Transcript Supply Chain Management Survey

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Day 1 Afternoon: Managing Extreme Supply Chain Events
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Lecture – Market Turbulence and Risk
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Lecture - Environmental Assessment – estimating likelihood and
impact of high impact, low probability events.
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Break out – Calculating Turbulence and VaR
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Read:
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DRK Environmental Assessment Method (Class Handout)
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Supplier Network Risk Management in Turbulent Environments,
Kevin McCormack, DRK Research, [email protected].
Peter Trkman, University of Ljubljana, Faculty of Economics,
[email protected] (Class Handout)
1
Market Turbulence and
Risk
Dr. Kevin McCormack
Feb 2011
Situation v. Capabilites
Turbulence
H
L
Ability to Sustain
H
3
Customer, Technology, Commodity, Demand Volatility
Turbulence
H
Public
High Debt
High
Large
Churn
L
Private Equity
Structure
Debt
Growth last 5 years
Demand Drop
Leadership
Ability to Sustain
Family
Private
Low Debt
Low
Small
Stable
H
4
H
Promens
Int’l Paper
Graham
Turbulence
Paramount
Blowpast
Rajiv
Alpha
Wellmac
L
Ability to Sustain
H
5
Measuring Market Turbulence
6
Environmental Assessment
Dr. Kevin McCormack
Jan. 2010
Risk Prioritization
SCOR Risk Management Training
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Assessment
(how likely, what is the impact)
• Now that you have a list of potential risks, it is time to
assess the magnitude of each
• The purpose is to help prioritize mitigation efforts
• Common Measures
• Likelihood – that risk event will occur
• Quantitative based on history etc. or Qualitative based on experts
• Impact – if the risk event does occur
• Financial or on qualitative scale
• Charting ex.
$120,000
Impact
$100,000
$80,000
$60,000
$40,000
$20,000
$0
0
0.2
0.4
0.6
0.8
1
Likelihood
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9
Assessment -> Prioritization
Risk Prioritization
High
Moderate risk;
medium priority
for mitigation
Critical risk;
high priority for
mitigation
Low risk; low
priority for
mitigation
Moderate risk;
medium priority
for mitigation
Potential
Impact
Low
Low
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Likelihood of
Occurrence
High
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Likelihood Assessment
• For each potential risk, determine the likelihood that it
will actually occur.
• There are several ways to do this
• Historical occurrences (hurricanes, distribution disruptions,
unreliable partners)
• Analogy (occurrences in similar locations or processes)
• Simulation models
• Expert opinion
• Express the likelihood for each risk in an annual percent
(i.e., percent chance it will occur in a given year)
• Note: some risks may increase or decrease by year
• Demand uncertainty may decrease as a product matures
• Events, such as facility relocation, can impact likelihood
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11
Impact Assessment
• For each potential risk, identify the potential impact of
the event occurs.
• The impact is the direct financial losses (asset destruction,
lost orders, etc.) plus the customer service impact (future
lost sales, brand damage, etc.)
• There are several ways to assess impact
• Historical occurrences (what was the impact last time this
happened?)
• Analogy (What was the impact in in similar locations or
processes?)
• Simulation models
• Expert opinion
• Impact should be expressed in financial terms.
• Note: some risks may have varying impacts depending on
seasonality or process changes.
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12
Calculate Magnitude
• For each risk, the magnitude is the likelihood multiplied
by the impact.
VAR = L x I
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13
Exercise 2: Risk Assessment
• For each of your risks, assess the likelihood and impact
• For today’s purposes, use estimates or educated guesses
where necessary
• Calculate the VAR of each risk
• Rank each risk as High, Medium, Low
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Day One - Afternoon:
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Break out - Environmental Assessment Case:
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Groups will break out and develop environmental risk assessments
and present their results:
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Read:
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DRK Environmental Assessment Method Cases (Class Handout)
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Exercises - Report Out and Discuss
• Each team (or maybe 2 teams for time reasons)
presents their results.
• Results – What is your VAR?
• Issues – What was difficult?
• Comments on tools and techniques
• Q and A
• Outcome: Participants are able to explain how they
used SCRM components to complete the exercises.
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16
Mitigation
(what can be done)
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Exercises 3 - Risk Mitigation:
How can risks be controlled and monitored and likelihood / impact reduced?
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A short lecture will explain the key
concepts of the exercise.
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Mitigation measures (e.g.
improved planning methods,
alternative suppliers, response
plans, redundant infrastructure,
etc.) should be evaluated for the
serious risks. A risk can be
mitigated by deceasing the
likelihood that it will occur or by
decreasing its impact if it does
occur.
•
Outcome: Mitigation Plans defined
for highest risks.
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Mitigation: What Can Be Done?
To deal with risk you can:
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Mitigate – reduce the magnitude of risk by:
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Reducing likelihood it will occur – How can you avoid that risk event?
• For example – help a risky supplier to improve their operations
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Reducing the impact if it does occur – How can you deal with the event
better if it does occur?
•
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Transfer – cause someone else to be responsible for that risk,
•
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For example – stop sourcing from a supplier that is too risky
Accept – do nothing, may decide the risk is too small or too difficult to
mitigate
•
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For example – buy insurance or restructure your contracts
Avoid – Completely eliminate the risk by making it impossible to occur
•
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For example – have more than one supplier for a certain type of commodity
For example – don’t do anything about the risk of nuclear war
Sharing – share the risk with another supply chain member
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For example – create a purchase contract with low initial prices and shared
profits for you and them if your end product sells well
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19
Picking Risks to Mitigate
• You cannot mitigate everything
• Rank your list of risks from highest to lowest
VAR based on the assessment
• Select the highest risks for potential risk
reduction
• Consider the cost of mitigation vs. the
reduction in VAR
• ROI = Reduction in VAR - Cost to Implement
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20
Source Risk Mitigation Strategies
• For source risks, here are some example strategies
• Multiple sources of supply — having multiple sources of
supply for a raw material reduces the impact of one source
failing to deliver materials
• Strategic agreements or partnerships with suppliers
—strategic agreements with suppliers can lead to
continued service in the event of capacity constraints.
• Collaborative Planning Forecasting and
Replenishment (CPFR) — by sharing demand and
fulfillment data with supply chain partners, there is a
reduced risk of unforeseen demand swings or supply
shortages.
• Joint product design and delivery — designing products
with suppliers reduces the risk of material nonperformance or material shortages
• Strategic inventory — keeping extra inventory of high
risk critical inventory in case of a disruption
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21
Supply Chain Network Configured
to Mitigate Risk
• Design node locations, transportation routes, capacity
size and location, number of suppliers, number of
production locations, etc. in a fashion that mitigates
potential disruptions to the ability to deliver product and
service to the end customer.
• Use information collected through risk identification and
risk assessment processes to identify nodes that are at a
high risk of disruption due to the location of the node.
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22
Crisis Communication
• For all types of risks, good communication helps to
reduce the impact of a risk event.
• Some characteristics of good crisis communication are:
• Open, i.e. directly able to reach the right person
• Fast and reliable with redundant methods available
• Periodic reports with supply chain partners to coordinate
efforts
• A crisis communication plan includes:
• Crisis definitions
• Crisis roles and responsibilities
• Pre-defined communication points of contact, methods of
contact, etc.
• Media relations procedures
• Crisis response operating procedures
• Test and exercise requirements for the plan
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23
Monitoring (coordination)
(what should be watched)
• Monitor environment
• Predict when risk events are about to occur
• Detect and react quickly
• Focus on Supply Chain metrics
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•
•
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Statistical analysis (predictors)
Internal monitoring
Visibility into customer and supplier metrics
SCOR model pre-defined metrics are ideal
• “Watch-out” lists – precursors / indicators/
predictors of supply chain risk events
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Exercise
• What are your highest risks?
• How could you control them?
• Create a mitigation plan for each one.
• What could you do to reduce the risk (likelihood or impact or
both)?
• How much would it cost to implement?
• What supply chain partners do you need to coordinate with
to implement this plan?
• Calculate your new VAR
• Calculate you ROI
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Exercises - Report Out and Discuss
• Each team (or maybe 2 teams for time reasons)
presents their results.
• Q and A
• Outcome: Participants are able to explain how they
used SCRM components to complete the exercises.
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