Lora & David's Risk Management Webinar Presentation

4/11/2014

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Supply Chain Insights LLC Copyright © 2014, p. 1

Supply Chain Risk Management


Speakers

Lora CecereFounder

Supply Chain [email protected]

David Simchi-Levi MIT ProfessorFounder Ops [email protected]

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Definition Given to Respondents


Study Overview

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Reporting Relationship


• The What• The So What• Recommendations• Wrap-up

Agenda

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Current State


Risk Management Low on the List

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But, Should it Be? Gap Analysis


Major Supply Chain Disruptions

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An Issue


Top Two Supply Chain Disruptions in 5 Years:2011’s Tsunami in Japan and 2012’s Hurricane Sandy

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Importance to Supply Chain Strategy


• The What• The So What• Recommendations• Wrap-up

Agenda

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Current Assessment


Demand Volatility Is Only Top 3 Driver in Past, Present and Future

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• The What• The So What• Recommendations• Work from MIT• Wrap-up

Agenda


Disruption: Current Visibility

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Financial Health: Monitoring


Most Important Risk Management Techniques

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David Simchi-Levi

E-mail: [email protected]

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What We’ll Cover …

• Introduction� The Risk Exposure Index

• Supplier Segmentation � Implementation at Ford

• Wrap-up

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Many Sources of Risks

• Natural disasters

• Geopolitical risks

• Epidemics

• Terrorist attacks

• Environmental risks

• Volatile fuel prices

• Rising Labor costs

• Currency fluctuations

• Counterfeit parts and products

• Port delays

• Market changes

• Suppliers’ performance

• Forecasting accuracy

• Execution problems

Unknown-Unknown

Known-Unknown

Uncontrollable

Controllable

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• Epidemics







• Port delays

• Market changes




Unknown-Unknown

Known-Unknown

Uncontrollable

Controllable

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• Epidemics







• Port delays

• Market changes




Unknown-Unknown

Known-Unknown

Uncontrollable

Controllable

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Epidemics

Fuel Prices

GeopoliticalProblems

Currency Fluctuations

Commodity Prices

Port Delays Product Design

Problems

Forecast Accuracy

Suppliers‘Performance

The Risk Framework

Expected Impact

Ability to ControlLOWUnknown-Unknown

HIGH

HIGHKnown-Unknown

LOW

Counterfeits

Government Regulations

Natural Disasters

Environmental Risks

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Managing Supply Chain Risk: The Challenge

• Very difficult to predict many sources of risk, especially the unknown-unknown

• Impact of disruption can be devastating

• Large investment in identifying every possible risk in the supply chain

• Existing tools and techniques have been inadequate� Mostly ad-hoc, intuition, gut feeling

� Exposure to risk may reside in unlikely places

� May lead to the wrong actions and waste resources

� No ability to prioritize mitigation investment

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Case Study 1: The Risk Exposure Index

• High tech manufacturing company

• Contract manufacturers in Asia

• Assembly plants in North America

• Many suppliers all over the world

• Sells its products directly and through distributors

28©Copyright 2014 D. Simchi-Levi

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•Time-To-Recovery (TTR): The time it takes to recover to full functionality after a disruption

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©Copyright 2014 D. Simchi-Levi


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•Time-To-Recovery (TTR): The time it takes to recover to full functionality after a disruption

2 Weeks

1 Week 2 Weeks

2 Weeks

2 Weeks

TTR =2 Weeks

2 Weeks


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•Time-To-Recovery (TTR): The time it takes to recover to full functionality after a disruption• Financial Impact (FI): Lost sales during TTR

2 Weeks

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•Time-To-Recovery (TTR): The time it takes to recover to full functionality after a disruption• Financial Impact (FI): Lost sales during TTR

2 Weeks$400M

1 Week$100M

2 Weeks$1.5B

2 Weeks$100M

2 Weeks$2.5B

TTR =2 WeeksFI = $400M

2 Weeks$300M


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•Time-To-Recovery (TTR): The time it takes to recover to full functionality after a disruption• Financial Impact (FI): Lost sales during TTR•The Risk Exposure Index (REI) is the maximum FI over all nodes in the supply chain

2 Weeks$400M

1 Week$100M

2 Weeks$1.5B

2 Weeks$100M

2 Weeks$2.5B


2 Weeks$300M




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•Time-To-Recovery (TTR): The time it takes to recover to full functionality after a disruption• Financial Impact (FI): Lost sales during TTR•The Risk Exposure Index (REI) is the maximum FI over all nodes in the supply chain

2 Weeks$400M

1 Week$100M

2 Weeks$1.5B

2 Weeks$100M

2 Weeks$2.5B


2 Weeks$300M


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The benefits of using the Risk Exposure Index

• It provides a $ measure of risk--it estimate the cost of risk;

• It is based on the entire network rather;

• It avoids the need to forecast the unknown-unknown;

• It forces a discussion to understand why TTR for similar facilities or suppliers is different;

• It forces a process to reduce TTR in various stages of the supply chain;

• It makes sure you have a good understanding of supply chain dependencies.

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• Supplier Segmentation � Implementation at Ford

• Wrap-up

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Case Study 2: Ford Motor Company

• Global automotive industry leader based in Dearborn, MI.

• Manufactures and distributes automobiles in 200 markets across six continents.


Ford Brands


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Ford Supply Chain

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Disruption Impact and Total Spend by Supplier Facility

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Disruption Impact and Total Spend by Supplier Facility

Financial Impact (Profit)

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Supplier Segmentation


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• Long Term Contracts• Track Inventory

• Partnership• Risk Sharing Contracts• Track Performance• Require Multiple Sites

• Inventory • Dual Sourcing• New Product Design


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• Long Term Contracts• Track Inventory

• Partnership• Risk Sharing Contracts• Track Performance• Require Multiple Sites

• Inventory • Dual Sourcing• New Product Design


46

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Impact on Automotive Manufacturer

• Optimization model identified at-risk suppliers� Identified the hidden risk of high volume-low margin

components

• Segment suppliers � Some suppliers are required to have alternate plants in different

regions

� Implement new product design strategy to consolidate similar parts & provide suppliers with economies of scale to set up a second plant

� Track daily inventory levels for some suppliers

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• Supplier Segmentation � Automotive Manufacturer

• Wrap-up

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Key Observations

• Invest Now or Pay Later� Firms need to invest in Risk Mitigation Strategies or they will

pay the price later.

• Managing Supply Chain Risks� Dealing with the Unknown-Unknown

� Measuring the Risk Exposure Index

� Implementing Supply Chain Flexibility

� Implementing Supplier Segmentation

Your Turn!

How to contact me:David Simchi-Levi

[email protected]

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Questions?


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www.supplychaininsights.com/upcoming-webinarswww.supplychaininsights.com/upcoming-webinars

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From Nov. 13, 2013: The Shaman’s Circle

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Annual Event September 2014

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Who is Lora?

• Founder of Supply Chain Insights

• Partner at Altimeter Group (leader in open research)

• 7 years of Management Experience leading Analyst Teams at Gartner and AMR Research

• 8 years Experience in Marketing and Selling Supply Chain Software at Descartes Systems Group and Manugistics (now JDA)

• 15 Years Leading teams in Manufacturing and Distribution operations for Clorox, Kraft/General Foods, Nestle/Dreyers Grand Ice Cream andProcter & Gamble.


Where Do You Find Lora?

Contact Information: [email protected]

Blog: 100 Posts/Year www.supplychainshaman.com (10000 pageviews/month)

Forbes: Write 2X/Month http://www.forbes.com/search/?q=lora+cecere

Twitter: lcecere 4800 followers.

LinkedIn: linkedin.com/pub/lora-cecere/0/196/573 (Linkedin Influencer over 6000 followers in the network)

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Two in Five Report the Head of the Supply Chain IsResponsible for Supply Chain Risk Management

Business

Lora & David's Risk Management Webinar Presentation