Managing risk in Supply Chain operations_Daniel_Final
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RESEARCH PAPER
MANAGING RISK IN SUPPLY CHAIN OPERATIONS
Course name: Global SCM and International Logistics
Professor: Troy Glassman
Student: Daniel Cywinski
April, 2016
Managing risk in Supply Chain operations Daniel Cywinski
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TABLE OF CONTENTS
1 INTRODUCTION..................................................................................................................4
2 LITERATURE REVIEW ......................................................................................................5
3 FMEA TECHNIQUE ............................................................................................................6
3.1 FMEA Steps...................................................................................................................6
3.2 Rating tables (occurrence, severity, detection) ........................................................7
3.3 Fuzzy terms ...................................................................................................................8
4 COMPANY INFORMATION ...............................................................................................9
5 DEFAULT FMEA ............................................................................................................... 11
6 FUZZY FMEA .................................................................................................................... 13
7 CONCLUSION................................................................................................................... 15
REFERENCES ..................................................................................................................... 16
Managing risk in Supply Chain operations Daniel Cywinski
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Abstract: Today’s business environment is characterised with constant changes,
expending markets and turbulences. Business operations are affected by external
and internal factors which are in some situations very hard for companies to identify
and to predict. In order to survive, companies are striving to achieve Excellency in
their operations, and managing risks is a very important part. Many techniques were
developed in order to help companies to identify and assess operational risks, so
they can be properly managed, minimized or removed. The one which is used very
often is focused on the analysis of possible failure mode and their effects on
operations - FMEA. Assessing risks in supply chain operations can be very
complicated, tricky and usually followed by uncertainty, ambiguity and even conflicts
between experts who are doing the assessment. To overcome these issues, this
paper is proposing the usage of fuzzy logic in the risk assessment process. Two
FMEA are tested on SC operations of one manufacturer and Distributer Company.
One default and one fuzzy FMEA. Final results and rankings of failure modes were
examined at the end and proposed some recommendations for improvement.
Key words: Risk assessment, Supply chain operations, Failure mode and Effect
Analysis, Fuzzy logic, Subjectivity and uncertainty.
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1 INTRODUCTION
Today’s business environment is characterised with constant changes, fast
expending markets and many turbulences. Business operations are affected by
external and internal factors which are in some situations very hard for companies to
identify and to predict their behaviour. To survive at the market, companies are
constantly looking for new ways to fulfil expectations of their stakeholders and to
acquire attention of other interested parties. Considering this, companies are striving
to achieve Excellency in their operations, and managing risks is a very important
part. Through time, many models, tools and techniques were developed in order to
help companies to identify and assess operational risks, so they can be properly
managed, minimized or removed. The one technique which is used very often now is
focused on the analysis of possible failure mode and their effects on operations.
FMEA (Failure Mode and Effects Analysis) represents structured, systematic and
proactive technique which can be used for failure analysis. It can be applied not only
on processes and their operations, but on the whole systems, development of new
products or services. Assessing risks in supply chain operations can be very
complicated, tricky and usually followed by uncertainty, ambiguity and even conflicts
between experts who are doing the assessment. To overcome these issues, fuzzy
logic can be used as one very powerful tool (Chang & Cheng, 2010). Because of
the ability to compute vagueness (Lalla et al., 2008), uncertainty and imprecision,
fuzzy logic finds its application in treatment of attributes and linguistic variables
(Jamshidi, 2003).
This paper aims to show the usage of FMEA (Failure Mode and Effects Analysis)
technique for assessing the risks in supply chain operations. To overcome
uncertainty and imprecision issues, when it comes to the expert assessments, fuzzy
Managing risk in Supply Chain operations Daniel Cywinski
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numbers are used as a modification to the “default” FMEA, following the steps and
suggestions proposed by (Liu et al., 2011). Following this introduction, literature
review will be presented in the next part of this paper. It will include the FMEA
technique application analysis and some authors’ propositions for FMEA
modification. In the third part, steps of the FMEA will be given with other necessary
elements for modified FMEA implementation. After that, all necessary data regarding
company and its supply chain operations will be provided in the fourth part. Two
FMEA will be conducted - one FMEA without modifications and one with Fuzzy
numbers included, as proposed by (Liu et al., 2011). This will be described step by
step, in parts five and six respectively. In the conclusion, results will be analysed and
compared and further research questions will be opened.
2 LITERATURE REVIEW
As stated at the beginning, identifying, assessing and managing risks in supply chain
operations is receiving a significant amount of attention nowadays. Considering
interconnection and correlation between processes, and the need for communication
and cooperation with many parties in the environment, it can be said that supply
chain is a very risky field (Coyle et al, 2013). Because of that, many researches
were conducted in order to properly investigate and briefly analyse the use of
different techniques for risk assessment. Through the analysis and comparison,
many authors (Stamatis, 2003; Carlson, 2012; Kumru & Kumru, 2013;)
highlighted strengths and weaknesses, identified issues and proposed combination
of other techniques to overcome them. One of the authors (Atwatera et al., 2014)
developed a risk assessment scorecard, using conjoint analysis, for motor carrier
firms to predict risks and their ability to answer constant changes of the environment.
Managing risk in Supply Chain operations Daniel Cywinski
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Similar, (Claypoola et al., 2014) developed a model which is based on the analysis
of product design, supply chain design and risk concurrently using Mixed Integer
Programming.
FMEA is a very popular technique for assessing risks in supply chain operations. It
provides a simple analysis procedure (Mozaffari et al., 2013) and it is very
structured and reliable method (Kostina et al., 2012). As stated by (Braglia, 2000),
FMEA stands as very useful and helpful techniques for managers. FMEA models
based on the usage of fuzzy logic and fuzzy numbers play a very important role
nowadays in risk management process. Authors (Braglia et al., 2003) combined
fuzzy TOPSIS model in order to improve reliability of the existing FMEA, the same as
(Song et al., 2014). Similar, (Chang & Cheng, 2011) used another fuzzy model
(DEMATEL) to better evaluate the risk of failure. (Chang et al., 2010) used
intuitionistic fuzzy set ranking technique to reprioritize previously calculated failure
modes. Since risk assessment is closely related to the decision making process,
(Hadi-Vencheh & Aghajani, 2013) used fuzzy group Multi Criteria Decision Making
approach to improve FMEA.
3 FMEA TECHNIQUE
For the purpose of this paper, default FMEA steps will be explained following the
description which can be found on American Society for Quality website (asq, 2004).
3.1 FMEA Steps
Steps for Failure Mode and Effects Analysis are:
Step 1 - Determine basic elements
- Identify the scope of FMEA (functions, processes, operations, activities); - Identify the purpose of the FMEA; - Assemble the project team;
Step 2 - For each operation list possible failure modes - If necessary, go back to the scope and rewrite the scope with more details ;
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- Failure modes should reflect the loss for the specific operation; Step 3 - Identify possible consequences for each of FM
- Consider consequences on current system, related systems, process and related processes, products, clients, reputation of company; - Helpful question: “What happens when this failure occurs?”
Step 4 - Determine severity rating - Helpful question: “How serious listed consequences are?”
- Severity is usually rated on a scale from 1 to 10 (meaning of the scale is given in the table 1
in next 3.2 part); Step 5 - Determine potential root causes - Use root cause analysis tools (5why, Tree diagram…..)
- Use experience and apply knowledge of the team members; Step 6 - Determine occurrence rating
- This rating estimates the probability of failure occurring during the lifetime of the chosen
scope; - Occurrence is usually rated on a scale from 1 to 10 (meaning of the scale is given in the table 2 in next 3.2 part);
Step 7 - Identify existing measures - Those are current process controls with the aim to prevent cause from happening, or reduce the likelihood that it will happen, or detect failure after the cause has already happened;
- Could be tests, procedures or mechanisms in place of the scope; Step 8 - Determine detection rating - Should be determined for each of the existing measures (controls);
- This rating estimates how well the controls can detect either the cause or its failure mode; - Detection is usually rated on a scale from 1 to 10 (meaning of the scale is given in the table 3 in next 3.2 part);
Step 9 - Calculate the risk priority number (RPN) - Equals Severity rating × Occurrence rating × Detection rating; Step 10 - Rank FM based on RPN
- Determine critical FM so they can be addressed with higher priority; Step 11 - Identify recommended actions
- Recommended actions should be identified with all proper elements (responsibilities, scope,
deadlines, and resources) Step 12 - Calculate new RPN
- After the completion of recommended actions, new S, D and O ratings need to be assessed
and new RPN calculated;
3.2 Rating tables (occurrence, severity, detection)
Traditional tables for the determination of Severity, Occurrence and Detection ratings
will be used, as also used by many other authors before, such as (Chin et al., 2008;
Chin et al., 2009; Wang et al., 2009). Rating tables are given following the FMEA
steps order.
Table 1. - Severity of a failure ratings
Rating Effect Severity of effect
10Hazardous without
warning
When a potential failure mode affects safe operation and/or involves
noncompliance with regulations without warning
9Hazardous with
warning
When a potential failure mode affects safe operation and/or involves
noncompliance with regulations with warning
8 Very High Inoperable state, with loss of primary function
7 High Operable state, but at reduced level of performance. Clients dissatisfied
6 Moderate Operable state. Clients experiences discomfort
5 Low Operable state, but with reduced level of performance. Clients dissatisfied
4 Very Low Very low effects on operations but can slightly effect on clients satisfaction
3 Minor Minor effects on operations
2 Very minor Very minor effects on operations
1 None No effect
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Table 2. - Occurrence of a failure ratings
Table 3. - Detection of a failure ratings
3.3 Fuzzy terms
Necessary fuzzy terms for Fuzzy FMEA now needs to be determined. In table 4,
fuzzy ratings for linguistic terms are given, as also used by (Liu et al., 2011).
Table 4. Fuzzy ratings for linguistic terms
Membership function for the linguistic terms is (Liu et al., 2011):
Figure 1. - Membership function for the linguistic terms
Rating Probability Failure rate
10 Very High: failure is almost inevitable ≥1/2
9 1/3
8 High: repeated failures 1/8
7 1/20
6 Moderate: occasional failures 1/80
5 1/400
4 1/2000
3 Low: relatively few failures 1/15000
2 1/150000
1 Remote: failure is unlikely 1/1500000
Rating Detection Criteria
10Absolutely
impossible
Design control will not and/or cannot detect a potential cause/mechanism and
subsequent failure mode; or there is no design control
9 Very remoteVery remote chance the design control will detect a potential cause/mechanism
and subsequent failure mode
8 RemoteRemote chance the design control will detect a potential cause/mechanism and
subsequent failure mode
7 Very lowVery Low chance the design control will detect a potential cause/mechanism
and subsequent failure mode
6 LowLow chance the design control will detect a potential cause/mechanism and
subsequent failure mode
5 ModerateModerate chance the design control will detect a potential cause/mechanism
and subsequent failure mode
4 Moderately high Moderately high chance the design control will detect a potential
cause/mechanism and subsequent failure mode
3 HighHigh chance the design control will detect a potential cause/mechanism and
subsequent failure mode
2 Very High Very High chance the design control will detect a potential cause/mechanism
and subsequent failure mode
1 Almost certain Design control will almost certainly detect a potential cause/mechanism and
subsequent failure mode
Liguistic Occurrence Severity Detection Fuzzy numbers
Very low 1, 2 1, 2, 3, 4 1, 2 (0,0,1,2)
Low 3, 4 5 3 (1,2,3,4)
Moderate 5, 6 6 4, 5 (3,4,6,7)
High 7, 8 7 6 (6,7,8,9)
Very High 9, 10 8, 9, 10 7, 8, 9, 10 (8,9,10,10)
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For the Defuzzification of the linguistic terms, next formula will be used:
]}[]{[]}[]{[
][][
1010
10
dadacbcb
cbcbhi
(1)
Where:
ih - Defuzzified number (rating of S, O, D)
10,10 ,, bbaa - Numbers of fuzzy number, given in brackets respectively
c - Minimum scale value, in this case zero
d - Maximum scale value, in this case 10
4 COMPANY INFORMATION
Based on previously conducted literature review and the analysis of the default and
modified FMEA models, the importance of proper risk identification and assessment
in supply chain operations is evident. Considering that, management of Intercorp
decided to conduct a project with the aim to identify and assess of risk in its supply
chain operations. Intercorp is an American manufacturing and distribution company
for paper and plastic household products. It was founded in Skokie in 1995, near
Chicago and up till now, it achieved constant every year growth. As a part of
company’s portfolio, there are two major groups of SKU’s - Paper group (paper
towels, handkerchiefs, napkins, tork paper, paper plates) and Plastic group (plastic
bags, stretch and aluminium foils, Plastic cutlery set). Number of clients now
exceeds 1000, and they are treated and served through two channels. Wholesalers
and retail (supermarkets, groceries restaurants, fast food shops, newspaper stands
and other retail stores). Intercorp now have 50 employees working on four site.
Central office as a major site 1, production facility with the warehouse as major site 2
and two locations with smaller cross dock warehouses. Transportation fleet consists
of 10 selling vehicles and 4 Lories in charged for wholesaler’s orders.
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So far in this year, Intercorp’s market share experienced enormous growth for
approximately 14%, caused by bigger and more frequent client’s demands.
Following that, operational errors and mistakes are more often and all this expanding
situation opened the possibility for many other operational risks to arise. Faced with
market share growth situation, director of the company decided to conduct risk
assessment project in supply chain operations for the start. This will give a company
more information about critical and risky areas and will help management to decide
in which direction to point up future investment of resources to properly manage
existing risks (minimize or remove). On monthly management meeting, it is decided
that Failure Mode and Effects Analysis will be most suitable to be conducted. Also, it
is decided that assessment should be initially conducted on several critical
operations using both regular and fuzzy numbers. After the comparison of the results
produced from Default and Fuzzy FMEA, more suitable analysis for Intercorp
organization will be chosen and conducted including all operations and activities in
supply chain, sales and support processes. As a project team leader, director named
Logistics manager. LM will participate in the assessments, will supervise project
tasks and FMEA steps respectively, and it will be responsible to deliver final project
results (risk matrixes) in defined deadline.
Before applying FMEA on chosen company, step 1 (determination of the basic
FMEA elements) will be defined here, since it is the same for both FMEA’s (default
and fuzzy). Four supply chain processes and their operations will represent a scope
of the analysis: 1. Inventory procurement (Forecasting, Ordering and General
Activities); 2. Warehousing (Receiving, Preparation and loading and Maintenance
Activities); 3. Transportation (Routing and Delivering); 4. Customer Service
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(Invoicing, Complaints handling and Price lists managing Activities). The purpose of
the analysis will be to identify, examine and assess risks for major and most frequent
failure modes in chosen operations. For this project, process owners will be in
charge for the assessment of failure modes for their specific operations together with
the Logistics Manager. So, the project team will be consisted of five people:
Procurement manager, Manager of Warehousing operations, Customer Service
Supervisor, Transportation Manager and Logistics Manager as a team leader. For
each of the rating, based on the assessments of LM and other manager, average
scores will be determined.
5 DEFAULT FMEA
Default FMEA will be applied considering previously determined elements (step 1).
Both logistic manager (LM) and process owners (PO) were giving the assessments
for the ratings and the average scores were determined.
Table 5. - Individual assessments
Average scores were used for all ratings. After applying all steps from 2 to 9,
following matrixes for four supply chain operations were created and given in tables.
LM PO Average LM PO Average LM PO Average
IPFM 1 8 8 8 2 4 3 3 1 2
IPFM 2 9 9 9 4 4 4 1 1 1
IPFM 3 8 4 6 1 3 2 1 1 1
WHFM 1 8 8 8 3 3 3 1 1 1
WHFM 2 8 8 8 1 3 2 4 2 3
WHFM 3 7 9 8 2 2 2 3 5 4
WHFM 4 10 6 8 3 1 2 1 1 1
TRFM 1 10 6 8 3 5 4 5 3 4
TRFM 2 7 9 8 4 2 3 2 6 4
TRFM 3 8 8 8 1 3 2 2 2 2
TRFM 4 8 10 9 2 2 2 4 2 3
TRFM 5 7 9 8 3 1 2 1 1 1
TRFM 6 6 10 8 1 1 1 4 4 4
CSFM 1 9 7 8 5 3 4 2 6 4
CSFM 2 6 10 8 1 3 2 1 1 1
CSFM 3 10 8 9 2 2 2 1 3 2
CSFM 4 8 8 8 2 4 3 1 3 2
Severity rating Occurrence rating Detection rating
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Table 6. - Inventory procurement risk assessment
Table 7. - Warehousing risk assessment
Table 8. - Transportation risk assessment
Table 9. - Customer Service risk assessment
NoOperation/
Activity
Event - Failure
modeFM ID
Can lead to
(Risk description)
Consequences
(description)
Severity
ratingPossible causes
Occurrence
ratingExisting measures
Detection
ratingRPN
1 ForecastingBad forecast for the next
periodIPFM 1
excessive / insufficient
inventories
lost of sales/ opportunities
missed
Captured capital
Unsatisfied clients
Penalties
8
Bad inputs regarding
goals and capacity
limits
3
Procedure for forecasting
established; All staff trained and
supervised; Every forecast
double checked
2 48
2 Ordering
Delayed/long transport
from supplier to
warehouse
IPFM 2 Low inventory level
Can't fulfil clients
demands; Penalties;
Clients unsatisfaction
9
Orders not placed on
time; Delivery root
blocked/ changed
4
Procedure for ordering
established; Ordering time frames
arranged with supplier;
1 36
3 GeneralPlanner can't access
SAP (ERP)IPFM 3
Inability to work, delayed
operations
Disrespect of
deadlines and time
frames
6
Network not working;
Server down;
Computer broken;
2Preventive hardware and
software maintenance1 12
NoOperation/
Activity
Event - Failure
modeFM ID
Can lead to
(Risk description)
Consequences
(description)
Severity
ratingPossible causes
Occurrence
ratingExisting measures
Detection
ratingRPN
1 ReceivingWrong quantity entered
in SAPWHFM 1
Wrong information regarding
stock level; Out of stock;
Clients unsatisfaction
Profit loss
Additional costs
8
Disregard of
Procedure; Wrong
quantity on receiving
documents;
3
Procedure for receiving goods
established; Receiving quantity
double checked every time;
1 24
Wrong quantity
separated from main
location to picking dock
WHFM 2Wrong quantity delivered to
client
Clients unsatisfaction
Profit loss
Additional costs
8
Disregard of
Procedure; Wrong
picking quantity in
Hand device;
2
Procedure for preparation
established; Quantity on picking
dock double checked;
3 48
Wrong quantity loaded
in truck from picking
dock
WHFM 3Wrong quantity delivered to
client
Clients unsatisfaction
Profit loss
Additional costs
8
Separated quantities
not grouped or labeled
adequately for specific
client;
2Procedure for loading in trucks
established;4 64
3 Maintenance
Picking equipment failure
(Hand Held device,
forklift, dock computers)
WHFM 4Inability to work, delayed
operations
Clients unsatisfaction
Additional costs
Profit loss
8
Network not working;
Server down;
Internet down;
Equipment broken;
2Preventive picking equipment
maintenance;1 16
Preparation and
loading2
NoOperation/
Activity
Event - Failure
modeFM ID
Can lead to
(Risk description)
Consequences
(description)
Severity
ratingPossible causes
Occurrence
ratingExisting measures
Detection
ratingRPN
Incorrect clients details
(position, place of
delivery, opening
hours....)
TRFM 1Delay in delivery;
Inability to deliver;
Clients unsatisfaction
Profit loss
Additional costs
Penalties
8
Clients details changes
not delivered to IT
department for update;
4
Established procedure - working
with clients; Conducted refreshing
trainings for sales staff;
4 128
Wrong input maps TRFM 2Delay in delivery;
Inability to deliver;
Clients unsatisfaction
Profit loss
Additional costs
Penalties
8Maps not updated on
regular basis;3
Established procedure for maps
and software updates;4 96
Routing software
unavailable/not workingTRFM 3
Inability to create route;
Inability to transfer data;
Clients unsatisfaction
Profit loss
Additional costs
Penalties
8
Interruption of internet
connection and/or
server down
2Preventive IT equipment
maintenance;2 32
Crash accident (vehicle
involved)TRFM 4
Delay in delivery;
Inability to deliver;
Damage of goods;
Clients unsatisfaction
Profit loss
Additional costs
Penalties
9Drivers concentration
and attention down;2
Refreshing awareness trainings
for drivers;3 54
Vehicle breakdown TRFM 5Delay in delivery;
Inability to deliver;
Clients unsatisfaction
Profit loss
Additional costs
Penalties
8
Disregard of
Procedure for
preventive vehicle
maintenance;
Driver didn't report
error signals on
computer board;
2 Preventive vehicle maintenance; 1 16
Roadblock, natural
disasters (unforeseeable
circumstances)
TRFM 6Delay in delivery;
Inability to deliver;
Clients unsatisfaction
Profit loss
Additional costs
Penalties
8Unforeseeable
circumstances1
Established procedure for drivers
in case of elementary disaster;4 32
Routing1
Delivering2
NoOperation/
Activity
Event - Failure
modeFM ID
Can lead to
(Risk description)
Consequences
(description)
Severity
ratingPossible causes
Occurrence
ratingExisting measures
Detection
ratingRPN
Wrong type/quantity of
goods on invoiceCSFM 1
Wrong goods delivered to
client
Clients
unsatisfaction;
Additional costs;
Profit loss;
Penalties;
8
CS staff manualy
entered order; Last
minute order changes;
4CS staff refreshing trainings
conducted periodicaly;4 128
CS staff can't access to
SAPCSFM 2
Invoices can't be created;
Delay in invoice formulation;
Delay in other
operations;
Clients
unsatisfaction;
Profit loss
Additional costs;
8
Network not working;
Server down;
Internet down;
2Preventive software and
hardware maintenance;1 16
2Complaints
handling
Clients complaint don't
have all information
(missing some
information)
CSFM 3 Complaint can't be processed
Clients
unsatisfactionl;
Bad reputation;
9
Disregard of
Procedure; Client didn't
provide all information
2
Procedure for complaints handling
established; All complaint
information needs to be entered in
electronic form;
2 36
3Managing Price
lists
Price list changes not
communicated on timeCSFM 4
Wroing invoicing;
Incorrect client's debt
information
Clients
unsatisfactionl;
Profit loss
Additional costs;
8
Disregard of
Procedure; Information
regarding changes not
received on time from
financial department;
3
Procedure for price list changes
communication established; CS
supervisor is checking possible
changes everyday with financial
departmen;
2 48
Invoicing1
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Based on given tables, Failure Modes are ranked by calculated RPN:
Rank 1 CSFM 1 - Wrong type/quantity of goods on invoice - 128 Rank 2 TRFM 1 - Incorrect clients details - 128 Rank 3 TRFM 2 - Wrong input maps - 96 Rank 4 WHFM 3 - Wrong quantity loaded in truck - 64 Rank 5 TRFM 4 - Crash accident (vehicle involved) - 54 Rank 6 CSFM 4 - Price list changes not communicated on time - 48 Rank 7 WHFM 2 - Wrong quantity separated from main - 48 Rank 8 IPFM 1 - Bad forecast for the next period - 48 Rank 9 CSFM 3 - Clients complaint don't have all information - 36 Rank 10 IPFM 2 - Delayed/long transport from supplier - 36 Rank 11 TRFM 3 - Routing software unavailable/not working - 32 Rank 12 TRFM 6 - Roadblock, natural disasters - 32 Rank 13 WHFM 1 - Wrong quantity entered in SAP - 24 Rank 14 CSFM 2 - CS staff can't access to SAP - 16 Rank 15 TRFM 5 - Vehicle breakdown - 16 Rank 16 WHFM 4 - Picking equipment failure - 16 Rank 17 IPFM 3 - Planner can't access SAP (ERP) - 12
According to the RPN’s and their rankings, it is evident that for some FM’s, ranks
can’t be assigned precisely, since they are the same. Because of that, before moving
to the final step and proposing recommendations for Intercorp to manage critical
risks, it is necessary to conduct more “precisely” and more “softly” FMEA.
6 FUZZY FMEA
Now, Fuzzy FMEA will be also applied on previously determined scope and
elements (step 1). Difference will be in parts where ratings are determined, where
fuzzy numbers from table 4 are applied instead. Following that, for calculation of
RPN (step 9), given formula (1) for defuzzification of fuzzy numbers will be used.
Average scores and matrixes with fuzzy numbers are given in the next tables.
Table 10. - Individual assessments with fuzzy numbers
LM PO Average LM PO Average LM PO Average
IPFM 1 (8,9,10,10) (8,9,10,10) (8,9,10,10) (0,0,1,2) (1,2,3,4) (0.5, 1, 2, 3) (1,2,3,4) (0,0,1,2) (0.5, 1, 2, 3)
IPFM 2 (8,9,10,10) (8,9,10,10) (8,9,10,10) (1,2,3,4) (1,2,3,4) (1, 2, 3, 4) (0,0,1,2) (0,0,1,2) (0, 0, 1, 2)
IPFM 3 (8,9,10,10) (0,0,1,2) (4, 4.5, 5.5, 6) (0,0,1,2) (1,2,3,4) (0.5, 1, 2, 3) (0,0,1,2) (0,0,1,2) (0, 0, 1, 2)
WHFM 1 (8,9,10,10) (8,9,10,10) (8,9,10,10) (1,2,3,4) (1,2,3,4) (1, 2, 3, 4) (0,0,1,2) (0,0,1,2) (0, 0, 1, 2)
WHFM 2 (8,9,10,10) (8,9,10,10) (8,9,10,10) (0,0,1,2) (1,2,3,4) (0.5, 1, 2, 3) (3,4,6,7) (0,0,1,2) (1.5, 2, 3.5, 4.5)
WHFM 3 (6,7,8,9) (8,9,10,10) (7, 8, 9, 9.5) (0,0,1,2) (0,0,1,2) (0, 0, 1, 2) (1,2,3,4) (3,4,6,7) (2, 3, 4.5, 5.5)
WHFM 4 (8,9,10,10) (3,4,6,7) (5.5, 6.5, 8, 8.5) (1,2,3,4) (0,0,1,2) (0.5, 1, 2, 3) (0,0,1,2) (0,0,1,2) (0, 0, 1, 2)
TRFM 1 (8,9,10,10) (3,4,6,7) (5.5, 6.5, 8, 8.5) (1,2,3,4) (3,4,6,7) (2, 3, 4.5, 5.5) (3,4,6,7) (1,2,3,4) (2, 3, 4.5, 5.5)
TRFM 2 (8,9,10,10) (8,9,10,10) (8,9,10,10) (1,2,3,4) (0,0,1,2) (0.5, 1, 2, 3) (0,0,1,2) (6,7,8,9) (3, 3.5, 4.5, 5.5)
TRFM 3 (8,9,10,10) (8,9,10,10) (8,9,10,10) (0,0,1,2) (1,2,3,4) (0.5, 1, 2, 3) (0,0,1,2) (0,0,1,2) (0, 0, 1, 2)
TRFM 4 (8,9,10,10) (8,9,10,10) (8,9,10,10) (0,0,1,2) (0,0,1,2) (0, 0, 1, 2) (3,4,6,7) (0,0,1,2) (1.5, 2, 3.5, 4.5)
TRFM 5 (8,9,10,10) (8,9,10,10) (8,9,10,10) (1,2,3,4) (0,0,1,2) (0.5, 1, 2, 3) (0,0,1,2) (0,0,1,2) (0, 0, 1, 2)
TRFM 6 (3,4,6,7) (8,9,10,10) (5.5, 6.5, 8, 8.5) (0,0,1,2) (0,0,1,2) (0, 0, 1, 2) (3,4,6,7) (3,4,6,7) (3, 4, 6, 7)
CSFM 1 (8,9,10,10) (6,7,8,9) (7, 8, 9, 9.5) (3,4,6,7) (1,2,3,4) (2, 3, 4.5, 5.5) (0,0,1,2) (6,7,8,9) (3, 3.5, 4.5, 5.5)
CSFM 2 (3,4,6,7) (8,9,10,10) (5.5, 6.5, 8, 8.5) (0,0,1,2) (1,2,3,4) (0.5, 1, 2, 3) (0,0,1,2) (0,0,1,2) (0, 0, 1, 2)
CSFM 3 (8,9,10,10) (8,9,10,10) (8,9,10,10) (0,0,1,2) (0,0,1,2) (0, 0, 1, 2) (0,0,1,2) (1,2,3,4) (0.5, 1, 2, 3)
CSFM 4 (8,9,10,10) (8,9,10,10) (8,9,10,10) (0,0,1,2) (1,2,3,4) (0.5, 1, 2, 3) (0,0,1,2) (1,2,3,4) (0.5, 1, 2, 3)
Severity rating Occurrence rating Detection rating
Managing risk in Supply Chain operations Daniel Cywinski
Page 14 of 18
Table 11. - Inventory procurement risk assessment
Table 12. - Warehousing risk assessment
Table 13. - Transportation risk assessment
Table 14. - Customer Service risk assessment
NoOperation/
Activity
Event - Failure
modeFM ID
Can lead to
(Risk description)
Consequences
(description)
Severity
ratingPossible causes
Occurrence
ratingExisting measures
Detection
ratingRPN
1 ForecastingBad forecast for the next
periodIPFM 1
excessive / insufficient
inventories
lost of sales/ opportunities
missed
Captured capital
Unsatisfied clients
Penalties
0.8696
Bad inputs regarding
goals and capacity
limits
0.2128
Procedure for forecasting
established; All staff trained and
supervised; Every forecast
double checked
0.2128 0.0394
2 Ordering
Delayed/long transport
from supplier to
warehouse
IPFM 2 Low inventory level
Can't fulfil clients
demands; Penalties;
Clients unsatisfaction
0.8696
Orders not placed on
time; Delivery root
blocked/ changed
0.2917
Procedure for ordering
established; Ordering time frames
arranged with supplier;
0.1304 0.0331
3 GeneralPlanner can't access
SAP (ERP)IPFM 3
Inability to work, delayed
operations
Disrespect of
deadlines and time
frames
0.5Network not working;
Server down;
Computer broken;
0.2128Preventive hardware and
software maintenance0.1304 0.0139
NoOperation/
Activity
Event - Failure
modeFM ID
Can lead to
(Risk description)
Consequences
(description)
Severity
ratingPossible causes
Occurrence
ratingExisting measures
Detection
ratingRPN
1 ReceivingWrong quantity entered
in SAPWHFM 1
Wrong information regarding
stock level; Out of stock;
Clients unsatisfaction
Profit loss
Additional costs
0.8696
Disregard of
Procedure; Wrong
quantity on receiving
documents;
0.2917
Procedure for receiving goods
established; Receiving quantity
double checked every time;
0.1304 0.0331
Wrong quantity
separated from main
location to picking dock
WHFM 2Wrong quantity delivered to
client
Clients unsatisfaction
Profit loss
Additional costs
0.8696
Disregard of
Procedure; Wrong
picking quantity in
Hand device;
0.2128
Procedure for preparation
established; Quantity on picking
dock double checked;
0.3265 0.0604
Wrong quantity loaded
in truck from picking
dock
WHFM 3Wrong quantity delivered to
client
Clients unsatisfaction
Profit loss
Additional costs
0.7872
Separated quantities
not grouped or labeled
adequately for specific
client;
0.1304Procedure for loading in trucks
established;0.4 0.0411
3 Maintenance
Picking equipment failure
(Hand Held device,
forklift, dock computers)
WHFM 4Inability to work, delayed
operations
Clients unsatisfaction
Additional costs
Profit loss
0.6735
Network not working;
Server down;
Internet down;
Equipment broken;
0.2128Preventive picking equipment
maintenance;0.1304 0.0187
Preparation and
loading2
NoOperation/
Activity
Event - Failure
modeFM ID
Can lead to
(Risk description)
Consequences
(description)
Severity
ratingPossible causes
Occurrence
ratingExisting measures
Detection
ratingRPN
Incorrect clients details
(position, place of
delivery, opening
hours....)
TRFM 1Delay in delivery;
Inability to deliver;
Clients unsatisfaction
Profit loss
Additional costs
Penalties
0.6735Clients details changes
not delivered to IT
department for update;
0.4000Established procedure - working
with clients; Conducted refreshing
trainings for sales staff;
0.4000 0.1077551
Wrong input maps TRFM 2Delay in delivery;
Inability to deliver;
Clients unsatisfaction
Profit loss
Additional costs
Penalties
0.8696Maps not updated on
regular basis;0.2128
Established procedure for maps
and software updates;0.4255 0.0787293
Routing software
unavailable/not workingTRFM 3
Inability to create route;
Inability to transfer data;
Clients unsatisfaction
Profit loss
Additional costs
Penalties
0.8696Interruption of internet
connection and/or
server down
0.2128Preventive IT equipment
maintenance;0.1304 0.0241322
Crash accident (vehicle
involved)TRFM 4
Delay in delivery;
Inability to deliver;
Damage of goods;
Clients unsatisfaction
Profit loss
Additional costs
Penalties
0.8696Drivers concentration
and attention down;0.1304
Refreshing awareness trainings
for drivers;0.3265 0.0370356
Vehicle breakdown TRFM 5Delay in delivery;
Inability to deliver;
Clients unsatisfaction
Profit loss
Additional costs
Penalties
0.8696
Disregard of
Procedure for
preventive vehicle
maintenance;
Driver didn't report
error signals on
computer board;
0.2128 Preventive vehicle maintenance; 0.1304 0.0241322
Roadblock, natural
disasters (unforeseeable
circumstances)
TRFM 6Delay in delivery;
Inability to deliver;
Clients unsatisfaction
Profit loss
Additional costs
Penalties
0.6735Unforeseeable
circumstances0.1304
Established procedure for drivers
in case of elementary disaster;0.5000 0.0439219
Routing1
Delivering2
NoOperation/
Activity
Event - Failure
modeFM ID
Can lead to
(Risk description)
Consequences
(description)
Severity
ratingPossible causes
Occurrence
ratingExisting measures
Detection
ratingRPN
Wrong type/quantity of
goods on invoiceCSFM 1
Wrong goods delivered to
client
Clients
unsatisfaction;
Additional costs;
Profit loss;
Penalties;
0.7872CS staff manualy
entered order; Last
minute order changes;
0.4000CS staff refreshing trainings
conducted periodicaly;0.42553191 0.1339973
CS staff can't access to
SAPCSFM 2
Invoices can't be created;
Delay in invoice formulation;
Delay in other
operations;
Clients
unsatisfaction;
Profit loss
Additional costs;
0.6735
Network not working;
Server down;
Internet down;
0.2128Preventive software and
hardware maintenance;0.1304 0.0186902
2Complaints
handling
Clients complaint don't
have all information
(missing some
information)
CSFM 3 Complaint can't be processed
Clients
unsatisfactionl;
Bad reputation;
0.8696
Disregard of
Procedure; Client didn't
provide all information
0.1304
Procedure for complaints handling
established; All complaint
information needs to be entered in
electronic form;
0.2128 0.0241322
3Managing Price
lists
Price list changes not
communicated on timeCSFM 4
Wroing invoicing;
Incorrect client's debt
information
Clients
unsatisfactionl;
Profit loss
Additional costs;
0.8696
Disregard of
Procedure; Information
regarding changes not
received on time from
financial department;
0.2128
Procedure for price list changes
communication established; CS
supervisor is checking possible
changes everyday with financial
departmen;
0.2128 0.0393647
Invoicing1
Managing risk in Supply Chain operations Daniel Cywinski
Page 15 of 18
New rankings of Failure Modes by calculated RPN are:
Rank 1 CSFM 1 - Wrong type/quantity of goods on invoice - 0.1340 Rank 2 TRFM 1 - Incorrect clients details - 0.1078 Rank 3 TRFM 2 - Wrong input maps - 0.0787 Rank 4 WHFM 2 - Wrong quantity separated from main - 0.0604 Rank 5 TRFM 6 - Roadblock, natural disasters - 0.0439 Rank 6 WHFM 3 - Wrong quantity loaded in truck - 0.0411 Rank 7 CSFM 4 - Price list changes not communicated on time - 0.0394 Rank 8 IPFM 1 - Bad forecast for the next period - 0.0394 Rank 9 TRFM 4 - Crash accident (vehicle involved) - 0.0370 Rank 10 IPFM 2 - Delayed/long transport from supplier - 0.0331 Rank 11 WHFM 1 - Wrong quantity entered in SAP - 0.0331 Rank 12 CSFM 3 - Clients complaint don't have all information - 0.0241 Rank 13 TRFM 3 - Routing software unavailable/not working - 0.0241 Rank 14 TRFM 5 - Vehicle breakdown - 0.0241 Rank 15 CSFM 2 - CS staff can't access to SAP - 0.0187 Rank 16 WHFM 4 - Picking equipment failure - 0.0187 Rank 17 IPFM 3 - Planner can't access SAP (ERP) - 0.0139
According to those new ranking, first five critical FM can be determined, by according
to other RPN, some of them are again the same. Because of this, for the future
conduction of Fuzzy FMEA, weight factors for LM and PO need to be determined
and included into calculation.
7 CONCLUSION
Managing risks in supply chain operations is getting a huge everyday attention due
to its great importance for the company. Many internal and external factors are
affecting proper risk assessment, followed by uncertainty, subjectivity and ambiguity.
To overcome these issues, many risk assessment models were developed and
many techniques combined. The aim of this paper was to show the usage of FMEA
technique for the analysis of risks in SC operations. Demonstrated model is based
on the default FMEA model and the usage of fuzzy logic to overcome issues of
default FMEA and calculate overall RPN for identified Failure modes.
According to the final rankings, as results of the used model, several conclusions
can be made. In some situations, when using default FMEA, RPN for failure modes
Managing risk in Supply Chain operations Daniel Cywinski
Page 16 of 18
can be equal, rankings can’t be done correctly and manager’s decision on which
critical risks to focus resources can be harder. On the other hand, if fuzzy numbers
are applied for assessments, there can also be some difficulties in final ranking
determination. Because of all this, recommendation is related to the usage of weight
criteria for each of the person who is in charge for the assessment. Also, since there
is a certain distance between marks which were given by LM and OP, another
recommendation will be to calculate consensus between them, using some of the
available techniques (such as Simple Dependencies of Attributes). Consensus rate
can also be considered in ranking part. In case of Intercorp, this would be for
Logistics Manager (as a project team leader) and process owners (team members).
Since this was an initial project, it can be said that purpose is fulfilled. Now, to
conduct risk assessment in all processes, Intercorp should apply proposed
recommendations, assign weight factors to LM and OP, and calculate consensus
between their assessments.
This paper is focused on the proposition for the upgrade of “default” FMEA, and
treats fuzzy logic as a one possibility for upgrade next to many more available
techniques (Rough set theory, Intuitive sets, Grey analysis, Fault tree analysis). It
doesn’t explain in more mathematical and detailed way fuzzy logic and numbers
which were used. Instead of that, it could serve as an example how one theory can
be applied and used to improve existing model. For more detailed explanation of
fuzzy logic, used references can be consulted.
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