Sas Supply Risk Management Workshop 20074131

7/29/2019 Sas Supply Risk Management Workshop 20074131

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SAS Supply Risk Management Workshop 2007

Rob Handfield, PhDBank of America University Distinguished Professor of Supply Chain ManagementNorth Carolina State University

Director, Supply Chain Resource ConsortiumConsulting Editor, Journal of Operations Management

[email protected]
http://scrc.ncsu.edu/http://www.ncsu.edu/http://scrc.ncsu.edu/http://localhost/var/www/saedwards/My%20Documents/Local%20Settings/My%20Documents/SCRC/May%202003%20Meeting/Xpublic/About/aboutvis.htmlhttp://scrc.ncsu.edu/


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Who we are. Rob Handfield, PhD Bank of America

UniversityDistinguishedProfessor of SupplyChain Management,NC State University

Director, SupplyChain ResourceCooperative top 3MBA SCM programsin the US

Adjunct Professor,Manchester BusinessSchool

Kevin McCormack, DBA CEO, DRK Research

Adjunct Professor, NCState University

Research and consulting supply riskprojects with multiple companies incl:

Baxter BioScience Bechtel

Boston Scientific BP Chevron ConocoPhillips Freightliner General Motors Guidant Home Depot Halliburton

Lyondell Hess Shell Lubricants
http://www.amazon.com/gp/reader/0324202547/ref=sib_dp_pt/103-5408483-9898225http://www.amazon.com/gp/reader/084932789X/ref=sib_dp_pt/104-1894435-7058353


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Supply Chain Resource Cooperative (http://scrc.ncsu.edu)
http://www.chevron.com/http://www.ibm.com/us/


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Thursday April 26

8:00-8:30 Registration and Breakfast

8:30-8:45 Welcome / Introductions

8:45-9:00 SCRC UpdateRob Handfield

9:00-10:00 Sustaining the Global Supply ChannelRob Handfield

10:00-10:30 Networking Break

10:30-11:30 Student Project Presentations-Module IMBA Relationships (order may change)

Bank of AmericaCard Travel Benefits Analysis

ChevronInsource/Outsource Travel

British PetroleumDigital Media

11:30-12:30 Lunch

12:30-1:30 Marine Transportation in the Global Supply Chain NetworkRichard Lolich, Maritime

Administration, U.S. DOT

1:30-2:30 Student Project Presentations-Module IIMBA SCM Practicum (order may change)

IBMSupplier Information Sharing

IBMHardware Contract Manufacturing

CATLead Time Process Analysis

2:30-3:30 Panel Discussion: Designing the Global Supply ChainRob Handfield, Moderator

Rick Monical, Chevron Corporation Britt Dayton, Lowes Corporation

Jeff Townley, Nortel Networks

Richard Lolich, Maritime Administration, U.S. DOT

3:30-4:00 Networking Break

4:00-5:00 Business Made SimpleJeff Townley, Nortel Networks

5:30-6:30 ReceptionArtSource Gallery, Raleigh, NC

6:30-8:30 DinnerBloomsbury Bistro, Raleigh, NC


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Agenda

What is the true impact of supply risk andthe implications for the field of supplymanagement?

What are the core elements associatedwith managing supply chain disruptions?


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-25

-20

-15

-10

-5

0

-61 -49 -37 -25 -13 -1 11 23 35 47 59

Trading day relative to announcement date

Averageshareholderreturns

(%

Hendricks and Singhal,

2005

Impact of Major Supply ChainDisruption on Stock Price


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7

Reasons for glitches

22.54

13.48

10.219.24

6.93

4.43

15.61

0

5

10

15

20

25

30

PartSh

orta

ges

Chan

gesb

yCu

stomers

Prod

uctio

nproblems

Ramp/roll-

outp

robl

ems

Quality

Probl

ems

Develop

mentp

roble

ms

None

Provided

Numberoffirms(%)


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8

Fact: Vertical & Horizontal Disconnection of SC Organizations

Customer

Supplier

SC Organization Marketing & SalesManufacturing

Disconnection of

Internal Business

Intelligence

Disconnection of

External MarketIntelligence

-> Loss of Innovation and Efficiency Improvement Possibilities

-> Connection of BI & MI has to be a Supply Chain Management Driven Approach:

CUSTOMER AND SUPPLY MARKET FACING


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CustomersSuppliers

Suppliers Environment Customers Environment

Company

Companys Environment

Customer and

Market Intelligence

Supplier and

Market Intelligence

Business Intelligence

BI/MI is the convergence of all three information gathering, analysis,

dissemination and response) activities.

TRADITIONAL FOCUS IS HERE

A GUESSING GAME


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Three key elements of supply chain disruption management

DisruptionDiscovery

DisruptionRecovery

SupplyChainRedesign

Supply Market Intelligence EnablesSupply Chain Risk Mitigation

Disruption Discovery

What type of detection and

intelligence does a firm need todetect disruptions?

Disruption Recovery

Once the disruption isdiscovered, how does a firmeffectively recover from a

disruption?

Supply Chain Redesign

How can a companystrategically re-design its supplychain over time to become moreresilient and avoid or easily

mitigate future disruptions?


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Insights: Disruptions

General Characteristics of Severe Failures:

1. Consequences of the disruption captures thepublic eye

2. Disruption catches company by surprise noforesight

3. Disruption cause related to a singlesource/single location

4. Disruption affects availability of a hard to re-source part

5. Be on the look out for choke points orbottlenecks:

Center of the hourglass


12/23Time

Impactof

Disruption($,

Custome

rAccount,Marketshare

)

Discovery(A) Recovery (A)

Impact(A)

Discovery(B) Recovery (B)

Impact (B)

Disruption Discovery

and Recovery time (B)

Disruption Discoveryand Recovery time (A)

DisruptionAmp

lifiers

(Globalization

andComplexity)

Visibility Systems

Excess Resources

The key is prediction. This could eliminate the

possible disruption or allow planning that minimizes

discovery and recovery time.

Disruption Discovery andRecovery


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Mitigate with

Supplier

Re-Source /

Re-Design

Supplier Quality

Assurance

Monitor

Performance

Risk Management Framework

Global Sourcing Leadership Team(Governance)

Macro-Econ.Trends

TechnologyTrends

PublicPolicy

Commodity prices Commodity trends Currency Government stability

Material changes Process changes

Medical deviceliabilities

Qualityrequirements

Key Risk Indicators (Drivers)

Low

Low

High

High

Impact(1)

Frequency of Occurence(2)

Risk Mitigation Strategies (Capabilities)

Decision

Scenario A

60%

Value:

Scenario B

40%

Value: Scenario B2

90%

Value:

Scenario B1

10%

Value:

Scenario A1

50%

Value:

Scenario A2

20%

Value:

Scenario A3

30%

Value:Scenario B3

30%

Value:

Scenario B4

70%

Value:

Scenario B5

50%

Value:

End

50%

End70%

Scenario A3

30%

Value:

Scenario A4

25%

Value:

Scenario A5

75%

Value:

Decision

Scenario A

60%

Value:

Scenario B

40%

Value: Scenario B2

90%

Value:

Scenario B1

10%

Value:

Scenario A1

50%

Value:

Scenario A2

20%

Value:

Scenario A3

30%

Value:Scenario B3

30%

Value:

Scenario B4

70%

Value:

Scenario B5

50%

Value:

End

50%

End70%

Scenario A3

30%

Value:

Scenario A4

25%

Value:

Scenario A5

75%

Value:

Known Risks Contingency Planning/Risk Decisions

MitigationStrategies /

Real Options

(1)Revenue implications(2)As measured by Key Risk Indicators

SupplierPerformance

DeliveryPerformance

QualityPerformance

Audit Report

SupplyRisk

Relationship Financial StatusHR StatusCapacitySupply Chain Risk


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Performance

CAUSES

(Categories of Predictive

Measures)

Disruption

EVENTS

CONSEQUENCES

(Impacts)

Human Resources

Supply ChainDisruption

Financial Health

Environmental

Relationship

Quality, Delivery,Service Problems

Supplier Union Strike,Ownership Change,Workforce Disruption

Supplier LockedTier II Stoppage

Supplier Bankruptcy(or financial distress)

Disasters (Weather,Earthquake, Terrorists)

Misalignment ofInterests

Finished GoodsShipments Stopped

Locate and Ramp UpBack up Supplier

Emergency Buyand Shipments

Reputation

Market Share Loss

EFFECTS

RevenueLossesandRecoveryExpenses

OTHER

IMPACTS

ForgoneIncome

Emergency ReworkandRushed FG Shipments

Recall for

Quality Issues

Sudden Loss ofSupplier

Structuring Supply Chain Risk

Copyright 2006 Supply Chain Redesign, LLC

SupplierAttributes

Situational

Factors


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Lessons Learned

Need to focus on the critical few the key areas of the supply chain that aremost exposed and vulnerable, and focus your efforts on these areas.

Metrics should drive action they are only useful in that they direct attentionto a problem, and drive mitigation and/or contingency planning that either

reduces the risk, or buffers it.

Risk can only be minimized through direct human intervention. Sitting downwith suppliers to discuss the risk, its nature, and how it is handled is thepreferential method.

Risk CANNOT be eliminated through stronger contractual language.if badthings happen, will the total cost of disruption equal the reparationsrecovered through litigation?


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Questions Senior Executives Want Answers to:

What are my biggest risks?What measures can I can use if Ineed answers quickly?

What are the potential impacts?

What are contingency plans?If no plans exist, what actions do Ineed to approve and how much will itcost?

What elements in the contract canhelp to drive mitigation planning?

Why are you bothering me is thisimportant?

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Caveats

We cannot ELIMINATE risk but we can predict where we are mostvulnerable if we establish a process to engage key stakeholders and oursupply chain partners engage in discussions and information collection(compliance is assumed)

There are limited resources available to address supply chain risk we cancompletely eliminate risk, but at a very high cost (tolerance level defined)

Risk cannot be eliminated through stronger contractual language but riskCAN be reduced through improved planning and coordination aroundmitigation planning included in contract management!

Therefore, senior executives must be able to allocate resources to thoseareas of the chain that are predicted to be the most vulnerable, based on adistribution of risk with contractual elements associated with prevention ofdisruptions from occurring!


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When Faced with a Significant Risk, What ActionsAre Available?

Excess Resources Excess inventory (material planner level decision)

Invest in extra capacity (Materials management or service levelmanager decision)

Dual source (Director-level decision)

Visibility

On-line inventory visibility (requires investment by SCM Directors andVP, with significant investment in IT resources)

Increased quality audits, dedicated supplier development engineers,working in the field, daily communications (requires SCM Director)

Relationship manager at site-level, requiring formal weekly or bi-

weekly communication

Product or supply chain redesign to minimize risk amplifiers

Consider length of supply chain

Consider sourcing and distribution network design and associatedcontractual requirements around leadtime and response.

Reconsider Low Cost Country sourcing???

$

$$$

$$$$$


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Risk Escalation Process

LOW REV IMPACT, LOW P(RISK)

CONTINGENCY PLAN REQUIREDBuyer-Planner teamvisits supplier, validates risk level, anddiscusses contingency plan with Supplierand Manager, and escalates to next levelif required

HIGH REV IMPACT,

LOW P(RISK)

Annual or quarterlyUpdate using RiskSurvey Tool

LOW REV IMPACT,HIGH P(RISK)

CODE BLUEEngage senior management in bi-weeklyreview meeting or ASAP if required,establish strategic action plans to lowerrisk score if possible.

HIGH REV IMPACT,HIGH P(RISK)


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Figure 4 Supply Chain Risk Management Process

1. Measure the Riskof Critical Nodes in

the Supply ChainNetwork

2. Identify RiskReduction

Mechanisms forHigh-RiskNodes

GOAL:

ResilientSupply ChainWith On-goingKnowledge andRisk Mitigation

3b. SupplyChain

Contracting &Joint Planning

3c. Invest inVisibility

systems

3a. ExcessResources


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Impact of Executive Decisions on Code BlueSupply Situations

Today 1 2 3 4 5 6 7 8 9 10 11 12 > 1 year

SRIM

No Impact - Uncontrollable Factors(without major product redesign)

Immediate ImpactQuick Fix(deploy resources immediately)

Long-term Solution Significant InvestmentRequired (if enough of these occur, worthlooking at the investment)


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Examples

Quick Fix ($100K corrective action, > 1 year)

May require a major process redesign at suppliers location

Persistent quality problem with no quick solutions in sight requires in-depth FEMA study, with inspection of all units coming off the line in themean-time

Uncontrollable Factors (no solution)

Sole source supplier is not willing to respond to changes or work withBS, as they are a small part of their business.


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Expected Outcome and Benefits ofRisk Assessment and Implementation

1. Supplier porfolio is defined in terms of risk probablity and impact on revenue providingan opportunity to shift production from high-risk suppliers to suppliers with lower risks

2. Roadmaps to manage risks for strategically important suppliers are defined andimplemented

3. Depending on supplier, management of implementation at supplier sites can result into:

Improved parts quality

Reduced Shortages

Improved on-time Delivery Lead Time Reduction

Reduced Inventory Levels

Reduced Invoice Discrepancies

Reduced Time to Connect a New Supplier

Reduced Transportation Costs

4. Progress of supplier risk management is measured and corrective actions are defined

5. Lessons Learned are captured providing input for expansion of approach to remainingsuppliers

6. Risk assessment can be reused during evaluation and integration/development of newsuppliers