risk mgmt - move 2015
TRANSCRIPT
Handling
Supply Chain Disruption
Agenda
1.Why Supply Chain Resilience Matters?
2. Identifying Supply Chain Risk
3.Creating Emergency Response for Business
Continuity
4.Q&A
Why Supply Chain
Resilience Matters?
Supply Chain Risks
Increasing?
Increased globalisation - elongated supply chains
Economic uncertainty - demand and supply
volatility
Market/Internal pressures – deliver faster,
reliable delivery, agility, JIT, lower inventories,
lower costs
Shorter product lifecycles and rapid technology
changes - increased inventory obsolescence
Natural disasters and external environmental
events
Regulatory compliance complicating international
trade
Supply Chain Resilience – 2014
International Survey
Business Continuity Institute
Number of SC incidents
that caused significant
disruptions in last 12
months?
Does your organisation
have Business Continuity
Plan in place to deal with
SC disruptions?
Supply Chain Resilience – 2014
International Survey
Consequences of
Disruption – Last 12 Months
Biggest Risk – Next
12-15 Months
Business Continuity Institute
So What?
In today’s global economy, the response to supply
chain risk cannot continue to be “reactive”
The identification and qualification of risk is
essential in the migration from reactive to
predictive risk management
Risk management should be an integral part of
supply chain management
Risk evaluation should qualify risks against
specific failure modes
Risk tolerance linked to strategy
Identifying
Supply Chain Risk
APICS Supply Chain Council Risk Management Approach
Supply Chain Council (SCC) was formed in 1996 to
create and evolve a standard industry process
reference model
SCC merged with APICS in 2014
SCOR® is world’s most widely accepted process
reference model to evaluate and compare supply
chain activities and performance
APICS continually advances its tools and educates
members about how companies are capitalizing on
those tools
Risk Management integrated as part of SCOR 9 in
2009.
Identifying Supply Chain Risks
Understanding Supply
Chains
Understanding Your Supply Chain
Scope
Six distinct management processes that link
supply chain seamlessly from supplier to
customer
2005
Xelocity
Limited
Supplier CustomerSuppliers’
Supplier
Source
Internal or External
Your Organization
Return
Deliver MakeSource
Return
Plan
Deliver
Return
Source
Return
MakeSource
Return
Plan
Deliver
Return
DeliverMake
Plan
Return Return
Customers’
Customer
Enable
Internal or External
EnableEnable
SCOR Model Represents Material, Information and Cash Flows
Understanding Relationship Between
Players
Customer’s CustomerCustomerMy OrganizationSupplierSupplier’s Supplier
Sub assemblies Manufacturer Retailer ConsumerComponents
SourceDeliverSourceDeliverMakeSourceDeliverMakeSourceDeliverMakeSource
Mapping Your Supply Chains
1. Segmenting your supply chains
2. Prioritising your supply chains
3. Mapping your supply chains
Segmenting Your Supply Chains
Trade Retail
Export Domestic Direct Consignment
Product Family 1
Product Family 2
Prioritising Your Supply Chains
Criteria
Supply
Chain
Revenue
(Rank)
Gross
Margin %
(Rank)
Number of
SKUs
(Rank)
Unit
Volume
(Rank)
Strategic
Importance
(Opinion)
Weight
Supply Chain 1 5.3 6 6 3 5 6
Supply Chain 2 3.1 5 1 1 6 4
Supply Chain 3 2.7 4 2 2 3 3
Supply Chain 4 4.4 3 5 4 4 5
Supply Chain 5 3.1 2 3 6 2 2
Supply Chain 6 2.6 1 4 5 1 1
15% 25%
Overall
Rating
YOUR COMPANY Supply
Chains
25% 20% 15%
Ran
kin
g
HO
Source MTO
Operating Co.
Source MTO, Plan
(SC , Source)
Supplier
Deliver MTO, Source
(MTO, MTS), Plans (SC,
Make, Deliver
Supplier’s Supplier
Source (MTS, MTO)
Deliver MTO
Supplier’s
Supplier
Deliver (MTS
MTO)
Mapping Your Supply Chain
Assess Risk Impact
Risk Impact
1. Identify each supply chain node for failure
points
2.Assess failure points for risks, probability,
impact and severity
3.Assess impact on supply chain performance
and competitive requirements
4.Assess risk tolerance
HO
Source MTO
Operating Co.
Source MTO, Plan
(SC , Source)
Supplier
Deliver MTO, Source
(MTO, MTS), Plans (SC,
Make, Deliver
Supplier’s Supplier
Source (MTS, MTO)
Deliver MTO
Supplier’s
Supplier
Deliver (MTS
MTO)
Assess Failure Points
What failures can occur?
Where failure will be felt?
When will failure be felt?
Severity of the failure?
What is the probability of
failure?
SC Risk Categories
Risk Category Example
Operational Quality, Capacity, Supplier, Customer,
Transportation, PLM etc.
Technological Software, Communications, IT
infrastructure etc.
Social Strike, Accidents, Negative publicity,
Unrest etc.
Natural disasters Floods, Earthquakes, Tsunami, Fire etc.
Economy Exchange rate, Commodity price,
Bankruptcy, GFC etc.
Legal Regulations, Customs,
Political Incentives, Trade agreements, Lobby
groups etc.
Risk – Impact on Performance C
ust
om
er
Reliability Consistently getting the orders right,
product meets quality requirements
Responsiveness The consistent speed of providing
products/services to customers
Agility The ability to respond to changes in the
market (external influences)
Inte
rnal
Costs The cost associated with managing and
operating the supply chain
Asset
Management
The effectiveness in managing the
supply chain’s assets in support of
fulfillment
Risk – Impact on Performance C
ust
om
er
Reliability Perfect Order Fulfillment
Responsiveness Order Fulfillment Cycle Time
Agility Supply Chain Flexibility
Supply Chain Adaptability
Inte
rnal
Costs Total Cost to Serve
Value at Risk
Asset
Management
Cash to Cash Cycle Time
Return on Supply Chain Fixed Assets
Return on Working Capital
Risks - Impact on Competitive
Requirements
Risk Tolerance
Risk Tolerance
1.What is the business impact of a broken
supply chain?
2.How much are you willing to risk?
Risk Tolerance Linked to Strategy
• Strategies that focus on customer service
(e.g., reliable delivery) or where the cost of
late or lost deliveries are high will have low
tolerance for risk.
• Strategies that focus on cost reduction or
where the cost of late deliveries is low will
have a higher tolerance for risk.
• Ultimately, the tolerance for risk will
determine how much the enterprise will invest
in risk reduction measures vs. reactive efforts.
Building Case For Risk Reduction
1. Analysing the potential impact to the
organisation:
• fixed costs
• production downtime
• reputational damage
• lost revenue, business and customers
2.Risks that significantly impact your profits,
may require more in depth due diligence
Risk Metrics – SCOR
Value-At-Risk(VAR)
The sum of the probability of risk events times the monetary impact of the events for all supply chain functions
Supply Chain RiskTreatment Cost
The sum of the costs associated with Supply Chain Risk Treatment
Event Risk (EVAR)
The risk (probability X impact) of risk events. i.e. plant outage, transportation outage, product failure, etc.
Residual Risk The residual (gross – mitigated) risk for a specific area,supplier, product, etc.
Risk Reduction Strategies
1.Postponement
• Delayed differentiation
2.Modularity
• Component commonality
• Process standardisation
3.Redundancy
• Extra inventory
• Buffer capacity
• Multiple suppliers
• Production flexibility
Creating Risk Response
Business Continuity Plan
Identify actions and resources required to:
Enable the organization to manage an
interruption whatever its cause
Get back to a position where normal business
processes can resume.
8/27/2015
5 Types of Plans to Respond
Emergency Response
Incident Management
Continuity
Recovery
Resumption
Immediate response to
an emergency, eg.
Evacuation Plan
Response to the
incident, eg.
Crisis
Communications
Plan
Ensure essential activities can
continue to operate at a minimum
acceptable level
Recover activities to
a sustainable level
Resume operations at what
the organization defines as
“normal”
Summary
Step 1 – Understanding Your Supply Chain
Segment your supply chains
Prioritise your supply chains
Map your supply chains
Step2 – Assess Risk Impact
Identify each supply chain node for failure points
Assess failure points for risks, probability, impact and severity
Assess impact on supply chain performance and competitive
requirements
Assess risk tolerance
Step 3 - Creating Risk Response
Enable the organization to manage an interruption whatever its cause
Get back to a position where normal business processes can resume.
Q&A?
Thank You
Ikhlaq Kashkari
Supply Chain Training & Consulting
www.sctc.nz
+64 21 741 277