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8/2/2019 Managemnt Seminar Presentation Final
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ANALYSIS OF GLOBAL SUPPLYCHAIN RISKS
Raman SarinSrikanth Shetty
Chiragkumar Maheshbhai Patel
Prasanna Sundaresan
Satish Kumar Tekkatte Gopal
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Institut fr Logistik und Unternehmensfhrung
Seminar Presentation
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OUTLINE
Introduction
Some theory
Strategies for risk management
Proposed model
Discussion of cases (validation)
Conclusion
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Type of risks keep changing with political, economical,
technological, social and other conditions.
Lean Production and Global Outsourcing are suitable for
Stable environments but in complex turbulent environment
it is difficult to handle intricate supply chains of 21st century.
Global sourcing and suppliers consolidation carry hidden cost
(increased exposure to the risk of supply-chain disruption)
Disruptions in important areas evaluate the vulnerability ofglobal supply chains.
3
SUPPLY CHAIN DISRUPTIONS
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FACTS
BP oil spill caused closure of gulf fishery and supply of sea-food. Lossof around 40 billion US dollar was estimated as per BPs estimation.
Pandemic Disease in past (like H1N1, SARS) had paralyzed business of
multinational companies.
Unrest in middle east has caused oil price rise and companies can not
rely on single source of oil supply and single mode of energy in future.
Hurricane-Katrina in US made companies to reconsider depending on
single port in high risk area and look for options in supply chain.
Due to volcanic ash eruption in Iceland, air-traffic halted in North
Europe. The airlines estimated $200 million loss per day. Two important sectors that felt the hardest global hits by Japan disaster
are electronics/semiconductor and automobile supply chains.
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IMPORTANCE OF RISK MANAGEMENT IN
GLOBAL SUPPLY CHAIN
As per International Monetary Fund (2008), the growth of
ratio of goods and services trade to GDP is from 42 to 62
percent (between 1980 and 2007).
(In 2008, CFO Research Services conducted a survey among seniorfinance executives in North America to examine their views on increaseor decrease of their companys global sourcing activities over the next
three years.)
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COMPANYS PERFORMANCE DURING
DISRUPTION
1. Preparation
2. The Disruptive Event
3. First Response
4. Initial Impact
5. Full Impact
6. Recovery Preparation
7. Recovery
8. Long-Term Impact
In 2005, Yossi Sheffi and James B.Rice Jr. highlights eight
different phases that give a view of impact of disruptive event
on a companys performance and also the companys response. 7
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STRATEGIES
o Globalization as a solution
o Resilience (Redundancy and flexibility)
o Controlling supply chain disruption risks
o Mitigate damage
o Risk assessment and Scenario planning
o Use of various company specific tools
o Communication systems8
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OPTIMIZATION MODEL
Risk recognition
Frame work to detect
recognized risk
Scenario generation for
different risk
Strategy under different risk
scenario
Implementation
responsibility
Update
Assessment- Documentation
Identification of risk
Recognition of stakeholders
Activate intensive
communication
Risk assessment
Strategy development
Quick implementation
Frequent feedback
Documentation of incidents
and under taken steps
Prepare to mitigate React to recover
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SELECTION OF MIX
a preparation coefficient of
relative importance
b reaction coefficient of
relative importance
S selection mixP, R preparation and reaction respectively
Impact of disruption It is the extra cost that a company has to spend in order to deal with a disruptive event forwhich they are not prepared in order to sustain its performance to a level that would havebeen achieved if no disruption would have occurred.
Cost of preparation It is the sum of all the cost that a company has to spend in order to mitigate the risk if itoccurs in a period of time divided by frequency of a certain disruptive event estimated overthe same period of time.
Cost of prepared recovery It is defined as cost of preparation plus extra costs that are incurred in order to sustain its
performance to a level that would have been achieved if no disruption would have occurred.
It is equivalent of impact of disruption with no preparations.
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CASES FOR DISCUSSION
S i Hi h F L I
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Model
Cost
Lead Time
Product with minordamage
Supply chainDisruption
Key pointsDamaged part is replaced /repaired atcustomer location.The cost impact is absorbed by theinsurance cover.Time impact is absorbed by the bufferin delivery lead time shown in yellow
Risk management strategy for thisscenarioInsurance cover for transport. Covers
damage, and replacing cost. Does notcover time impact.There is a planned buffer in thedelivery lead time.
Case
Model Interpretation:Factor a is higher compared to thefactor b.The strategy opted is the Prepare toMitigate.
Due to the high frequency ofoccurrence and the low impact afterdisruption the cost of prepared recoveryis lower compared to the impact ofdisruption.
Comparison of case with the model:The strategy opted by the company indiscussion is as per the model results.That is prepare to Mitigate..The strategy falls under the idealpreparation case of our model
resulting in minimum or no impact asshown in the graph .
Scenario 1: High Frequency ,Low Impact
Delivery Time Buffer in lead time
Logistics cost Insurance cover
*Ref Interview 1 and 2 in Appendix section of report * Image source: Google images
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Model
Supply chainDisruption
Model Interpretation:Factor b is higher compared to thefactor a.The strategy opted is the React toRecover.
Due to the high frequency ofoccurrence and the High impact afterdisruption the cost of prepared recoveryis very high compared to the impact ofdisruption.
Key pointsThe custom made product has highvalue hence a spare is not maintained.The product is repaired or replacedwith a considerable time and costimpact.The time impact absorbed by the
buffer lead time is negligible.
Risk management strategy for thisscenarioAction plan is put into place to replacethe severely damaged product andmeet the customer demand at theearliest.The Time impact is not covered by theinsurance
Case
Comparison of case with the model:The strategy opted by the company indiscussion is as per the model results.That is react to recover.The strategy falls under the Normalpreparation case of our model
resulting in a noticeable impact asshown in the graph .
Scenario 2: High Frequency ,High Impact
Damaged product
Lead Time
Cost
Logistics cost damage covered by insurance Cost impact
Delivery Time Buffer time Time impact
*Ref Interview 1 and 2 in Appendix section of report * Image source: Google images
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Model Model Interpretation:Factor b is higher compared to thefactor a.The strategy opted is the React toRecover.Due to the low frequency of
occurrence and the High impact afterdisruption the cost of prepared recoveryis very high compared to the impact ofdisruption.
Key pointsA new supplier is identified. The process lines are installed and
qualified.And finally the production for thecritical part is resumed. With asignificant time and cost impact.
Risk management strategy for thisscenarioSince the occurrence is very low insuch disruptions react to recover
strategy is opted.In this scenario the company goesahead to develop a new supplier .The company owns the design , plan ,the intellectual property rights and otherdocuments which reduces the time andcost impact in such scenarios.
Case
Comparison of case with the model:The strategy opted by the company indiscussion is as per the model results.That is react to recover.The strategy falls under the Nopreparation case of our model
resulting in a significant impact asshown in the graph .
Scenario 3: Low Frequency ,High Impact
Logistics cost Impact covered by owning the planand IP rights for new supplier
development
Significant Cost impact
Delivery Time Safety stock Time impact
Lead Time
Cost
New supplierdevelopment
Supply chainDisruption
*Ref Interview 1 and 2 in Appendix section of report * Image source: Google images
S i L F L I
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Model
Key points
The part is shipped through a differentmode of transport or route. There is a very small impact of timeand money.
Risk management strategy for thisscenarioSince the occurrence is very low insuch disruptions react to recover
strategy is opted.In this scenario the company decidesfor a alternative route or mode oftransport which is not impacted by thedisruption like in this case the searoute.These strategies are purely reactiveand the success is based on the riskmanagement team expertise andexperience.
Case
Model Interpretation:Factor b is higher compared to thefactor a.The strategy opted is the React toRecover.Due to the low frequency ofoccurrence the cost of preparedrecovery is high compared to theimpact of disruption.
Comparison of case with the model:The strategy opted by the company indiscussion is as per the model results.That is react to recover.The strategy falls under the TotalReaction case of our model resulting
in a minimal impact as shown in thegraph .
Scenario 4: Low Frequency ,Low Impact
Logistics cost Re-routing cost
Delivery Time Safety stock Time impact
Lead Time
Cost
Supply chainDisruption
*Ref Interview 1 and 2 in Appendix section of report * Image source: Google images
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CONCLUSION
Global supply chain risks always exists and a risk or a part of it can be addressed by
preparation or reaction.
Strategies for risk management changes from company to company with respect to thepolicies and priorities .
Risk Mitigation plans changes according to competition, cost factors and frequency
of probable disruptive event.
The proposed Model does not ascertain any specific strategy that should be followed
but only helps to obtain a blend of preparation and reaction strategies . React to recover strategy should be opted in case of unrecognised risks
Companies usually follow React to recover strategy rather than Prepare to
Mitigate strategy in case of Disruptive events that are difficult to predict and also
involve high investment on preparation .
React to recover strategy is directly influenced by time frame and impact ofdisruption , expertise and communication system.
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