Resilient Supply Chains: How to Dynamically Manage Risk, Opportunity, and Business Continuity

Resilient Supply Chains: How to Dynamically Manage Risk, Opportunity, and Business Continuity

July 11, 2013

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Today’s Speakers

5

Mr. Gene Long Jr.

Vice President, Supply Chain Consulting

IHS Supply Chain

Gene Long Jr. is Vice President, Supply Chain Consulting, at IHS where he

focuses upon supply chain operations of private and public clients in the

energy and chemicals, manufacturing and transportation industry sectors.

Gene has extensive experience in improving performance of enterprises in the

life sciences, consumer products, high technology and distribution markets.

For most of his 40-year career, Long has served as an operations executive,

including senior vice president of strategy and business development for

Cardinal Health, founder and president of UPS Consulting, president and

COO of SiteStuff and founder and president of BAX Global. He was DELL’s

first director of worldwide logistics. Throughout his career, Gene has been

actively engaged in supply chains operating around the world, in the Americas,

Europe and Asia. Often sought as an advisor by organizations in both the

private and public sectors, he is recognized as a thought leader in supply chain

strategy and operations management.


Today’s Speakers

6

Mr. Howard Rappaport

Senior Director, Chemicals

IHS Supply Chain Pricing & Purchasing

Howard Rappaport serves as the Senior Director, Chemicals at IHS and is currently

responsible for the chemicals and plastics content within the IHS Supply Chain Pricing &

Purchasing service. He collaborates with the European, Latin American, Asian and Middle

East offices to contribute to various multi-client reports and global studies, as well as various

single client consulting projects for IHS Chemicals.

With over 30 years of experience in the chemicals and plastics industry, Howard was

instrumental in the development of CMAI’s Plastics Processors Conferences in 2004. These

events are now slated as major annual IHS conferences in the U.S., Latin America and

Europe.

He spearheaded the commercial development of the Global Plastics & Polymers Report

(GPPR) and the Global Engineering Resins Report (GERR). He is a sought after industry

speaker, and has been quoted in various publications and media including: The Wall Street

Journal, The New York Times, The Financial Times, Fortune Magazine, Forbes Magazine,

Bloomberg, National Public Radio, The BBC as well as numerous other chemical & plastics

industry publications.


Today’s Speakers

7

Mr. Ryland Maltsbarger

Principal Economist, Agriculture

IHS Supply Chain Pricing & Purchasing

Ryland Maltsbarger is a principal economist of the IHS Global Insight's

Agriculture Service. He supervises the long-term Global Crops and Livestock

Services along with the monthly update of the quarterly price forecast. Ryland

is directly responsible for the global sugar and cotton forecasts. Other duties

include the publication and forecast of the Global Crops Cost of Production

Service.

Ryland joined IHS Global Insight in 2008 as an economist. His service with the

company has included the creation of the global sugar partial-equilibrium

model along with the expansion of the global cotton model. He created the

system behind the quarterly price forecast as well as the format for the

publication. Other projects have included work on 2050 Global Crops service

and expansion and reformatting of the Global Crops Cost of Production

Service.


Supplying the Future: Resilient Supply Chains Enabling Dynamic Risk, Opportunity,

and Business Continuity Management

Gene Long

VP, Supply Chain Consulting

IHS Supply Chain

July 11, 2013


Table of Contents

• Managing the Supply Chain

• Increasing Focus Upon Risk

• Assuring Business Continuity

• Enabling Resilient Supply Chains

9


What are supply chains?

• Method of collaborating horizontally

• System-wide optimization

• Interconnected decisions

Managing the Supply Chain

Efficient, Fragile… Responsive, Adaptive

10


“Today, we live in the most complex, interdependent and

interconnected era in human history. We are increasingly confronted

with major adaptive challenges as well as profound

transformational opportunities…

This new leadership context requires successful organizations to

master strategic agility and to build risk resilience.” World Economic Forum, 2013

Managing the Supply Chain

11


Increasing Focus Upon Risk

The Evolution of Business Continuity

From Recovery to Continuity to Resilience

Disaster Recovery Business Continuity

Management

Org

an

izati

on

al F

oc

us

on

Ris

k M

itig

ati

on

Tokyo Subway

Attack

Oklahoma

Bombing

The terrorist attacks of

the early to mid 90s

made firms realize that

DR did not effectively

mitigate risks. BC

evolved as a result

With the technology boom

and roaring economy of the

late 90s, BC, although a

standard business practice,

was given little attention

9/11

9/11 highlighted that risk

mitigation plans had to protect

against events previously

considered unimaginable.

Combined with a struggling

economy, BC had to evolve

Tower Group

estimates that the

North American

Security Industry

spend on Business

Resiliency will

increase to over $1

billion in 2003 from

$633 million in 2001

Mid 90s Late 90s Mid 00s Early 00s

What’s

Next?

Resilient Supply Chains

Late 00s

Economic Collapse

(2008, carries over

to 2009), triggered

by Lehman Bros’

Sept. 2008

bankruptcy, largest

in history

Fiscal Cliff (U.S.) Eurozone

economic

issues (Greece,

Spain etc.)

RoHS Recast (2011)

caused 20% previously

unexpected

discontinued/

EOL component

because demand was

severed by RoHS

regulations

Natural Disasters:

• Japan Tsunami (2011)

• Volcanic Eruption of

Grímsvötn (Iceland 2011)

• Australia Floods

• Thai Floods (2012 hard

disk drives disruption)

Early 10s

Dodd-Frank Conflict

Minerals (2010)

SEC Final Rule on

Conflict Minerals (2012)

12

Copyright © 2013 IHS Inc. All Rights Reserved. 13

Increasing Focus Upon Risk

(Threat) x (Vulnerabilities) = Risk

• Natural / Man-Made Disasters

• Enterprise Operations

• Local / Regional Infrastructure

• Geopolitical Issues

• Regulatory Requirements

• Macroeconomics

Today’s Risk Profiles Only Look Back –

Static Snapshots of Current Conditions

Shown: Thailand Flood

13

Copyright © 2013 IHS Inc. All Rights Reserved. 14 14

Assuring Business Continuity

People

Operations

Data

Infra-structure

Services and Facilities

Business

Partners

Processes

COST

RISK

IMPACT

OPPORTUNITY

External Parties Resiliency The Enterprise

Availability

Performance

Stability

Procedures

Policies

Alternate

Paths

Capabilities

Training

Safety

Succession

Stability

Performance

Availability

Service

Network

Software

Communications

Recovery

Security

Physical Records

Availability

Performance

Security

Utilities

Transportation

Emergency

Services

Communications

A Holistic Approach to Risk Management

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Detect Deter Mitigate Respond Recover

Threats Vulnerabilities

Effects

People

Process

Technology

Infrastructure

Partners

Market

Economic

Resiliency Planning

Prioritized Threat Ranking

Review of Existing Plans

Conduct Gap Analysis

Assess Vulnerabilities

Assess Procedures

Identify & Prioritize Mitigations / Controls

Develop & Test Resiliency Plans


15


Vision

Unprepared

Disaster Recovery Plan

Business Continuity

Management

Predictive Modeling

Contingency Plan

Resilience Hardening the enterprise against all foreseeable emergencies

Continuous Operations

Business Continuity

Plan

Bu

sin

ess V

alu

e


16



• “…build resiliency into supply network design, and implement a robust risk

management strategy, including a "sense and respond" capability to

recover quickly and profitably from disruptions.

•

Adopt complexity optimization strategies to eliminate features, services

and network capacity that do not add sufficient value to customers. Use

end-to-end supply chain segmentation to enable simplification.

•

Improve responsiveness to customer requirements using a globally

architected, regionalized approach to supply chain network design.”

• Supply Chain Top 25 for 2012

• Gartner 2012

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Enabling Resilient Supply Chains

Dynamic Risk Management = Resiliency

• Supplier Viability

• Supply of Critical Materials

• Parts Management

• Commodity Flows / Logistics

• Insights and Forecasts

• Risk Identification and Mitigation

Tomorrow’s Risk Dashboards Look Ahead –

Dynamically Monitoring the Supply Chain

18


Knowing Early Pays

Supplier

Country

Material

Region

Labor

Trade Flow

Industry

“I’m multi-sourced, no problem.”

82.2% manage Supplier Risk

60.3% manage Material Risk

47.9% manage Country Risk

Regulation Economy

81.4% say Supply Chain Risk

is increasing

19


What We Do

• IHS Supply Chain

• Helps supply chain, operations, and finance institutionalize resiliency

• Enhance efficient but fragile supply chains to become responsive, adaptive

• Enable understanding of economic, geopolitical, industrial interdependencies • Influences on markets, supply chains, competitive landscapes, and organizations

• Protect growth, maintain efficiency, ensure business continuity, and control risk

• Important initial considerations to corporate strategy design

• Establishing a global system perspective

• Identifying and evaluating risk

• Enhancing resiliency

• Implementing continuity of business strategies and plans

Global IHS Supply Chain Solutions

20


Threat & Vulnerability Assessment

Risk Identification; Priority Assessment

Sourcing

Transportation

Inventory Management

Delivery

Origins & Destination Flows

Supply Chain Segmentation – Source to Delivery

Regulatory Environment

Geopolitical Influences

Supply Chain

Definition Global Supply

Chain Flows

Global Demand &

Supply

Risk Determination Security Strategies

Organizational Management and Investment Decisions

Create Performance Measurements

Organizational &

Customer Benefits

• Decreased risk

• Process Efficiencies

Cost Reduction

Customer responsiveness

DHL and Supply Chain

How We Do It: Step 1: Exhaustively Map Supply Chain with Strategy

21


Threat and Vulnerabilities

Risk Assessments Mitigate Monitoring

Continuity of Business

IHS Capabilities

How We Do It: Step 2: Incorporate Global Information and Insight

Chemicals Energy Transportation Electronics & Media

Economics Country & Regional

Infrastructure

Markets &

Supply Base

Trade

Flows

Regulations &

Sustainability

Geo-Politics &

Security

Critical Commodities

& Materials

Minerals Raw

Materials

Supplier Labor Operation Mining Distributor Customer

Policies Manufacturers Asset 3PL Operation Retail

Regions Ports Parts Regulator Carrier Market Consumer

Importer Exporters

Telecom

22


Threat and Vulnerabilities

Risk Assessments Mitigate Monitoring

Continuity of Business

IHS Capabilities

How We Do It: Step 3: Enable Dynamic & Predictive Monitoring

Chemicals Energy Transportation Electronics & Media

Economics Country & Regional

Infrastructure

Markets &

Supply Base

Trade

Flows

Regulations &

Sustainability

Geo-Politics &

Security

Critical Commodities

& Materials

Assess:

Value Chain Map

Monitor

Manage & Predict

Model:

Outlooks & Scenarios

Interpret :

Expert Advisory

Act:

Execute & Optimize

IHS Predictive

Analytics

23


Example Dashboard:

A Look Into Recent Global Scenarios

Supply Base Critical Commodities Labor & Wage Countries

Continuity Threats

Chemical Supply Disruption Political Unrest Food Supply Instability Fuel Price Spike

24


Chemical Supply A Look At Chemical Supply

Chain Scenarios & Implications

Howard Rappaport

Senior Director, Chemicals

IHS Pricing & Purchasing

July 11, 2013


Chemicals & Plastics Value-Chain

Consumers Retail Finished Goods

Energy Derivatives

Petrochemicals

26


Any of these

factors can,

and will

influence

prices…

Costs / Feedstocks

• Raw Material Prices (crude oil & natural gas)

• Operating Costs

Supply/Demand & Trade

• Plant Utilization Rates

• Loss of Available Capacity (outages)

• Inventory Trends

• Exports / Imports

Other Dynamics

• Anticipation of New Capacity in the Market

• Desire to Increase Market Share

• Prices of Competitive Materials

• Market Momentum

• Natural Disasters, Weather Events

• Political Turmoil

What Influences Chemical & Plastics Prices?

27


Example: Recent Plant Explosion at Williams

Geismar, LA

Impacted Capacity: Ethylene capacity is 646,000 tons, which represents 2.4 percent of

the 27.05 million tons of ethylene capacity in the U.S. There is a propylene splitter at the

site with a capacity of 270,000 tons, which represents roughly 1.4 percent of U.S.

propylene capacity. Additionally, there is propylene capacity of 43,000 tons as byproduct

from the steam cracker.

Louisiana Industry Impact: Louisiana is roughly 2.07 million tons short ethylene, which

is filled by ethylene moved via pipeline from Texas. There are a multitude of pipelines

running from Texas to Louisiana so any possible pipeline impact at Geismar may be

muted. Additionally, Williams operates a storage well in Geismar which has roughly

450,000 tons of ethylene capacity. Q1 2013 inventory estimates for the U.S. showed

about 442,000 tons of ethylene inventory. Inventory levels have grown over the past

three quarters, up roughly 150,000 tons from Q2 2012.

Industry Share

Regional Impact

28


Associated Derivatives: There are several derivative units in the area, among them

styrene, ethylene dichloride, ethylene oxide, and alpha olefins, all of which could

theoretically receive merchant ethylene from Williams to feed their units. While there is

no polyethylene capacity in Geismar, roughly 18 percent of U.S. PE capacity is located

within the state in Baton Rouge, Lake Charles, and Plaquemine.

Expansion Plans: Williams is in the process of expanding the ethylene capacity at

Geismar, with a final capacity of 926,000 tons at the end of this year. The cracker was

slated to undergo a maintenance turnaround this fall, running six weeks from mid-August

through the end of October.

Price Impact: Ethylene spot prices had been trading at 52.0 cents per pound for June

delivery, and 51.0 cents per pound for July delivery. The bid-ask spread for spot

ethylene was 57.0-65.0 cents per pound. Propylene spot was trading at 62.0 cents per

pound and was bid at 60.0 cents against no offer. The April and May ethylene contract

prices remained unsettled at the time of the event.

Recent Plant Explosion at Williams

Downstream Derivatives Affected

Company Information

Market Price Movements

29


U.S. Gulf Coast Operations & Hurricane Season

(June – November)

Potential Path of US Gulf Hurricanes… 30


Political Unrest In Egypt = Higher Oil prices

31

Oil jumps $2 on Egyptian unrest, biggest

weekly gain in a year…

http://finance.yahoo.com/echarts?s=CLQ13.NYM+Interactive


Natural Gas

Gas

Separation

Unit

Refinery Crude Oil

Reformer

Reformate BTX

Extraction

Steam

Cracker

Butane Hydrogen

Propylene

Pygas

BTX

Raffinate

Ethylene

EO/EG

POLYETHYLENE

ETHYLENE

DICHLORIDE / PVC

EP RUBBER

ETHANOL

Naphtha

Gas Oil

Ethane

Propane

Butane

TOLUENE

m-XYLENE

p-XYLENE

BENZENE

o-XYLENE

XYLENES

PTA/DMT PET

PIA

PAN/DOP/Plasticizers

POLYPROPYLENE

Butadiene

Methanol

SBR / PBR

ETHYLBENZENE/

STYRENE

How Will This Move In Oil Impact The

Chemical Industry?

32


Summary: Chemicals & Plastics

• Value of Critical, Factual, Timely Information…

• Indications: • Know as much as possible about your supply chain

• Global or regional events can, and will impact your business

• What are the weakest links in my supply chain?

• How do I factor in unpredictable events like weather, politics, natural

disasters?

• Always have a “back up” plan, source of supply

• Have a reliable “source” of data & information

33


Food Supply A Look At Food Supply &

Weather Volatility Implications

Ryland Maltsbarger

Principal Economist, Agriculture

IHS Agricultural Service

July 11, 2013


Agriculture & Food Value-Chain

Consumers Retail

Grain Elevator

Farmer

Meat Producer

Finished Goods

Food Processor

35


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US - #2 Yellow Corn FOB, Gulf Ports

US - #1 Hard Red Winter Wheat FOB, Texas Gulf

US - #1 Yellow Chicago Soybean Spot

A-Index Cotton (right scale)

Price Volatility in Agriculture

Low Global

Rice and

Wheat

Supplies

Crude Oil and Corn

Price Spikes

Poor Wheat

Production

Russia, EU,

Canada

US Historic

Level

Drought

Low Global

Cotton

Supplies

36


Any of these

factors can,

and will

influence

prices…

Processing/Retail

• Raw Material Prices

• Operating Costs

• Branding

• Transportation

Supply/Demand & Trade

• Seasonal Global Production Cycles

• Governmental Policies (trade, biofuels, subsidies)

• Exports / Imports

Other Dynamics

• Commodity Market Speculation

• Natural Disasters

• Weather Events/Cycles (El Nino, La Nina)

• Political Turmoil

What Influences Food Prices?

37


Implications

Direct

• Year-to-Year Price Variations • Increased market risk premiums

• Change in Farmer Decisions • Land planted, use of inputs, capital

purchases

• Need for increased revenue protection

• Increased Need for Transportation

Capacity • Barge capacity, ocean freight, trucking

• Decreased Biofuel Adoption

• Increased Food Cost/Inflation

• Tighter Supply Chain Margins

Indirect

• Political Destabilization in Developing

Economies

• Change in Governmental Policies • protectionism, food security, food subsidies

• Port Capacities/Logistic Limitations

• Trade Negotiations

• Rate of Technology Adoption

• Increased R&D for Mitigation

38


Join IHS in an Upcoming Multi-Client Study

• Long-term Increased Variability Weather Impact Study

• Increase frequency of yield variability across major producers & importers

• El Nino & La Nina patterns on Australia/Oceania & South America

• Increased rainfall shortages in North America, EU, CIS

• Decreased Monsoon in India

• Study to Be Completed this 4th Quarter

• Participants

• Agricultural Input Industries – chemicals, fertilizer, machinery, irrigation

• Food Chain Participants – grain handlers, processors, retailers and restaurant chains

• Transportation Industry Players

• Banking & Investment – global potential risks of capital investments

• All Companies – global risks surrounding change in indirect costs

39


Summary: Agriculture & Food Resiliency

• Are you sourcing metals from food insecure regions?

• Is your next growth region sensitive to food prices or where household food

expenditures take up over half the income?

• Do you plan budgets for employee compensation where domestic food prices

could triple?

• Are you sourcing cotton uniforms from countries where “price volatility” reducing

government policies will cause shifts to new regions?

• Would high food prices cause political unrest in countries you may source

chemical based good from?

• High food prices would increase land use for global food products and put

pressure on area for construction goods like timber.

• High food prices would also increase agricultural water needs that would

increase overall water price throughout other industries.

40


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Resilient Supply Chains: How to Dynamically Manage Risk, Opportunity, and Business Continuity

Technology

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