Simulation and Risk in the Global Supply Chain

1. EMBA 6913
Supply Chain Management
Simulation and Risk
March 14, 2019
Payson E. Johnston,
Adjunct Professor, School of Management
University of San Francisco

2. Outline of the presentation
• The Root beer Simulation
• Risk in the SC
• Supply chain mapping and risk

3. The Simulation

4. Bullwhip Effect: illustration

5. The Bullwhip Effect
The bullwhip effect refers to the situation when demand
variation in the supply chain gets amplified as it moves up
the supply chain
Distorted information from one end of a supply chain to
the other gets magnified as each player tries to
monopolize information.

6. Causes of Bullwhip Effect
• Demand forecast inaccuracy
• Lead time variation
• Government policy
• Weather variations
• Sales promotion schemes
• False orders
• Supply in full truckloads
• Unforeseen circumstances

7. Flipboard
Supply Chain
Management
http://flip.it/BvYBl

8. Relating logistics management and supply chain management to
supplier networks and marketing channels
Source: Dr. Sweta Thota
Or Business (B2B)
Global Distribution
Value Chain Management
Channel
Management
Distribution Channels

9. Basic Blocking & Tackling in the Supply Chain
• Cost
• Quality
• Delivery
• & Sustainability

10. Discussion 1:
Risk in the Supply Chain

11. The map shows levels of geopolitical risk in developing nations. Yellow indicates medium risk, orange high, and red very high risk. Developed nations are not
rated. - Aon Political Risk Map 2015

12. The Japan Earthquake 3/11
http://www.guardian.co.uk/world/video/2012/mar/10/japan-
earthquake-tsunami-video

14. Supply Chain
Resiliency
Management &
Japan Incident
Response

15. Japan Sub-Tier Challenge
Japan Incident Response Case Study
Cisco Resiliency Management Overview
Japan Outcome and Q&A
Agenda

16. Effectiveness and Impact
OrganizationalEngagement
Innovating Resiliency
Management
(2010+)
Proactive Risk
Management
(2008-2009)
Reactive Risk
Management
(2004 – 2007)
 Resiliency embedded
in processes
 Design for Resiliency
 Industry collaboration
around standards Business Continuity
Planning (BCP) as an
assessment framework
 Mitigation governance and
metrics
 Crisis monitoring and
playbooks
 Business Continuity
Planning
 Crisis Management
 Some level of mitigation

17. Time to Recover
Expected Capacity Loss
Supply Chain Redundancies
Site/Region/
Component Revenue
• Simulation Engine
• ~4300 Individual Input
Parameters
• Simulates 1000s of
Scenarios
Inputs OutputsE2E Model
Understanding Risk Drivers
Likelihood
Component
Supply
Disruption
PandemicQuality
Issue
Bankruptcy Gulf
Coast
Hurricane
Labor
Disruption
Taiwan
Earthquake
Japan
Earthquake
West
Coast
Earthquake
Flood
Site/Component/Region
Events & Frequency
Disruptions
Supply Chain Impact
(Site & Component)
Financial Impact
Understanding Geographical
Concentration of Risk

18. 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Dot Com
Bubble
Indonesian
Tsunami
Political
Unrest
Chengdu
Earthquake
Volcanic
Disruption
Japan
Crisis
Hurricane
Katrina
Hurricane
Ike
Global
Recession
9/11
Egypt/North
African
Conflicts

19. Key Elements Considered
Resiliency Index
Categories & Weighting
Single Sourced
Component Supplier TTR
End of Life Parts
Supplier Financial Health
Supplier BCP Compliance
Non PSL and New Suppliers
Dual Manufacturing Sites
Qualified Alternate Sites
Manufacturing TTR
Test Equipment TTR
Component
Resiliency
30%
Supplier
Resiliency
20%
Manufacturing
Resiliency
30%
Test
Resiliency
20%
Not Resilient
Very Resilient
10
1
2
3
4
5
6
7
8
9

20. Agenda
Japan Sub-Tier Challenge
Japan Incident Response Case Study
Cisco Resiliency Management Overview
Japan Outcome and Q&A

21. Global Business Management
• On March 11th 2011, Japan suffered an 9.0 magnitude earthquake
• A tsunami ensued that swept across Sendai and the North East coast
causing severe damage
• The tsunami caused failures and meltdowns at nuclear facilities
• Aftershocks continued for many weeks
• Largest disruption to global supply chain in modern history
2011 Japan Incident Overview

22. Tokyo
Incident Severity Scale
L0
L1
L2
L3 Estimated Impact >$1B
Estimated Impact >$100M
Impact TBD- Monitor Only
Minor Impact / Likely Impact
Initial NC4
Incident Alert
Received
10:08
PM*
SC Incident
Mgmt Team
Notified
Level 0 Severity
10:54 PM
Japan- Reported 8.9 magnitude earthquake
off North Eastern Coast of Japan
Relevant Area:
Asia, Japan
Within 50 miles of Cisco Supplier Zone
Incident Location:
Pacific Ocean- 80 miles E of Sendai, Miyagi, Japan
Incident: Geophysical
Incident Type: Earthquake
Severity: Extreme
When this Happened: 03/11/2011 2:46 PM JST
(03/10/2011 09:46 PM PST)
NC4 Incident Alert
10 PM 11 PM 12 PM 1 AM 2 AM 3 AM 4 AM 5 AM 6 AM 8 AM7 AM 9 AM 10 AM
Thurs, Mar 10 Friday, Mar 11
1st 12 Hours
Identified Supply-Base
* Note: Times/Dates in PDT
SC Incident
Mgmt Team
Activated
Level 2 Severity
7:12 AM
Identified all
suppliers/ nodes
and single source in
impacted region
Level 3 Severity
10:00 AM

23. War Room Adapted to Manage Multiple Crises
 Continuing aftershocks of
>6.0 in magnitude
 24/7 monitoring of
aftershocks and impact
 Focus on optics and
semiconductor suppliers
due to sensitivity
 Government mandated
“exclusion zone” (12 km
radius)
 Cisco assumption that all
suppliers within 50 mile zone
must be mitigated
 Special focus on customer
concerns about radiation
contamination
Tokyo
Tokyo
Tokyo
 Volatility of impact
estimates and solutions
(e.g. rolling blackouts)
 Cisco engagement of
SMEs to anticipate
outcomes
 Special focus on
continuous power-flow
components
Earthquake/Tsunami
1
Nuclear Impact
2
Power Shortage
3
Situation
Issues and
Approaches
3 Risk Events
Managed
Simultaneously

24. EMS/ODM
Logistics
Component Supplier

25. • Suppliers and site locations
• Commodities and Cisco part #s
• Volumes and spend
• Emergency contact information
Quickly established visibility
into
Cisco supplier footprint in
Japan
Tokyo
Site Location Key
– Cisco Direct Supplier Site

26. Establishing rapid answers to:
• What is the extent of damage?
• What is the impact to capacity?
• What is the state of local
infrastructure?
• What is the power situation?
BCP data leveraged to quickly establish
contact with sites to qualify impact and
prioritize mitigation activities
Tokyo
Status/Action Key
– No impact / low risk profile
– Some impact reported /
monitor and/or mitigate
– Significant impact reported
/ mitigate with higher priority
– Capacity disabled (or
assumed highest risk)-
mitigate with highest priority
Impact Status
73 74 76 76 78 77 77 71 71
31 32 28 33 32 33 33
25 25
11 10 14
16 14 15 15 34 34
3 4 4
5 6 5 5 6 6
0
20
40
60
80
100
120
140
160
3/21 3/22 3/23 3/24 3/25 3/26 3/27 3/28 3/29
SupplierCount
No Impact Low Impact Med Impact High Impact
73 74 76 76 78 77 77 71 71
31 32 28 33 32 33 33
25 25
11 10 14
16 14 15 15 34 34
3 4 4
5 6 5 5 6 6
0
20
40
60
80
100
120
140
160
3/21 3/22 3/23 3/24 3/25 3/26 3/27 3/28 3/29
SupplierCount
No Impact Low Impact Med Impact High Impact
73 74 76 76 78 77 77 71 71
31 32 28 33 32 33 33
25 25
11 10 14
16 14 15 15 34 34
3 4 4
5 6 5 5 6 6
0
20
40
60
80
100
120
140
160
3/21 3/22 3/23 3/24 3/25 3/26 3/27 3/28 3/29
SupplierCount
No Impact Low Impact Med Impact High Impact
73 74 76 76 78 77 77 71 71
31 32 28 33 32 33 33
25 25
11 10 14
16 14 15 15 34 34
3 4 4
5 6 5 5 6 6
0
20
40
60
80
100
120
140
160
3/21 3/22 3/23 3/24 3/25 3/26 3/27 3/28 3/29
SupplierCount
No Impact Low Impact Med Impact High Impact
Quals Progress
89 88 88
63 63
137 141
51 52 52
50 50
71 71
0
50
100
150
200
250
3/23 3/24 3/25 3/26 3/27 3/28 3/29
Started Planned Investigating
89 88 88
63 63
137 141
51 52 52
50 50
71 71
0
50
100
150
200
250
3/23 3/24 3/25 3/26 3/27 3/28 3/29
Started Planned Investigating
89 88 88
63 63
137 141
51 52 52
50 50
71 71
0
50
100
150
200
250
3/23 3/24 3/25 3/26 3/27 3/28 3/29
Started Planned Investigating
Buy-Aheads Progress
12.9M 12.9M 12.9M 14.0M 14.0M 14.6M 14.6M 15.0M
6.2M
9.5M 9.5M
8.7M
8.7M 8.7M
2.5M
$0M
$5M
$10M
$15M
$20M
$25M
$30M
3/21 3/22 3/23 3/24 3/25 3/26 3/27 3/28 3/29
Purchased $ Requested $ Nuke Requested $
12.9M 12.9M 12.9M 14.0M 14.0M 14.6M 14.6M 15.0M
6.2M
9.5M 9.5M
8.7M
8.7M 8.7M
2.5M
$0M
$5M
$10M
$15M
$20M
$25M
$30M
3/21 3/22 3/23 3/24 3/25 3/26 3/27 3/28 3/29
Purchased $ Requested $ Nuke Requested $
12.9M 12.9M 12.9M 14.0M 14.0M 14.6M 14.6M 15.0M
6.2M
9.5M 9.5M
8.7M
8.7M 8.7M
2.5M
$0M
$5M
$10M
$15M
$20M
$25M
$30M
3/21 3/22 3/23 3/24 3/25 3/26 3/27 3/28 3/29
Purchased $ Requested $ Nuke Requested $
Component Analysis
3,841 3,841 3,841
2,760 2,999
28 28 28 28 611
-
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
3/25 3/26 3/27 3/28 3/29
Impacted CPNs GAP CPNs
3,841 3,841 3,841
2,760 2,999
28 28 28 28 611
-
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
3/25 3/26 3/27 3/28 3/29
Impacted CPNs GAP CPNs
3,841 3,841 3,841
2,760 2,999
28 28 28 28 548
-
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500

27. Agenda
Japan Sub-Tier Challenge
Japan Incident Response Case Study
Cisco Resiliency Management Overview
Japan Outcome and Q&A

28. Cisco Optical
Services Router
Potential Single Points of Failure
Optics Modules
on Line Card
Complex Optical
Line Card
Tier 1
Transceiver
Modules
Tier 2
Silicon
Controllers
Tier 3
Resins,
Lenses
Tier N
Direct Supplier Assembly
Sub-
Component
Raw Material

29. Status Key
Impact Key
No Impact
Medium Impact
High Impact
(>50% capacity loss)
1 = 24x7 Power Risk
2 = EQ Supplier Damage
3 = In Nuclear Zone
Part Site Mapping to Assess Sub-Tier Impact
100 Mile
Nuclear Zone
50 Mile
Nuclear Zone
Raw Material
1
Direct Supplier
Direct Supplier
Direct Supplier
Direct Supplier
Direct Supplier
Direct Supplier
Direct Supplier
Direct Supplier
Assembly
Assembly
Assembly
Assembly
Sub-Component
Sub-Component
Sub-Component
Sub-Component
Sub-Component
Supplier Key
Direct
Supplier Tier 1
Assembly Tier 2
Sub-
Component Tier 3
Raw
Material Tier N
Earthquake
Epicenter
1
2
3
2
3
3
3

30. Japan Sub-Tier Challenge
Japan Incident Response Case Study
Cisco Resiliency Management Overview
Japan Outcome and Q&A
Agenda

31. * Does not include test infrastructure
• Assessed over 7000 part numbers and assigned
risk rating / mitigation plan
• Customer Value Teams ideally positioned
to liaise with customers
Key Results for Cisco Japan Response
• 1100 unique components impacted with over
900 qual’s completed
• Assessed over 300 Tier 1 – Tier 5 suppliers,
including site inspections
• Managed 118 customer inquiries with
~24 hour responses
• Virtually no revenue impact!

32. • Complete / accurate BCP data is the platform for
any effective response (part-site mapping!)
• Having and using your Playbooks is essential
• Internal / external communications must be
stood-up quickly
Lessons Learned
• Sub-Tier risk visibility and mitigation is an Achilles
Heel for many industries
* Does not include test infrastructure
“In an increasingly networked world, supply chain risk management is top of mind in global organizations
as well as a key differentiator for leading value chain organizations. Cisco’s proactive approach and
leading supply chain risk management capabilities were key to ensuring minimal impact to our customers
during the recent Japan earthquake crisis.”
John Chambers, Chairman and CEO, Cisco Systems

33. https://www.cnbc.com/video/2011/12/13/t
hai-floods-hit-many-techs.html

36. Discussion 1:
Mapping Risk in the Supply Chain