1

Supplier Reliability Track

January 29-30, 2008

Review with the Supply Chain Risk Leadership Council

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Recent Survey Conducted by AMR

http://www.scdigest.com/assets/newsviews/07-12-13-2.php?cid=1385

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Agenda

Business interruption insurance (Tim Astley)

Quick review

Discussion….company insights

Where do we go from here

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ContributorsTony Aloise Procter & Gamble Global Material Supplier Mgr

Purchases BCP Coordinator

SS Fu TSMC Deputy Director, Procu-2, Material Management Div

Glen Peng TSMC Material, Facility, Commodities Procurement Dept

Paul (BC) Chen TSMC Senior Manager of Corporate Risk Management Division

Eddy Liu TSMC Manager, Risk Management Department

Hau Lee Stanford Thoma Professor of Operations, Info and Technology, Co-director, Stanford Global SC Mgt Forum

Erik Stewart Cisco SC Risk Management

Eric Prause Jabil Director of Supplier Development

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Track Deliverables

Risk matrix as framework

Identify best-in-class work for key work process gaps

Develop the next level key element assessment for the identified capabilities (with scoring capability)

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Track Scope Supplier-related risk…inbound materials and services

to our company

Enterprise-LevelSocial Responsibility (Brand Risk), Hedging Strategies (Cost Risk), Revenue Management

(Demand Risk), Intellectual Property Management (IP Risk)

Supply Chain-Level and CategorySupply Network Design (supplier concentration, extent of cross-bordersourcing, extent of port use), Inventory pressure, Sales and Operations

Planning (initiative strategy)

Mfg Plant 1 Mfg Plant 2 Mfg Plant 3

Others

External Business

Partners

Inbound Raw,Packing Materials

& ServicesMaterial Suppliers,

Distributors, Customs,Carriers

Contract Management(Compliance Risk),Supplier Capability

(Capacity Risk)

External Business

Partners

Support forManufacturingContractors, Facility

Services

External Business

Partners

SupportingFinished Product

and CustomerServiceCarriers

InternalBusiness

Partners

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Risk Matrix- Analysis Structure As framework, team developed a risk matrix…

Score of Linkagebetween Risk Areas and Capabilities

Capabilities

Score of Capabilities

Cau

se

Exa

mp

le

Fit

wit

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ram

ewo

rk

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Score of Linkagebetween Risk Areas and CapabilitiesC

ause

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Enter Risk Importance in the aqua-shaded cells (scale = 3, 2, 1) i.e. which risk are you most concerned about?

5 = demonstrated good results, experienced4 = system is ready/tested, people are trained3 = plan in place2 = initial consideration given1 = not in place0

Enter a 0 (low linkage), 1 (medium linkage) or 2 (high linkage) for each of the empty white cells..

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Risk Matrix

Risk Area(causes not symptoms)

Fit withFramework <

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3.4 3.6 3.8 3.4 3.4 3.6 3.6 4.0 4.8 2.8 2.8 4.2 3.8 1.8 4.0 3.8 2.6Supply Chain-Level

Complexity Physical 2.4 0.5 0.6 0.3 0.3 0.3 0.5 0.3 0.3 0.4 0.7 0.3 0.3 0.7 0.5Concentration Physical 1.4 0.4 0.4 0.4 0.3 0.4 0.6 0.6 0.3 0.4 0.5Dynamic demand Process 1.4 0.5 0.3 0.5 0.5 0.3 0.4 0.4 0.3 0.3Merger/acquisition Institutional 1.0 0.3 0.3 0.3 0.4 0.3 0.3 0.3 0.3 0.3Supplier-Level

Natural disasters Physical 2.0 0.6 0.5 0.3 0.5 0.4 0.3 0.5 0.8 0.5 0.5Accidents Physical 2.0 0.6 0.5 0.3 0.5 0.4 0.3 0.5 0.8 0.5 0.5Supplier capability Institutional

2.4 0.5 0.3 0.5 0.3 0.4 0.3 0.7 0.3 0.6

Supplier policies Institutional 1.4 0.4 0.3 0.5 0.3 0.4 0.3Supplier capacity Process 2.0 0.5 0.6 0.5 0.4 0.6 0.3 0.4 0.3 0.4Supplier financials Process 1.2 0.5 0.4Intentional Institutional 1.6 0.6 0.3 0.3 0.3 0.5 0.4 0.3 0.4 0.6 0.3 0.5 0.5Regulatory Institutional 1.2 0.3 0.5 0.3Material sourcing policies Institutional 2.2 0.5 0.3 0.5 0.5 0.3 0.3 0.3 0.3 0.3 0.4Outsourcing/contracting Institutional 2.0 0.3 0.3 0.3 0.4 0.5 0.3 0.5

Transportation capacity Process 1.6 0.3 0.3 0.5 0.4 0.3 0.6 0.3 0.4Cross-border logistics Process

1.6 0.5 0.3 0.4 0.7 0.4 0.4 0.4 0.3 0.4

Internal Policies Institutional1.8 0.3 0.4 0.4 0.3 0.4 0.4 0.3 0.3 0.4

Network connectivity, data network Physical 1.8 0.5 0.3 0.3Custom equipment requirements Physical 1.4Recovery capability Institutional

2.4 0.6 0.5 0.4 0.3 0.3 0.3 0.5 0.4 0.3 0.4 0.3

linkage score at 2 linkage score below 2 and above 1.2 (total score 2)

Work Processes/Capabilities

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Survey Summary

12 out of 17 capabilities have high capability score from at least one company

Top 3 risks Supply chain complexity, supplier capability, recovery capability

7 key capabilities have strong linkage to top 3 risk Supplier business contingency plan, Internal material contingency plan,

Sustainability/regulatory, Strategic material planning/RCCP/material at risk , Supply network capability, Supplier Business Interruption Risk Insurance, Risk analysis

No one has high capability score on one item “Supplier Business Interruption Risk Insurance”

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Guidance on Use of Risk Matrix

SCRLC-level-create common framework to facilitate alignment

-identify benchmarks/best-in-class

-prioritize capability development

Company level-use risk matrix as an assessment tool

-identify areas for improvement from the risk matrix

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Proposed Next Steps

Individual companies do a supplier risk assessment

Assess “energy” to work on quantification model

Anything else?

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Early Thinking on Risk Quantification

Material Supply Distribution

Supplier 1Supplier 2Supplier 3Supplier 4Risk Score

Supplier 1 Risk ScoreSupplier 3Supplier 4Supplier 5Risk Score

Supplier 1Supplier 3 Risk ScoreSupplier 6Supplier 7Risk Score

Risk Score

Risk Score

Risk Score

Risk ScoreOverall Supply Chain Risk

Score

Plant 1

Plant 2

Plant 3

Customer 1

Customer 2

Manufacturing Customers

Warehouse 1

Warehouse 2

Risk Score

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Early Thinking on Risk Quantification

Criteria High Risk Circumstance Business Impact Metric

Number of sources qualified Only one qualified source Uniqueness of the product or materialSpecialized or customized product or material made uniquely for P&G or for very limited customer base, including existence of proprietary production process or material design/formulation Difficulty of qualifying new or alternate sourcesQualification is known or expected to take longer than the time covered by safety stock Exclusive supply Contract requires exclusive use of a supplier, without standard force majeure provisions Importance to P&G revenue $ FP NOS associated with a material Supply Chain Design Long lead time and/or complex, multi-step supply chain, or one that has proven to be unreliable. Look at both the suppliers' supply chain and that of the suppliers' materials Industry circumstance Existence of general risk to an entire industry, such as single supply of a chemical that has any of the risk factors listed here Industry Capacity P&G's needs relative to the plant, supplier, or industry are a high percentage of the total capacity Molds, dies, cylinders, plates, etc. Long lead time (ie: longer than coverage of safety stock) for these items, and no spares on hand P&G Inventory Policies, financial constraints or physical storage constraints that restrict the level of safety stock that can be carried Supplier's capability, capacity, and/or reliabilitySupplier has difficulty meeting P&G's needs reliably due to issues in this area Supplier's financial condition Supplier is in danger of bankruptcy or suffering limitations on ability to operate for financial reasons

Risk Classification Risk Type Risk Indicators Probability

Natural Hurricane Meteorological or Oceanographic data H/M/LTornado H/M/LTsunami H/M/LEarthquake H/M/LFlood H/M/L

Accidents Personnel safety Safety assessment H/M/LEquipment damage Organizational health assessment H/M/L

Preventative maintenance capability H/M/LIntentional Explosion Use of hazardous materials H/M/L

Terrorism Relationship to US government H/M/LSabotage Organizational health assessment H/M/LStrike

Regulatory Compliance Sustainability H/M/LNationalization H/M/L

Overall Risk Score

2. Risk Identification

1. Critical Material Identification 3. Impact or Intensity

4. Risk Assessment

Risk Probability xImpact =

Overall Risk Level (Score)