Discussing the importance of supply chain risk management, taking the case of mining industry. The slides explain what the internal and external challenges, the four types of risks, the risk management process, and the mitigation strategies.

1. SUPPLY CHAIN RISK
MANAGEMENT IN
GLOBAL BUSINESS
MINING SECTOR
Togap Siagian, MBA, CPSM
Indonesia Supply Chain Summit 2016

2. Togap Siagian, MBA, CPSM
Supply Chain Management Professional
Career: Senior Manager with extensive leadership experience in Supply Chain Management, Procurement,
Materials Management in oil & gas and mining industry
Education: MBA Rochester Institute of Technology, BS in Industrial Engineering Institut Teknologi Bandung
Certification: CPSM (Certified Professional Supply Management) from ISM (Institute for Supply Management)
Affiliations: Institute for Supply Management, Indonesian Procurement Society (Co-Founder & Board of
Expert)
Phone: +62 811 9 851 861, email: togap.siagian@gmail.com

3. “Risk comes
from not
knowing what
you`re doing”
Warren Buffett

4. Supply chain risk management (SCRM) is "the implementation of
strategies to manage both everyday and exceptional risks along the
supply chain based on continuous risk assessment with the objective
of reducing vulnerability and ensuring continuity”
Wikipedia

5. 1. Background

6. Internal Challenges in Mining Industry
Usually located in a REMOTE AREA that
sometimes is not easy to reach
Many mining companies work in areas close to
NATIVE/LOCAL COMMUNITIES
Due to its nature, mining activities have high
impact on the ENVIRONMENT
HIGH INVESTMENT is required to operate the
mining area
Due to the specific condition of the exploited
area, SPECIALIZED EQUIPMENT is required

7. Source: www.investopedia.com/articles/investing/092315/commodity-supercycle-really-end.asp
External Challenges in Mining Industry

8. Impact on Mining Supply Chain
Impact to Companies
 Need to better manage cash
flow
 Reduction of supply chain
manpower
 Need to optimize the current
assets (avoid replacement)
 Challenged to increase
productivity and efficiency
Impact to Companies
 Need to better manage cash
flow
 Reduction of supply chain
manpower
 Need to optimize the current
assets (avoid replacement)
 Challenged to increase
productivity and efficiency
Impact to Companies
 Need to better manage cash
flow
 Reduction of supply chain
manpower
 Need to optimize the current
assets (avoid replacement)
 Challenged to increase
productivity and efficiency
Impact to Suppliers
 Increased competition due
to smaller pool of customers
 Reduce profitability to stay
competitive
 Reduction of manpower
 Demand planning is more
difficult

9. 2. Risks in Mining Supply Chain

10. Financial Risks
Supplier
Financial Risk
Reduced cash flow, reduced
access to credit, insolvency,
bankruptcy
Input Price
Volatility Risk
Price premium due to
remote location, limited
supply options for parts and
labor, limited negotiation
leverage
External
Financial Risks
Exchange rate, lack of
competition, fluctuation of
commodity prices

11. Regulatory Risks
 Local regulations and laws are continuously evolving and
sometimes uncertain
 Strict regulations on environment, health, and safety which
affects inventory, procurement, and transportation of goods

12. Operational Risks
 Availability of critical parts to avoid high opportunity costs
when parts are unavailable
 Suppliers unable to meet the company’s needs across a
range of dimensions (capacity, quality, safety)
 Transportation of the goods to the mining operations area

13. Geopolitical and Social Risks
 Supply lines extend across various countries
 Each has its own regulations and challenges
 Lack of involvement from local business may
harm the company in the long term
 Reputation of the company may be
jeopardized if it does not consider the
Corporate Social Responsibility (CSR)

14. 3. Risks Management Process

15. Risks Management
Process
Risks
Identification
 Collect data
 Internal and
external
Evaluate
Options
 Interdepartmental
team - supply
management as key
 Cost benefit analysis
 Develop rank and
priorities
Continuous
Assessment
 Regular review of
risk and mitigations
 Update to top
management
Implement
Mitigations
 Assign action leads
 Apply identified
tactics

16. Risk Rank and Prioritization

17. Mitigation Strategy #1:
Acceptance
 Simply accept that it may happen and
decide to deal when it does.
 Used when the cost to mitigate is very
high compared to the cost of the risk.
 A company doesn’t want to spend a lot
of money on avoiding risks that do not
have a high possibility of occurrence.
 Example: the risk of an earthquake
hitting the factory of a supplier for a
non-critical spare part can be
accepted.

18. Mitigation Strategy #2: Avoidance
 The opposite of risk acceptance.
 Avoids any exposure to the risk whatsoever.
 Changing a plan to eliminate a risk or to protect plan objectives
from its impact.
 Usually the most expensive risk mitigation options.
 Example: use standard machine / equipment part, increase
security costs to avoid theft

19. Mitigation Strategy #3: Limitation
 The most common used risk management strategy.
 Limits a company’s exposure by taking some action.
 Employing a bit of risk acceptance along with a bit of risk avoidance or an
average of both.
 Example: conduct quality inspection to incoming goods, limit
suppliers pool to those which have stable financial strength.

20. Mitigation Strategy #4:
Transfer
 Handing risk off to a willing third party.
 Can be beneficial if the transferred risk is not a core
competency.
 Example: outsource certain operations such as
customer service or payroll services, use
insurance to mitigate consequential loss.

21. Risks Register
STRATEGIC
OBJECTIVE
RISK
EVENT
OUTCOMES RISK
INDICATORS
LIKELIHOOD/
CONSEQUENCE
MITIGATION
PLANS
PRIORITIES ACTION
LEAD
Guarantee
reliable and
competitive
supply of
critical spare
parts
Interruption
of deliveries
Safety
Overtime
Additional
cost
Airfreight
Production
loss
Overtime
report
Increased
downtime
Lower
production
Hold daily
meeting with
Operations and
supplier
Upgrade of
supporting
equipment
Request support
from equipment
principal
Develop
alternative
suppliers
3 Mr. Bambang,
Senior
Manager of
Maintenance

22. THANK
YOU