Nick Wildgoose8 March 2012BCI Workshop

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Understanding Risk within your Supply Chain

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Due Diligence Self Assessment

1. Do you know who your critical suppliers are and how much their failure would impact your company’s profits?

2. Have you fully mapped your critical supply chains upstream to the raw material level and downstream to the customer level?

3. Have you integrated risk management processes into your supply chain management approaches?

4. Do you have routine timely systems for measuring the financial stability of critical suppliers?

5. Do you understand your tier 1 production facilities and logistic hub exposures to natural catastrophes?

6. Is supply chain risk management integrated into your enterprise risk management approach?

7. Do you record the details of supply chain incidents and the actions you have put in place to avoid future incidents?

8. Do your tier 1 suppliers have business continuity plans that have been tested in terms of their viability?

9. Have you provided risk training to your supply chain management team?10. Is risk on the agenda at performance meetings with your strategic suppliers?

Your supply chain ‘Health Indicator’How many ‘Yes’ answers did you score?8-10 –You probably have a good understanding and control over the risks you face5-7 – You may have a number of key gaps which could impact your reputation or profitability3-4 – How are you sleeping at night?0-2 – Good luck

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Actions taken to drive costs out of the supply chain can drive greater risk in

Actions taken to drive costs out of the supply chain can drive greater risk in

Understanding the challenges

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Global sourcingGlobal sourcing

Partnerships/strategic suppliers

Partnerships/strategic suppliers

Single sourcingSingle sourcing

Just-in-time manufacturingJust-in-time

manufacturing

Market ShortagesMarket Shortages Increased ComplexityIncreased Complexity

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And if something happens ….Implications on shareholder value

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Source: Vinod Singhal/Kevin Hendricks

The Effect

The Duration

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BCI Survey 85% of companies experienced at least one disruption

15% 56% 16% 6% 4% 3%

0 1-5 6-10 11-20 21-50 51+

Zero incidents

At least one!

15% 3%56% 16% 6% 4%

More than 51 incidents

Between 21 and 50 incidents

Between 11 and 20 incidents

Between 6 and 10 incidents

Between 1 and 5 incidents

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9%

30%

61%

The source of the disruption was with our immediate, Tier 1, supplier

The source of the disruption was with our supplier's supplier, i.e. at Tier 2

The source of the disruption was much lower down the supply chain i.e. Tier 3, Tier 4 etc

40% of disruption originates below tier one

Tier 3+ Supplier

Tier 1 Supplier

Tier 2 Supplier

265 respondents were able to identify the tier in which the disruption originated across 327 incidents.

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8%

9%

9%

10%

11%

13%

15%

16%

17%

21%

21%

41%

51%

Adverse weather (windstorm/tornado, flooding,snow etc)

Unplanned outtage of IT or telecommunication systems

Transport network disruption

Earthquake/tsunami

Failure in service provision by an outsourcer

Loss of talent/skills

Product quality incident

Volcanic ash cloud

Insolvency

Civil unrest/conflict

Industrial dispute

Fire

Cyber attack(e.g. malware, DDOS attack)

Leading causes of disruption...

Adverse weather

Unplanned outage of IT or telecoms

Transport network disruption

Earthquake / tsunami

Failure in service provision by an outsourcer

Loss of talent / skills

Product quality incident

Volcanic ash cloud

Insolvency

Civil unrest / conflict

Industrial dispute

Fire

Cyber attack (eg Malware, DDOS attack)

Identify vulnerabilities

Identify vulnerabilities

Quantify and benchmark risk exposures

Quantify and benchmark risk exposures

Prioritize mitigation actions

Prioritize mitigation actions

Informed decision makingInformed decision making

Understanding where and how your supply chain could be vulnerable

Support operational profitability

Support operational profitability

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Supply Chain Risk - the challenges?

Mapping the interdependenciesHaving the right skills and toolsCross functional approachDeveloping solutionsIn assessing your Supply Chain Risks consider:

Information/financial flowsAssets and infrastructureOrganisations & inter-organisational networksMacro issues including economic and political

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Assessing the risk – the industry and supply exposures

What external factors influence the vulnerability of the supply chain?

First 8 factors

EconomicSupply chain

Political

Structural

Geographical

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Analysis of Supplier Locations

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Product ManagementProduct Management

Supplier SelectionSupplier Selection

Supplier managementSupplier management

Suppliers Security of supply

Suppliers Security of supply

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Due Diligence information on key suppliers

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Will your suppliers still be around?

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Understanding the challengesRisk factors other Due Diligence Areas

Contract management

Contract management

IP IssuesIP Issues

Regulatory IssuesRegulatory Issues

Business ContinuityBusiness Continuity

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How companies have benefited through risk assessment

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Two key suppliers at the next level in the supply chain were in significant financial trouble

Two key suppliers at the next level in the supply chain were in significant financial trouble

Company discovered that key component supplier and its alternative were located in earthquake zone

Company discovered that key component supplier and its alternative were located in earthquake zone

Exposure due to potential failure of a supplier higher than initially estimated:USD10 million vs. USD1 million

Exposure due to potential failure of a supplier higher than initially estimated:USD10 million vs. USD1 million

Actual reliance on one supplier significantly greater than presumed: 70% vs. 20%

Actual reliance on one supplier significantly greater than presumed: 70% vs. 20%

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Supply chain loss events

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Supply chain loss events – AutomotiveCountry of event

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Risk Rating Model

GSP

M icro L C D

GRADING - ComparisonsSupply / supplier 1

TA MT ML RT AV AA OR GATS adj

Risk Factor As is As is As is As is As is As is As is As is

Industry/Supply-Specific - Geographical Exposures B C A C BIndustry/Supply-Specific - Economic Exposures. C B C C CIndustry/Supply-Specific - Political Exposures. C C C C CIndustry/Supply-Specific - Structural Risks B B B D BSupplier Specific - Geographical Exposures B C B C BSupplier Specific - Economic Exposures C C A C CSupplier Specific - Political Exposures C C C C CSupplier Specific - Structural Risks B B B D BProduct Management / New Product Development B B C E (=C) BSupplier Selection Management B B B B CSupplier Management (Financial Strength) B B C C DSupply Chain Performance B B B B CInternal Risk Management C B C B CBusiness Continuity Management (BCM) C A B C CVulnerability To Accidents / Errors B C C C BVulnerability To Malicious Intervention A C B B CCommercial Contract Management B B C B BSkills And IP Management (Insured) E (=C) C E (=C) E (=C) E (=C)Regulatory Issues A C A A ARelationship With Supplier (Influence, Maturity) B B A C CSupplier's Security Of Supply B C B B BSupplier's Knowledge And Experience Of Providing Required Supplies A B A C A

Skills and IP Managament (Supplier) E (=C) C E (=C) E (=C) E (=C)Risk Engineering Factor B B B B B

Micro LCDGRADING - ComparisonsSupply / supplier 1

TA MT ML RT AV AA OR GATS adj

Risk Factor As is As is As is As is As is As is As is As is

Industry/Supply-Specific - Geographical Exposures B C A C BIndustry/Supply-Specific - Economic Exposures. C B C C CIndustry/Supply-Specific - Political Exposures. C C C C CIndustry/Supply-Specific - Structural Risks B B B D BSupplier Specific - Geographical Exposures B C B C BSupplier Specific - Economic Exposures C C A C CSupplier Specific - Political Exposures C C C C CSupplier Specific - Structural Risks B B B D BProduct Management / New Product Development B B C E (=C) BSupplier Selection Management B B B B CSupplier Management (Financial Strength) B B C C DSupply Chain Performance B B B B CInternal Risk Management C B C B CBusiness Continuity Management (BCM) C A B C CVulnerability To Accidents / Errors B C C C BVulnerability To Malicious Intervention A C B B CCommercial Contract Management B B C B BSkills And IP Management (Insured) E (=C) C E (=C) E (=C) E (=C)Regulatory Issues A C A A ARelationship With Supplier (Influence, Maturity) B B A C CSupplier's Security Of Supply B C B B BSupplier's Knowledge And Experience Of Providing Required Supplies

A B A C A

Skills and IP Managament (Supplier) E (=C) C E (=C) E (=C) E (=C)Risk Engineering Factor B B B B B

M icro L C D

GRADING - ComparisonsSupply / supplier 1

TA MT ML RT AV AA OR GATS adj

Risk Factor As is As is As is As is As is As is As is As is

Industry/Supply-Specific - Geographical Exposures B C A C BIndustry/Supply-Specific - Economic Exposures. C B C C CIndustry/Supply-Specific - Political Exposures. C C C C CIndustry/Supply-Specific - Structural Risks B B B D BSupplier Specific - Geographical Exposures B C B C BSupplier Specific - Economic Exposures C C A C CSupplier Specific - Political Exposures C C C C CSupplier Specific - Structural Risks B B B D BProduct Management / New Product Development B B C E (=C) BSupplier Selection Management B B B B CSupplier Management (Financial Strength) B B C C DSupply Chain Performance B B B B CInternal Risk Management C B C B CBusiness Continuity Management (BCM) C A B C CVulnerability To Accidents / Errors B C C C BVulnerability To Malicious Intervention A C B B CCommercial Contract Management B B C B BSkills And IP Management (Insured) E (=C) C E (=C) E (=C) E (=C)Regulatory Issues A C A A ARelationship With Supplier (Influence, Maturity) B B A C CSupplier's Security Of Supply B C B B BSupplier's Knowledge And Experience Of Providing Required Supplies A B A C A

Skills and IP Managament (Supplier) E (=C) C E (=C) E (=C) E (=C)Risk Engineering Factor B B B B B

Micro LCDGRADING - ComparisonsSupply / supplier 1

TA MT ML RT AV AA OR GATS adj

Risk Factor As is As is As is As is As is As is As is As is

Industry/Supply-Specific - Geographical Exposures B C A C BIndustry/Supply-Specific - Economic Exposures. C B C C CIndustry/Supply-Specific - Political Exposures. C C C C CIndustry/Supply-Specific - Structural Risks B B B D BSupplier Specific - Geographical Exposures B C B C BSupplier Specific - Economic Exposures C C A C CSupplier Specific - Political Exposures C C C C CSupplier Specific - Structural Risks B B B D BProduct Management / New Product Development B B C E (=C) BSupplier Selection Management B B B B CSupplier Management (Financial Strength) B B C C DSupply Chain Performance B B B B CInternal Risk Management C B C B CBusiness Continuity Management (BCM) C A B C CVulnerability To Accidents / Errors B C C C BVulnerability To Malicious Intervention A C B B CCommercial Contract Management B B C B BSkills And IP Management (Insured) E (=C) C E (=C) E (=C) E (=C)Regulatory Issues A C A A ARelationship With Supplier (Influence, Maturity) B B A C CSupplier's Security Of Supply B C B B BSupplier's Knowledge And Experience Of Providing Required Supplies

A B A C A

Skills and IP Managament (Supplier) E (=C) C E (=C) E (=C) E (=C)Risk Engineering Factor B B B B B

Historical database of supply disruptions

Assessment and grading

Industry and supply research

Other lines of business

Insolvency assessment

Accumulation database

Value flow mapping

Zurich supply chain rating risk model

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Reduced fluctuations in results

Reduced fluctuations in results

Balance sheet protectionBalance sheet protection

Protect brand & reputation

Protect brand & reputation

Informed decision making

Informed decision making

Protecting profitability and balance sheet funding

Maintain customer relationships

Maintain customer relationships

Tailored to Your Needs

Tailored to Your Needs

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Unique peace of mind through broad coverage

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Risk identificationsRisk identifications

Risk insightsRisk insights

BenchmarkingBenchmarking

Proactive alertsProactive alerts

Balance sheet protection

Balance sheet protection

Quantification of disruptions

Quantification of disruptions

Due Diligence a process that protects your supply chain and profitability

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Getting started on your 3 top priorities?

New products/services check your supply partners

New products/services check your supply partners

Risk assessment top 3 suppliers in profitability

Risk assessment top 3 suppliers in profitability

Drive cost savings and supplier compliance

Drive cost savings and supplier compliance

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Conclusions

Performance managementPerformance management

Proactive competitive Advantage

Proactive competitive Advantage

Supply chains are lifeblood of your

company

Supply chains are lifeblood of your

company

Supplier Due DiligenceCritical

Supplier Due DiligenceCritical

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Thought leadership to help you understand today’s and tomorrow’s risks

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Nick WildgooseGlobal Supply Chain Product ManagerTel. 0776 428 2065Email Nick.Wildgoose@uk.zurich.com

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