Risk Mgmt - Move 2015

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

nz.supplychain@yahoo.co.nz

www.sctc.nz

+64 21 741 277