Supply Chain Creativity: When Your Supply Chain Suffers from Broken Links

Transcription

1 Supply Chain Creativity: When Your Supply Chain Suffers from Broken Links Gerald R. Ford CSCMP, CPSM, CMC Tel:

2 1. If you think you can do a thing or think you can't do a thing, you're right. 2. Nothing is particularly hard if you divide it into small jobs. 3. Obstacles are those frightful things you see when you take your eyes off your goal. 4. Quality means doing it right when no one is looking. 5. There are no big problems, there are just a lot of little problems. 6. Thinking is the hardest work there is, which is probably the reason why so few engage in it. 7. You can't learn in school what the world is going to do next year. Henry Ford 8. A good story is a bad experience followed by a long period of time: Gerald (Jerry) Ford

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7 In order to be able to manage risk you have to look at things differently Count the letter f These finished files are the result of a few years of scientific study. This is due to the efforts of many individuals who contributed facts and ideas. Many of these concepts will be used forever by future generations. Write down your answer on a piece of paper!

8 Actual count = 13 These finished files are the result of a few years of scientific study. This is due to the efforts of many individuals who contributed facts and ideas. Many of these concepts will be used forever by future generations.

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10 What is Risk Management? Business Continuity Management (BCM), defined by the Business Continuity Institute as a holistic management process that identifies potential impacts that threaten an organization and provides a framework for building resilience and the capability for an effective response that safeguards the interests of its key stakeholders, reputation, brand and value creating activities (BCI, 2005). Business Vulnerability, defined as an exposure to serious disturbances, arising from risks within the supply chain as well as risks external to the supply chain (Christopher, 2003). Vulnerability is a result of any weakness within a complex system that can seriously jeopardize its activities (Ayyub, 2003). Enterprise Risk Management (ERM) as a set of coordinated actions about protecting and enhancing share value to satisfy the primary business objective of shareholder wealth maximization (Chapman, 2006). Resilient enterprise meaning the ability of the company to recover quickly from a disruption (Sheffi, 2005).

11 Step 1: Risk Identification Step 2: Risk Assessment and Evaluation Classifying risks into supply, operations, demand and security risks. Decision analysis, Case Study, Perception Based. Step 3: Selection of Appropriate Risk Management Work with Procurement to select vendors and suppliers. Step 4: Implementation of Supply Chain Risk Management Strategies Business Continuity Strategies and Planning. Step 5: Mitigation of Supply Chain Risks Test your Plan with your critical Suppliers. Manuj and Mentzer (2008), Global Supply Chain Risk Management, Journal of Business Logistics, Vol. 29, No. 1, pp

12 Customers are driving supply chains.. Innocence 1985 Maturity 1995 Excellence 2008 Industry Sector Stock availability 90% 98% 99.9% Food and Drink Delivery frequency weekly daily 3 times a day Automotive Order to delivery lead time 72 hours 48 hours 6 hours Food and Drink Timed delivery slot ± 1 hour ± 15 minutes on time Retail Supply Chain inventory 4 weeks 2 weeks 0.5 week Electronics... and product life cycles are measured in months not years

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14 Normally companies have a plan for IT risk and not much else. Although in one instance a company planned to move their data facility from Toronto to Fort Lauderdale which is in the middle of hurricane alley.

15 EPC Electronic Disaster Database and Its Characteristics Project Report 97-1 by Carol Tudor Office of the Senior Scientific Advisor Emergency Preparedness Canada August 1997

16 THE 1998 ICE STORM: 10-YEAR RETROSPECTIVE RMS Special Report 2008 Risk Management Solutions, Inc.

17 You are working in the purchasing department for a large insurance company in southwestern Ontario. It is Friday afternoon at 3:00 pm and you have just heard that your marketing department is working on a very important project. It seems that they have decided to try and help those unfortunate individuals who have lost their electricity due to the ice storm that has just hit the Ottawa region three days ago. Their idea is to buy some gas powered generators. They have a large number of important clients that need help and need it quickly. For some unknown reason the marketing department did not think of getting your help until now. By the time you get all the details, every senior signing manager has left the office since it is already 4:00 pm. The total purchase is going to be greater than your authorization. You have plans for the evening and would like to go home. If you spend another Friday night at work, you are in deep trouble. On the other hand if you can pull off a small miracle you will have done wonders for the image of your department and company. You have 15 minutes or less to decide what to do and how you are going to execute your plan. Good luck.

18 How would you assess the capability of your company to mitigate the key supply chain risks it faces right now? 1 Somewhat Capable 11 9 % of respondents 1 (n=3,079) Extremely Capable Somewhat Capable Slightly Capable Not Very Capable Not at all Capable 1 All data weighted by GDP of constituent countries; figures do not sum to 100%, because of rounding; excludes respondents who answered don t know. Source: September 2006 McKinsey Quarterly Global Survey of Business Executives

19 How does your organisation assess the risks to its supply chain? On a wing and a prayer % of respondents 1 (n=2,924) There is no Formal Assessment Qualitatively/Intuitively With rough Quantative Estimates With Detailed Models of Cash Flow at Risk 1 All data weighted by GDP of constituent countries; figures do not sum to 100%, because of rounding; excludes respondents who answered don t know. Source: September 2006 McKinsey Quarterly Global Survey of Business Executives

20 The challenge of global logistics PRODUCT LINE DIVERSITY PRODUCTION DISPERSION MARKET CONCENTRATION Technology / development Parts / Components Inbound supply Assembly Physical distribution Marketing /retailing Customer Shorter product life cycles Product / model proliferation Concentrated demand Price erosion Global sourcing Focused factories

21 The risk management challenge Consequence/ Impact High Low Low High Where can we reduce the probability? How can we reduce the consequence? Probability of Occurence

22 Supply Risk Mitigation Strategies High Risk Impact Low Low Occurrence, High Impact Implement joint process improvements with suppliers, have emergency plans, buy contingent business interruption insurance Low Occurrence, Low Impact Review and improve quality assurance process High Occurrence, High Impact Begin resourcing efforts on these SKUs redesign product or find new suppliers High Occurrence, Low Impact Monitor supplier performance Low Risk Occurrence High

23 Assessing Suppliers (Diagram from workbook by Mike Fogg) Assessing suppliers Pre contract award Supplier Appraisal a pre-commitment assessment of a potential supplier s capability of controlling quality, delivery, cost and all other factors forming part of a buyer s requirement Post contract award Vendor Rating is an objective assessment, often expressed as an index, of a supplier s performance in meeting standards agreed with the buyer in the supply of goods, works materials or services during the lifetime of a contract Pre contract award Supplier Development The provision of finance, technology or other forms of assistance by the buyer to a supplier to enable the supplier to offer a product or service which meets the buyer s needs, or to interface with the buying organisation in a mutually appropriate way (Compton and Jessop CIPS dictionary of terms and conditions)

24 % of firms Obstacles to addressing risks Insufficent time Inadequate personnel Insufficient budget Not a priority No reason given Not recognized 24 Survey done by Harris Interactive in 2005.

25 Average shareholder returns (%) Impact of Major Supply Chain Disruption on Stock Price 0 Trading day relative to announcement date Hendricks and Singhal, 2005

26 Large Reputation Impacts Source: The View of the Supply Chain From Wall Street J. Stuart Francis - Lehman Brothers, February 2003

27 APICS INSIGHTS AND INNOVATIONS 2014

28 Number of firms (%) Reasons for glitches Part Shortages Changes by Customers Production problems Ramp/roll-out problems Quality Problems Development problems None Provided 28

29 Final thoughts Be creative and think outside of the box but most of all have a plan in place Design SCM networks to sustain potential disruptions in the first place Use advanced supply-chain tools for a complete risk assessment Develop a solid, institutionalized business process that considers risks Build risk identification into everyday operations Create supply-chain agility Hire an expert :)

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