share Breach of Contract Global Pandemic Fraud
  17. 17. Internal & External Drivers
  18. 18. Exposure – External & Internal Drivers Environment Supply Demand Process Governance / Controls Risk Response / Contingency Exposure External Internal External Internal
  19. 19. Risks - External Factors <ul><li>Demand </li></ul><ul><li>Loss of major accounts </li></ul><ul><li>Volatility of demand </li></ul><ul><li>Concentration of customer base </li></ul><ul><li>Short life cycles </li></ul><ul><li>Innovative competitors </li></ul><ul><li>Buying to much / little </li></ul><ul><li>Environment </li></ul><ul><li>Natural disasters </li></ul><ul><li>Terrorism and war </li></ul><ul><li>Regulatory changes </li></ul><ul><li>Tax, duties, quotas </li></ul><ul><li>Strikes </li></ul><ul><li>Supply </li></ul><ul><li>Dependency on key suppliers </li></ul><ul><li>Downtime </li></ul><ul><li>Consolidation in supply markets </li></ul><ul><li>Quality issues </li></ul><ul><li>Potential disruption </li></ul><ul><li>Replenishment – lead times & variability </li></ul>
  20. 20. Risks - Internal Factors <ul><li>Process </li></ul><ul><li>Manufacturing yield variability / quality </li></ul><ul><li>Lengthy set-up times, inflexible processes </li></ul><ul><li>Equipment reliability </li></ul><ul><li>Limited capacity / bottlenecks </li></ul><ul><li>Outsourcing key business processes </li></ul><ul><li>Product Complexity </li></ul><ul><li>Risk Response / Contingency </li></ul><ul><li>Awareness </li></ul><ul><li>Prevention </li></ul><ul><li>Remediation </li></ul><ul><li>Knowledge </li></ul><ul><li>Controls </li></ul><ul><li>Poor pipeline visibility </li></ul><ul><li>Inappropriate rules that distort demand </li></ul><ul><li>Lack of collaborative planning / forecasts </li></ul><ul><li>Bullwhip effects due to multiple echelons </li></ul><ul><li>Proprietary Technology </li></ul>
  21. 21. Risk Response / Contingency <ul><li>Awareness </li></ul><ul><li>Probability & Impact </li></ul><ul><li>Recognition of effects of risk on: Physical assets & Information </li></ul><ul><li>Awareness on Internal & External Environment </li></ul><ul><li>Prevention </li></ul><ul><li>Goal is to reduce likelihood and / or impact of supply chain disruptions. </li></ul><ul><li>Key Processes include - risk identification, risk assessment, Risk treatment & risk monitoring </li></ul><ul><li>Remediation </li></ul><ul><li>Goal is to identify procedures for managing 4 stages of a disruption - Interruption, response, recovery, restoration of operations </li></ul><ul><li>Minimise adverse impact on:- Time, Cost, Resources </li></ul><ul><li>Determine most effective allocation of resources </li></ul><ul><li>Knowledge </li></ul><ul><li>Goal is to learn from experience by tracking results - things gone wrong, things gone right, future action list. & results of remediation efforts </li></ul><ul><li>Modify current procedures and systems to reflect lessons learned. </li></ul><ul><li>A SCP “post mortem” </li></ul><ul><li>Formalised activity </li></ul>
  22. 22. Risk Exposure in Managing…..
  23. 23. Risks -Managing Shareholder Value
  24. 24. Risks - Managing Competitive Pressures Requires a change in Business Model Serving localised customer with complex supply lines Demanding customers Changing market boundaries and new channels Aggressive global competition Industry consolidation and alliances Environmental and risk issues Stakeholder pressures Speed of technology change Shortening product life cycles Pressure on margins, growth, cost Supply & Demand Co-ordination Hyper – competition & Globalisation Compliance Green SCM Catastrophic events
  25. 25. Risks - Managing End to End Networks Supply Chain Redesign New Materials Cooperative Development New Relationships New Processing Product Adaptation Integrated Solutions Key Process Improvement New Products Supply Chain Responsiveness Alternative Channels Cost to Serve New Sales Sales Leadership Strategies New Business Systems Suppliers Manufacturing Distribution Retailer Consumer Flow of information, products, services and financials Capture Buying Habits Product Development Distribution Efficiency Product Replenishment Order Fulfillment Marketing Strategy Business Development
  26. 26. Risks - Managing SCM Performance Sell Product recall, service and quality issues can impact brand image High turnover coupled with poor training can result in serious customer service issues Plan Poorly designed products can result in future recalls Product complexity can create downstream execution issues Missed or lagging trends Design flaws & cycle time Source Globalisation & sourcing from emerging markets leads to product safety, quality, supply disruptions & monitoring issues, which Can impact customer perceptions Single / sole-sourcing creates failure points Deliver Consolidation of distribution and fulfillment creates risks - product theft, labour shortages / stoppages. Less resilient local hauling lanes create significant exposures within the last few miles of the delivery process Make Realigning and consolidating facilities creates risks – product rationalisation, labor disputes, stoppages etc. Outsourcing can create vulnerabilities that extend beyond the immediate business Service Fall in service levels (after Sales ), process returns, lack of spares etc can influence future buying behaviors brand image Lack of visibility across reverse logistics can impact top & bottom line Warranty failure can impact loyalty / image. Suppliers Manufacturing Distribution Retailer Consumer
  27. 27. Risks - Managing Product / Information Flow Postponement Vendor managed inventory Cross docking Continuous replenishment Flexible automation Modularisation Mass customisation Quick response Efficient consumer response End to End Supply Chain Time-based logistics Extended warehouse Visibility Integrated business planning / Sales & Operations Planning Cloud based services: Managed Services, On-Demand, SaaS Sustainability & Green Supply Chain Closed-loop Supply Chain Execution & Supply Chain Planning Demand Driven Lean Supply Chain Transportation Management & Global Trade Management Convergence Continuous Monitoring & Control of Risks
  28. 28. Risks - Managing SC Change Initiatives Supplier Rationalisation Flexible Manufacturing Strategies Cross- docking Activity- Based Costing CPFR Salesforce Planning Production Scheduling Inventory Planning Distribution Scheduling Integrated- Micro Marketing Customer-Focused Planning Vendors Inbound Logistics Manufacturing Transportation Warehousing Delivery Retailer Consumer Quick Response Forecasting EDI Category Management, Continuous Replenishment Net Landed Cost Palletisation, Bar Coding Vendor Managed Inventory Supply Chain Systems Selection and Implementation Promotion Planning Information, Finance & Product flows
  29. 29. Risks – Managing Inventory <ul><li>Spend Aggregation </li></ul><ul><li>Procurement Expense </li></ul><ul><li>Direct / Indirect Materials Cost </li></ul><ul><li>Supplier & Material Rationalisation </li></ul><ul><li>Raw Materials Inventory </li></ul><ul><li>Throughput </li></ul><ul><li>Equipment Uptime </li></ul><ul><li>Parts / Spares Inventory </li></ul><ul><li>Replacement Part ID </li></ul><ul><li>Revenue </li></ul><ul><li>Selling Expense </li></ul><ul><li>Customer Retention </li></ul><ul><li>Competitive Advantage </li></ul><ul><li>Market Share </li></ul><ul><li>Maverick buys </li></ul><ul><li>Supplier proliferation </li></ul><ul><li>Parts proliferation & duplication </li></ul><ul><li>Disparate parts & supplier databases </li></ul><ul><li>Ineffective Supply Chain communication </li></ul><ul><li>Lack of visibility to inventories </li></ul><ul><li>Can’t locate parts & spares </li></ul><ul><li>Maverick buys </li></ul><ul><li>Disparate data sources </li></ul><ul><li>Lack of standardised product information </li></ul><ul><li>Can’t see product inventory </li></ul><ul><li>Can’t compare products </li></ul><ul><li>Lack of competitive differentiation </li></ul>Key Success Metrics Risks Preventing Success <ul><li>No tools to find parts </li></ul><ul><li>Lack of technical detail </li></ul><ul><li>Lack of standardisation </li></ul><ul><li>Can’t find alternates </li></ul><ul><li>No lifecycle status info </li></ul><ul><li>No tools for parts re-use </li></ul><ul><li>No visibility to supplier preferences </li></ul><ul><li>Engineering Productivity </li></ul><ul><li>R&D Costs </li></ul><ul><li>Time to Market </li></ul><ul><li>Product Quality </li></ul><ul><li>Design for Supply Chain </li></ul>Product Design Supply Chain / Procurement Manufacturing & MRO Sales & Marketing Core Business Process
  30. 30. Risk Exposure - Managing Suppliers
  31. 31. Supplier - Risk Sources <ul><li>Ineffective management </li></ul><ul><li>No sharing of information </li></ul><ul><li>No alternative suppliers </li></ul><ul><li>Inability to influence suppliers </li></ul><ul><li>Inability to meet required volumes </li></ul><ul><li>Lack quality process in operations </li></ul><ul><li>Financial instability or financial failure </li></ul><ul><li>Incorrectly interpreting requirements </li></ul><ul><li>Political instability/ war affecting suppliers’ operations </li></ul><ul><li>Suppliers exiting market on short notice </li></ul><ul><li>Product quality problems </li></ul><ul><li>Labour / Management problems </li></ul><ul><li>New or unproven product / process technology utilised </li></ul><ul><li>Long physical distances between buyer and suppliers </li></ul><ul><li>Variability / transportation disruptions with inbound supply channels </li></ul><ul><li>Currency rate & material price fluctuations </li></ul><ul><li>Natural disasters or “acts of God” affecting suppliers’ </li></ul>
  32. 32. Managing Supplier <ul><li>Supplier Handbook </li></ul><ul><li>Performance Measurement (Report Card) </li></ul><ul><li>Purchasing contracts </li></ul><ul><li>Weekly / Monthly / Quarterly Meetings </li></ul><ul><li>Audit planning; execution; reporting </li></ul><ul><li>Change Management </li></ul><ul><li>Continuous Risk Assessment and Response Strategies </li></ul>Supplier Profiles & Risk Assessment Supplier Audits & Certification Non-conformance / Corrective & Preventive Actions Product Sampling & Test Results Performance Monitoring & Reporting
  33. 33. Root Cause Analysis Supplier Supply Chain Involuntary (bankruptcy) Voluntary (exit market) Business Exit Supplier Business Continuity Sole / Single Source Environmental Control Security Natural Disaster Building Contamination Inventory Handling & Managment Warehousing Poor RM Quality RM Out of Spec Contamination Inadequate Documentation Compliance Systems Process Procurement Raw Material Supply
  34. 34. Risk Planning - Integration (People, Process & Systems)
  35. 35. Risk Planning – Competency & Performance <ul><li>Customer Integration </li></ul><ul><ul><li>Relationships beyond sales transactions </li></ul></ul><ul><ul><li>Planning for individual customer requirements </li></ul></ul><ul><ul><li>Synchronising activities with customers </li></ul></ul><ul><ul><li>Continuously exploring new working relationships </li></ul></ul><ul><li>Better Fulfillment Performance </li></ul><ul><ul><li>Delivery to promise </li></ul></ul><ul><ul><li>Fill rate </li></ul></ul><ul><ul><li>Perfect order fulfillment </li></ul></ul><ul><li>Internal Integration </li></ul><ul><ul><li>Cross functional awareness of responsibilities </li></ul></ul><ul><ul><li>Common prioritisation of customers </li></ul></ul><ul><ul><li>Common product roadmaps </li></ul></ul><ul><ul><li>Sharing of operational information </li></ul></ul><ul><ul><li>Performance metrics that promote cost / service trade-offs </li></ul></ul><ul><li>SC Network Integration Technology </li></ul><ul><ul><li>Dist order management </li></ul></ul><ul><ul><li>Event management </li></ul></ul><ul><ul><li>Enterprise app integration </li></ul></ul><ul><ul><li>RFID </li></ul></ul>
  36. 36. Risk Planning – C & P (Contd.) <ul><li>Supplier Integration </li></ul><ul><ul><li>Developing relationships to build on key supplier capabilities </li></ul></ul><ul><ul><li>Exchanging operational information </li></ul></ul><ul><ul><li>Synchronising activities with suppliers </li></ul></ul><ul><ul><li>Continuously exploring new working relationships </li></ul></ul><ul><li>Better Product Quality </li></ul><ul><ul><li>Product conformance </li></ul></ul><ul><ul><li>Product design (performance and features) </li></ul></ul><ul><ul><li>Product reliability </li></ul></ul><ul><li>Internal Integration </li></ul><ul><ul><li>X-functional awareness of responsibilities </li></ul></ul><ul><ul><li>Common prioritisation of customers </li></ul></ul><ul><ul><li>Common product roadmaps </li></ul></ul><ul><ul><li>Sharing of operational information </li></ul></ul><ul><ul><li>Performance metrics that promote cost / service trade-offs </li></ul></ul>
  37. 37. Risk Planning – C & P (Contd.) <ul><li>Supply Chain Segmentation </li></ul><ul><ul><li>Continuously updating customer segmentation strategy </li></ul></ul><ul><ul><li>Segmenting products based on profit contributions and lifecycle stage </li></ul></ul><ul><li>Better Asset Utilisation </li></ul><ul><ul><li>Cash-to-cash cycle </li></ul></ul><ul><ul><li>Inventory days of supply </li></ul></ul><ul><ul><li>Asset turns </li></ul></ul><ul><ul><li>Forecast accuracy </li></ul></ul><ul><li>Supplier Integration </li></ul><ul><ul><li>Developing relationships to build on key supplier capabilities </li></ul></ul><ul><ul><li>Exchanging operational information </li></ul></ul><ul><ul><li>Synchronising activities with suppliers </li></ul></ul><ul><ul><li>Continuously exploring new working relationships </li></ul></ul><ul><li>Planning Effectiveness </li></ul><ul><ul><li>Formalised, disciplined processes addressing both long and short term planning </li></ul></ul><ul><ul><li>Contingency and risk analysis with scenario evaluations </li></ul></ul><ul><ul><li>Feedback loops addressing variances </li></ul></ul><ul><ul><li>Vulnerability and continuity planning </li></ul></ul><ul><li>SC Network Integration Technology </li></ul><ul><ul><li>Dist order management </li></ul></ul><ul><ul><li>Event management </li></ul></ul><ul><ul><li>Enterprise app integration </li></ul></ul><ul><ul><li>RFID </li></ul></ul><ul><li>Strategic Planning Technology </li></ul><ul><ul><li>Bus & SC intelligence </li></ul></ul><ul><ul><li>PLM </li></ul></ul><ul><ul><li>Network optimisation </li></ul></ul><ul><li>Tactical Planning Technology </li></ul><ul><ul><li>S&OP </li></ul></ul><ul><ul><li>APS </li></ul></ul><ul><ul><li>Distribution planning </li></ul></ul>
  38. 38. Risk Planning – C & P (Contd.) <ul><li>Strategic Alignment </li></ul><ul><ul><li>Clear SC goals and objectives driven by business strategy </li></ul></ul><ul><ul><li>Business strategy exploits SC capabilities and constraints </li></ul></ul><ul><ul><li>Strategies communicated to all employees </li></ul></ul><ul><li>Better Flexibility </li></ul><ul><ul><li>Order fulfillment lead time </li></ul></ul><ul><ul><li>Supply chain response time </li></ul></ul><ul><ul><li>Production flexibility </li></ul></ul><ul><li>Supplier Integration </li></ul><ul><ul><li>Developing relationships to build on key supplier capabilities </li></ul></ul><ul><ul><li>Exchanging operational information </li></ul></ul><ul><ul><li>Synchronising activities with suppliers </li></ul></ul><ul><ul><li>Continuously exploring new working relationships </li></ul></ul><ul><li>Planning Effectiveness </li></ul><ul><ul><li>Formalised, disciplined processes addressing both long and short term planning </li></ul></ul><ul><ul><li>Contingency and risk analysis with scenario evaluations </li></ul></ul><ul><ul><li>Feedback loops addressing variances </li></ul></ul><ul><ul><li>Vulnerability and continuity planning </li></ul></ul><ul><li>Relationship Management Technology </li></ul><ul><ul><li>CPFR </li></ul></ul><ul><ul><li>CRM </li></ul></ul><ul><ul><li>SRM </li></ul></ul><ul><ul><li>Supplier Performance </li></ul></ul>
  39. 39. Risk Planning – C & P (Contd.) <ul><li>Customer Integration </li></ul><ul><ul><li>Relationships beyond sales transactions </li></ul></ul><ul><ul><li>Planning for individual customer requirements </li></ul></ul><ul><ul><li>Synchronising activities with customers </li></ul></ul><ul><ul><li>Continuously exploring new working relationships </li></ul></ul><ul><li>Better Cost Performance </li></ul><ul><ul><li>Supply chain cost </li></ul></ul><ul><ul><li>COGS </li></ul></ul><ul><ul><li>Warranty & returns processing cost </li></ul></ul><ul><li>Internal Integration </li></ul><ul><ul><li>X-functional awareness of responsibilities </li></ul></ul><ul><ul><li>Common prioritisation of customers </li></ul></ul><ul><ul><li>Common product roadmaps </li></ul></ul><ul><ul><li>Sharing of operational information </li></ul></ul><ul><ul><li>Performance metrics that promote cost / service trade-offs </li></ul></ul><ul><li>Planning Effectiveness </li></ul><ul><ul><li>Formalised, disciplined processes addressing both long and short term planning </li></ul></ul><ul><ul><li>Contingency and risk analysis with scenario evaluations </li></ul></ul><ul><ul><li>Feedback loops addressing variances </li></ul></ul><ul><ul><li>Vulnerability and continuity planning </li></ul></ul><ul><li>Execution Systems Technology </li></ul><ul><ul><li>WMS </li></ul></ul><ul><ul><li>TMS </li></ul></ul><ul><ul><li>ERP </li></ul></ul><ul><ul><li>eProcurement </li></ul></ul><ul><ul><li>JIT/Kanban </li></ul></ul>
  40. 40. Risk Framework
  41. 41. Strategic Approach – Resilient SC Resilient Supply Chain Supply Chain (Re)Engineering Supply Chain Design Supply Chain Understanding Supply Base Strategy Supply Chain Collaboration Collaborative Planning Supply Chain Intelligence SC Risk Mngt Culture Agility Visibility Velocity Supply Chain Continuity Teams Board level responsibility Risk in decision making
  42. 42. Risk Framework Strategy Execution Tactical Iterate & Improve
  43. 43. Risk - Strategy <ul><li>Input </li></ul><ul><li>Business Strategy </li></ul><ul><li>Value Drivers </li></ul><ul><li>Organisation Process </li></ul><ul><li>Define Risk Management Objectives </li></ul><ul><li>Determine Risk Appetite / Tolerance </li></ul><ul><li>Define Risk Organisation </li></ul><ul><li>Perform SWOT Analysis </li></ul><ul><li>Design supply chain to match Risk Profile </li></ul><ul><li>Map & Evaluate Current Network </li></ul><ul><li>Analysis – Cost, Inventory </li></ul><ul><li>Identify & Evaluate Alternative Structures </li></ul><ul><li>Techniques </li></ul><ul><li>Interviews </li></ul><ul><li>Questionnaires </li></ul><ul><li>Checklist </li></ul><ul><li>Assumption Analysis </li></ul><ul><li>SWOT template </li></ul><ul><li>Output </li></ul><ul><li>Risk Profile </li></ul><ul><li>Risk Organisation Chart </li></ul><ul><li>Roles & Responsibilities </li></ul><ul><li>SWOT Analysis </li></ul><ul><li>Optimal Network Structure </li></ul><ul><li>Risk Strategy </li></ul><ul><li>Risk Register </li></ul><ul><li>Risk Policies </li></ul><ul><li>Risk Governance Process </li></ul>
  44. 44. Risk - Tactical <ul><li>Input </li></ul><ul><li>Risk Profile </li></ul><ul><li>Risk Organisation Chart </li></ul><ul><li>Roles & Responsibilities </li></ul><ul><li>SWOT Analysis </li></ul><ul><li>Optimal Network Structure </li></ul><ul><li>Risk Strategy </li></ul><ul><li>Risk Register </li></ul><ul><li>Select Optimal Network Structure </li></ul><ul><li>Identify Failure Points in the Supply Chain </li></ul><ul><li>Prioritise the Failure Points </li></ul><ul><li>Identify Alternatives </li></ul><ul><li>Define the Alert Criteria </li></ul><ul><li>Techniques </li></ul><ul><li>Qualitative Assessment - Probability / Impact Matrix, Brainstorming, Cause & Effect Diagrams </li></ul><ul><li>Quantitative Assessment - FMEA, Simulation, Modelling, Diagramming Techniques </li></ul><ul><li>Strategies for Negative and Positive Risks </li></ul><ul><li>Strategies for Opportunities & Threats </li></ul><ul><li>Contingency Response Strategies </li></ul><ul><li>Risk Management Information Systems </li></ul><ul><li>Output </li></ul><ul><li>Rank Alternatives </li></ul><ul><li>Risks Related to Contractual Agreements </li></ul><ul><li>Risk Categorisation </li></ul><ul><li>Ranking of Failure Points </li></ul><ul><li>Risk Database Populated with Alert Criteria </li></ul><ul><li>Alert Process Defined </li></ul>
  45. 45. Risk - Execution <ul><li>Input </li></ul><ul><li>Risk Strategy </li></ul><ul><li>Risk Policies </li></ul><ul><li>Risk Governance </li></ul><ul><li>Risk Register </li></ul><ul><li>Rank Alternatives </li></ul><ul><li>Risks Related to Contractual Agreements </li></ul><ul><li>Risk Categorisation </li></ul><ul><li>Ranking of Failure Points </li></ul><ul><li>Risk Database With Alert Criteria / Process </li></ul><ul><li>Performance Reports </li></ul><ul><li>Collaborate on Risk Response Plan </li></ul><ul><li>Continuously Monitor </li></ul><ul><li>Techniques </li></ul><ul><li>Status Meeting </li></ul><ul><li>Risk Reassessments </li></ul><ul><li>Risk Audits </li></ul><ul><li>Variance / Trend Analysis </li></ul><ul><li>Performance Measures </li></ul><ul><li>Reserve Analysis </li></ul><ul><li>Alert Mechanisms </li></ul><ul><li>Risk Management Knowledgebase </li></ul><ul><li>Output </li></ul><ul><li>Risk Registers </li></ul><ul><li>Recommendation –Preventive, Awareness, Remediation </li></ul><ul><li>Monitor Inherent, Residual & Secondary Risks </li></ul><ul><li>Evaluate Effectiveness </li></ul>
  46. 46. Knowledge - Iteration & Improvement Lessons Learnt Capture Communicate Collaborate Continuously Improve
  47. 47. Stakeholder / Change - Management <ul><li>Capture </li></ul><ul><li>Input </li></ul><ul><li>Detect disruptions and estimate impact on supply chain performance </li></ul><ul><li>Process </li></ul><ul><li>Identify & categorise disruptions </li></ul><ul><li>Record risk in risk database </li></ul><ul><li>Output </li></ul><ul><li>Disruption list </li></ul><ul><li>Risk database </li></ul><ul><li>Follow-up </li></ul><ul><li>Communicate </li></ul><ul><li>Input </li></ul><ul><li>Communicate impact of disruptions </li></ul><ul><li>Process </li></ul><ul><li>Risk responsible identifies disruption & leads meeting with participants </li></ul><ul><li>Distribute reports and documents from ‘capture’ to ‘closure’ </li></ul><ul><li>Output </li></ul><ul><li>Review action points & follow up </li></ul><ul><li>Collaborate </li></ul><ul><li>Input </li></ul><ul><li>Review immediate action and identify causes </li></ul><ul><li>Process </li></ul><ul><li>Identify alternative solutions </li></ul><ul><li>Select best alternative </li></ul><ul><li>Delegate assignment </li></ul><ul><li>Output </li></ul><ul><li>Project closure report </li></ul><ul><li>Improve </li></ul><ul><li>Input </li></ul><ul><li>Review action plan from project closure phase </li></ul><ul><li>Process </li></ul><ul><li>Review success / failure of solutions implemented </li></ul><ul><li>Re-group if mitigation is unsuccessful </li></ul><ul><li>Record / update the solutions </li></ul><ul><li>Output </li></ul><ul><li>Updated risk database </li></ul>
  48. 48. Risk – Tools, Techniques, Checklists
  49. 49. Risk Categories Relationship Relationship Supply Chain Disruption Human Resources Performance Supply Chain Performance Financial Health Environment SC Risk Category Quality, Delivery, Capability, Service Influence, Alignment, Information, Sharing Turnover, Union issues, Pay Position Market Power, Information Visibility, Concentration, Disruption Potential Size, Asset Utilisation, Capitalisation, Profitability 1 2 3 4 5 6 Market Dynamics, Mergers, Regulatory, Disasters, Transportation
  50. 50. Questionnaire on SC Risk Issues
  51. 51. Supply Chain Risk Barriers
  52. 52. Supply Chain Description
  53. 53. Risks - Demand, Supply, Control Etc.
  54. 54. Risk - Scoring Results
  55. 55. Risk – Scoring System Consequences 1. No direct effect on operating service level 2. Minor deterioration in operating service level 3. Definite reduction in operating service level 4. Serious deterioration in operating service level 5. Operating service level approaches zero Likelihood of occurrence E. Probability of once in many years D. Probability of once in many operating months C. Probability of once in some operating weeks B. Probability of weekly occurrence A. Probability of daily occurrence Likelihood of detection A. Detectability is very high B. C onsiderable warning of failure before occurrence C. Some warning of failure before occurrence D. Little warning of failure before occurrence E. Detectability is effectively zero
  56. 56. Risk - Quantification / Qualification Valuation (factors to consider) Quantitative factors Revenue value Asset value Cash flow value Qualitative factors Brand Compliance Strategy Uninsurable Risks <ul><li>Supplier non-performance </li></ul><ul><li>Customer demand volatility </li></ul><ul><li>Partner work stoppages </li></ul><ul><li>Product defects/recalls </li></ul><ul><li>Emerging risks (pandemic) </li></ul><ul><li>Others </li></ul>Insurable Risks <ul><li>Catastrophic disaster </li></ul><ul><li>Property damage/loss </li></ul><ul><li>Product liability </li></ul><ul><li>Business interruption </li></ul><ul><li>Others </li></ul>
  57. 57. Risk – Prioritised Consequence Likelihood 0 Tolerate Terminate Treat Transfer
  58. 58. Risk Classification
  59. 59. Cause & Effect Analysis Failure to Deliver on Time No Stock Available Lead-Time Too Short Carrier Performance Quality Problems Capacity Constraint Inflexible Systems Inadequate Communications Poor Scheduling Inadequate Supplier Management Materials Supply Problem Failure to Achieve Plan Forecasting Problems Poor Process Control
  60. 60. Risk Control Matrix Key Process Number Process Risk Number Risk Control Objective Control Number Control Description Control Owner Process Narrative Control Category Control Type Primary/ Secondary Control Frequency Design Assessment
  61. 61. Example – Contingency Risks How Long Can You Do Without? Impact of Doing Without? Vulnerabilities? Contingency in case of a disaster? Equipment (IT only) 5 days After five days no way to schedule production or track orders No UPS/generator, MD hardware, SPOF SME Use paper reports for 5 days then go manual for as many members as possible Facility 0 days No production, potential for bankruptcy, IT non-existent Metal building, flood zone, poor maintenance, no perimeter security, door lock broken Look for warehouse space, attempt to salvage equipment and restart operation, file bankruptcy Personnel 0 days Degraded operations, low service levels Too many SPOF Best effort shifting of available staff, temps Raw Materials 30 days before new deliveries None until on hand exhausted Single supplier relationship Search for alternative supplier Transportation System 30 days in 2 days out No supplies No deliveries Location, design of entrance None Utilities 0 hours/power 0 hours/water Extrusion shuts down, lines cleaned, waste collected and prepared for grinder, IT non-existent Single power feed, no generator or backup water supply None Vendors (Sourcing) 4 hours No call center Mercy of vendor Bring in-house
  62. 62. <ul><li>“Education's purpose is to replace an empty mind with an open one.&quot; </li></ul><ul><ul><li>- Malcolm S. Forbes </li></ul></ul>
  63. 63. <ul><li>Good Luck </li></ul><ul><li> </li></ul>