February 6, 2013 FMI and GMA Supply Chain Conference Proactive Value Chain Risk Management
February 6, 2013
FMI and GMA Supply Chain Conference
Proactive Value Chain Risk Management
A.T. Kearney - GMA Conference Feb 6, 2013 2
External events, internal structural designs and human
biases have a ripple effect and impact across
the a company’s value chain
The role of Value Chain leaders has never been
more critical to proactively managing this risk …and ultimately your company’s success
“The inability to predict outliers implies the inability to predict the course of history,” Nassim Nicholas Taleb, The Black Swan. The Impact of the Highly Improbable
Why is this relevant to you?
The speed of business is hastening
Growing regulatory, economic and
geopolitical uncertainty
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In a more uncertain world, macro-economic, business ecosystem and organizational factors accelerate business risks
• Resource scarcity & price volatility
• Consumer demographics and preferences
• Technology disruption
• Longer, more complex supply chains
• Increased portfolio complexity
• Shortened response times
• Regulation & activism
• No risk governance
• Limited coordination and poor capabilities
• Ignore the improbable
Example Risk Drivers
Business Risk
Probability x Impact
Macro- economic
Business Ecosystem
Organization
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Hyper connectivity amplifies effects of macro-economic factors on business
• 35% increase in avg. unit labor costs since 2007
• Emerging economies have overtaken advanced ones in output
Sources: EIU, Dow Jones, UN, IMF, comScore, CMO Council, World Intellectual Property Organization, OEDC Environmental Outlook,
World Bank, A.T. Kearney analysis
Key Macro-Economic Factors
Increasing Globalization
• 5% CAGR in food prices from 2000 – 2011
• 47% of world will be battling severe water stress by 2030
Resource Scarcity & Price
Volatility
• 54% of consumers will end loyalty if not given custom offerings
• More internet users have used social networks than email
Consumer Preferences
• 70M boomers will retire by 2030, leaving 35M jobs unfilled
• 11% reduction in global working age population by 2050
Demographics
• Asia R&D spending at 9% growth rate vs. N. America 2%
• 27% CAGR in patent applications from Asia vs. 4% from US (’00-’10)
Technology Growth
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Business / industry ecosystem factors are manifested in a variety of trends
Long, Complex Supply Chains
Increased portfolio complexity
Shortened Response Times
New Customer Engagement Models
War for Talent
Regulation & activism
• Over 50% of CPG identified Supply Chain inefficiency as a major gap
• Lack of flexible manufacturing assets is a key barrier to New Product Development
• Supply chain leaders have 87% more avg. inventory turns per year than laggards
• Online Retail Industry in the US will be worth $279 Billion in 2015, a 50% increase
• 65% of global companies and 80% in advanced economies face talent shortages
• U.S. borders inspected 3.3 billion lbs of imported meat and poultry products
• >65% expect an increase in product variations
• Avg. # SKUs increase in US grocery stores (‘05 vs. ‘11):
– Fruit: +38%
– Vegetables: +37%
• Retailers are competing on delivery times (same day delivery)
• 42% of millennials want option of online purchase with return to store option
• 31% employers worldwide cannot fill positions
• FDA Warning Letters: 44% increase in 2012
Sources: World Economic Forum, IBM, Juniper Research, CSCO, Manpower, Wipro, Towers Watson, Chain Link Research, U.S. Census
Bureau, Global Simplicity Index, Forrester, Kantar Retail Analysis, Forrester, A.T. Kearney analysis
Example Business Ecosystem Factors
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Human Biases
Internally, structural designs and human factors don’t help us manage risk either
Internal Challenges to Risk Management
What other challenges is your company facing in managing risk?
No Risk
Governance
Limited
Coordination
Poor
Capabilities
Past, Not
Future Focus
Ignore Root
Causes
Ignore the
Improbable
Organization
Deficiencies
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Leaders manage their exposure to risk through a delicate balance of management objectives and actions
Advantage Take the hill
Resilience Protect home turf
Recovery Run for
(re)cover
Ob
jecti
ves
Action Firefighting Strategic Focus
Na
rro
w
Bro
ad
A.T. Kearney Risk Ambition
Leaders intentionally
apply a different level of
“ambition” based on the
type and level of
exposure
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A.T. Kearney Risk Ambition
• ANTICIPATE FUTURE environmental requirements and consumer demands
• ACTIVELY MANAGE brand image – resilience in light of Foxconn working conditions
• RESPOND to the Gulf of Mexico oil spill
This balance is observed in all companies to varying degrees – but more often is an afterthought rather than forethought
AdvantageTake the hill
ResilienceProtect home turf
RecoveryRun for
(re)cover
Ob
jecti
ves
ActionFirefighting Strategic Focus
Na
rro
wB
road
A.T. Kearney - GMA Conference Feb 6, 2013 9
• Rogue behavior • War for talent
• Market liquidity • Interest rate volatility
• Global economic volatility
• Disruptive business models
• Execution error • Non-compliance
• Regulatory scrutiny (Health, Safety, Finance, etc. )
• Decision making and monitoring
• Code of conduct
Realizing your ambition starts with a holistic view of risk across seven areas of impact to your organization
A.T. Kearney’s VistaTM Risk Framework and Examples
• Loss of IP • Compromise of assets
Business & Commercial
Enterprise &
Governance
Financial
Regulatory
Operational
People
Security
Source: A.T. Kearney
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To get started, we need to think about the building blocks for proactive risk management and ourselves a few basic questions
Building blocks for proactive risk management
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Risk governance must align with business objectives and ensure a single vernacular for risk prioritization and tradeoffs
• Align risk management strategy and vision to business objectives
• Employ single risk vocabulary within / across functions and BUs for prioritization and tradeoffs
• Establish cross-functional team and accountability to set policy and ensure “hand-offs” between verticals
• Separate actions from oversight/ audit roles to ensure proper checks and balances
How do you do on managing tradeoffs?
Select leading risk practices - Governance
• Is it clear how your company manages risk tradeoffs / priorities across enterprise?
• Is there a common company-wide risk vernacular?
Practices Key Questions
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Risk scorecards should include leading and lagging indicators as well as internal and external performance measures
• Employ a mix of both leading and lagging indicators for risk management
• Metrics should measure both internal performance as well as monitor external events and drivers
• Ensure definition of metrics and calculations are standardized within and across functions and business units
Select leading risk practices - Metrics
• Do you know your risk exposure today?
• Are you improving?
Practices Key Questions
Are your metrics consistently defined, tracked and communicated?
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Process rigor must combine discipline with new techniques to better understand a broader set of risks and opportunities
• Map product value chains on periodic basis to understand vulnerabilities, identify key risks and mitigation actions
• Leverage advanced techniques to better understand improbable events
• Pursue value chain collaboration to unlock new value and better manage key ecosystem risks
• Ensure key business practices incorporate sufficient risk considerations
Select leading risk practices – Process Rigor
• What techniques and tools do decision makers use to identify risk?
• Do all business processes reflect appropriate risk considerations?
• How frequently does your company reassess its vulnerabilities?
Practices Key Questions
How do you do on managing tradeoffs?
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Underlying any risk management capability is data visibility and a means to “connect the dots” across disparate input signals
• Build data transparency across value chain to prioritize risks and mitigation
• Use data mining and predictive analytic techniques to analyze past activities to forecast future behavior
• Establish means to learn, synthesize information and “connect the dots” across disparate input signals
• Collaborate with partners to share data and analytical models
Select leading risk practices – Analytical Tools
• Do you have transparency across your product value chain?
• What tools & techniques are used to monitor risk and risk management practices?
Practices Key Questions
Do you have 20-20 vision across your entire value chain?
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Finally, risk management is most effective and truly proactive when it is a part of the culture: a forethought vs. an afterthought
• Recognize and reward those that effectively manage or capitalize on risk
• Ownership of risk transcends typical organization boundaries
• Acknowledge and embrace risk and uncertainty – take control rather than be a victim and make it work to your advantage
Select leading risk practices – People and Culture
• Is risk a part of your day-to-day dialogue and planning?
Practices Key Questions
Is risk a forethought or an afterthought in your organization?
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How well organized are your building blocks for proactive risk management?
Elements of a risk management operating model
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A.T. Kearney - GMA Conference Feb 6, 2013 18
Paul Schroder Principal A.T. Kearney
Presenters
Office
(312) 223-6022
Office
(703) 562-4119
Dave Powell Partner A.T. Kearney