Proactive Value Chain Risk Management. FMI and GMA Supply Chain Conference February 6, 2013

Transcription

1 Proactive Value Chain Risk Management FMI and GMA Supply Chain Conference February 6, 2013

2 Why is this relevant to you? The speed of business is hastening Growing regulatory, economic and geopolitical uncertainty External events, internal structural designs and human biases have a ripple effect and impact across the a company s value chain The role of Value Chain leaders has never been more critical to proactively managing this risk and ultimately your company s success The inability to predict outliers implies the inability to predict the course of history, Nassim Nicholas Taleb, The Black Swan. The Impact of the Highly Improbable A.T. Kearney - GMA Conference Feb 6,

3 In a more uncertain world, macro-economic, business ecosystem and organizational factors accelerate business risks Example Risk Drivers Macroeconomic Business Ecosystem Resource scarcity & price volatility Consumer demographics and preferences Technology disruption Longer, more complex supply chains Increased portfolio complexity Shortened response times Regulation & activism Business Risk Probability x Impact Organization No risk governance Limited coordination and poor capabilities Ignore the improbable A.T. Kearney - GMA Conference Feb 6,

4 Hyper connectivity amplifies effects of macroeconomic factors on business Key Macro-Economic Factors Increasing Globalization Resource Scarcity & Price Volatility Consumer Preferences Demographics Technology Growth 35% increase in avg. unit labor costs since 2007 Emerging economies have overtaken advanced ones in output 5% CAGR in food prices from % of world will be battling severe water stress by % of consumers will end loyalty if not given custom offerings More internet users have used social networks than 70M boomers will retire by 2030, leaving 35M jobs unfilled 11% reduction in global working age population by 2050 Asia R&D spending at 9% growth rate vs. N. America 2% 27% CAGR in patent applications from Asia vs. 4% from US ( 00-10) Sources: EIU, Dow Jones, UN, IMF, comscore, CMO Council, World Intellectual Property Organization, OEDC Environmental Outlook, World Bank, A.T. Kearney analysis A.T. Kearney - GMA Conference Feb 6,

5 Business / industry ecosystem factors are manifested in a variety of trends Example Business Ecosystem Factors Long, Complex Supply Chains Increased portfolio complexity Shortened Response Times New Customer Engagement Models War for Talent Regulation & activism Over 50% of CPG identified Supply Chain inefficiency as a major gap Lack of flexible manufacturing assets is a key barrier to New Product Development Supply chain leaders have 87% more avg. inventory turns per year than laggards Online Retail Industry in the US will be worth $279 Billion in 2015, a 50% increase 65% of global companies and 80% in advanced economies face talent shortages U.S. borders inspected 3.3 billion lbs of imported meat and poultry products >65% expect an increase in product variations Avg. # SKUs increase in US grocery stores ( 05 vs. 11): Fruit: +38% Vegetables: +37% Retailers are competing on delivery times (same day delivery) 42% of millennials want option of online purchase with return to store option 31% employers worldwide cannot fill positions FDA Warning Letters: 44% increase in 2012 Sources: World Economic Forum, IBM, Juniper Research, CSCO, Manpower, Wipro, Towers Watson, Chain Link Research, U.S. Census Bureau, Global Simplicity Index, Forrester, Kantar Retail Analysis, Forrester, A.T. Kearney analysis A.T. Kearney - GMA Conference Feb 6,

6 Internally, structural designs and human factors don t help us manage risk either Internal Challenges to Risk Management Organization Deficiencies No Risk Governance Human Biases Past, Not Future Focus Limited Coordination Ignore Root Causes Poor Capabilities Ignore the Improbable What other challenges is your company facing in managing risk? A.T. Kearney - GMA Conference Feb 6,

7 Narrow Objectives Broad Leaders manage their exposure to risk through a delicate balance of management objectives and actions A.T. Kearney Risk Ambition Advantage Take the hill Resilience Protect home turf Leaders intentionally apply a different level of ambition based on the type and level of exposure Recovery Run for (re)cover Firefighting Action Strategic Focus A.T. Kearney - GMA Conference Feb 6,

8 Narrow Objectives Broad This balance is observed in all companies to varying degrees but more often is an afterthought rather than forethought A.T. Kearney Risk Ambition Advantage Take the hill Resilience Protect home turf ANTICIPATE FUTURE environmental requirements and consumer demands ACTIVELY MANAGE brand image resilience in light of Foxconn working conditions Recovery Run for (re)cover RESPOND to the Gulf of Mexico oil spill Firefighting Action Strategic Focus A.T. Kearney - GMA Conference Feb 6,

9 Realizing your ambition starts with a holistic view of risk across seven areas of impact to your organization A.T. Kearney s Vista TM Risk Framework and Examples Rogue behavior War for talent Loss of IP Compromise of assets Decision making and monitoring Code of conduct People Security Business & Commercial Enterprise & Governance Global economic volatility Disruptive business models Regulatory Operational Regulatory scrutiny (Health, Safety, Finance, etc. ) Execution error Non-compliance Financial Market liquidity Interest rate volatility Source: A.T. Kearney A.T. Kearney - GMA Conference Feb 6,

10 To get started, we need to think about the building blocks for proactive risk management and ourselves a few basic questions Building blocks for proactive risk management A.T. Kearney - GMA Conference Feb 6,

11 Risk governance must align with business objectives and ensure a single vernacular for risk prioritization and tradeoffs Select leading risk practices - Governance Key Questions Is it clear how your company manages risk tradeoffs / priorities across enterprise? Is there a common company-wide risk vernacular? Practices Align risk management strategy and vision to business objectives Employ single risk vocabulary within / across functions and BUs for prioritization and tradeoffs Establish cross-functional team and accountability to set policy and ensure hand-offs between verticals How do you do on managing tradeoffs? Separate actions from oversight/ audit roles to ensure proper checks and balances A.T. Kearney - GMA Conference Feb 6,

12 Risk scorecards should include leading and lagging indicators as well as internal and external performance measures Select leading risk practices - Metrics Key Questions Do you know your risk exposure today? Are you improving? Practices Employ a mix of both leading and lagging indicators for risk management Metrics should measure both internal performance as well as monitor external events and drivers Are your metrics consistently defined, tracked and communicated? Ensure definition of metrics and calculations are standardized within and across functions and business units A.T. Kearney - GMA Conference Feb 6,

13 Process rigor must combine discipline with new techniques to better understand a broader set of risks and opportunities Select leading risk practices Process Rigor Key Questions What techniques and tools do decision makers use to identify risk? Do all business processes reflect appropriate risk considerations? How frequently does your company reassess its vulnerabilities? How do you do on managing tradeoffs? Practices Map product value chains on periodic basis to understand vulnerabilities, identify key risks and mitigation actions Leverage advanced techniques to better understand improbable events Pursue value chain collaboration to unlock new value and better manage key ecosystem risks Ensure key business practices incorporate sufficient risk considerations A.T. Kearney - GMA Conference Feb 6,

14 Underlying any risk management capability is data visibility and a means to connect the dots across disparate input signals Select leading risk practices Analytical Tools Key Questions Do you have transparency across your product value chain? What tools & techniques are used to monitor risk and risk management practices? Do you have vision across your entire value chain? Practices Build data transparency across value chain to prioritize risks and mitigation Use data mining and predictive analytic techniques to analyze past activities to forecast future behavior Establish means to learn, synthesize information and connect the dots across disparate input signals Collaborate with partners to share data and analytical models A.T. Kearney - GMA Conference Feb 6,

15 Finally, risk management is most effective and truly proactive when it is a part of the culture: a forethought vs. an afterthought Select leading risk practices People and Culture Key Questions Is risk a part of your day-to-day dialogue and planning? Practices Recognize and reward those that effectively manage or capitalize on risk Ownership of risk transcends typical organization boundaries Is risk a forethought or an afterthought in your organization? Acknowledge and embrace risk and uncertainty take control rather than be a victim and make it work to your advantage A.T. Kearney - GMA Conference Feb 6,

16 How well organized are your building blocks for proactive risk management? Elements of a risk management operating model A.T. Kearney - GMA Conference Feb 6,

17 A.T. Kearney - GMA Conference Feb 6,

18 Presenters Dave Powell Partner A.T. Kearney Paul Schroder Principal A.T. Kearney Office (312) Office (703) A.T. Kearney - GMA Conference Feb 6,