state of supply risk management
DESCRIPTION
TRANSCRIPT
Supply Risk Roundtable
April 23rd
2008
DRK
SCRD
Percipio
Profit Point
17th Floor
iCognitive
LeanInstitute
Process Management Research Center
Tom Davenport
ShanghaiConsulting
Supply Chain Resource
Consortium
NC StateUniversity
ESRI
SAS
Vlerick Leuven Gent Management School
Belgium
IndependentsAssociates
IACCM
ISM
QUTAustralia
BabsonCollege
MA
University of OK
Supply Chain Council
SCMClub
Neurametrics
Singapore
Shanghai
Europe
Portland, OR
Phil. PA
TX
NC
TBD
BPM Network
University of LjubljanaSlovenia
UMFG Brazil
Hilbert
OrionNJNIPE
Research, Publication,Knowledge Transfer (education, consulting)
University of ZagrebCroatia
Dr. Kevin McCormack
is President of DRK Research and an Adjunct Professor at NC State University and the University of Oklahoma . Dr. McCormack has over 30 years of business leadership, teaching, research and consulting experience. His experience covers many national and international industry segments and a broad range of business processes. He has been a member of or has successfully conducted engagements with several government agencies and major companies in the food, forest products, pharmaceutical, chemical, consumer products, high tech and the plastics industry. Some of his clients have been Kraft, Philip Morris, CPC International, Cargill, Texas Instruments, USMC, Phillips Petroleum, Chevron-Phillips, Shell, Columbia Forest Products, Dow Chemical, Warner-Lambert, Standard Charter Bank, Microsoft, Intel, Tektronix, several state governments, Borden Chemical, California Public Employees Retirement System (CalPERS), Wal-Mart, Campbell’s, General Mills, Fairchild Industries and PepsiCo. He has written five books and numerous articles on Supply Chain Management and business strategy.
Gartner Magic Quadrant for Basel II Applications Magic Quadrant Disclaimer
The Magic Quadrant is copyrighted November 22, 2006 by Gartner, Inc. and is reused with permission. The Magic Quadrant is a graphical representation of a marketplace at and for a specific time period. It depicts Gartner’s analysis of how certain vendors measure against criteria for that marketplace, as defined by Gartner. Gartner does not endorse any vendor, product or service depicted in the Magic Quadrant, and does not advise technology users to select only those vendors placed in the “Leaders” quadrant. The Magic Quadrant is intended solely as a research tool, and is not meant to be a specific guide to action. Gartner disclaims all warranties, express or implied, with respect to this research, including any warranties of merchantability or fitness for a particular purpose. This Magic Quadrant graphic was published by Gartner, Inc. as part of a larger research note and should be evaluated in the context of the entire report. The Gartner report is available upon request from SAS.
Source: Magic Quadrant for Basel II Software Applications, 2006, Douglas McKibben, David Furlonger.
Chartis Group – Operational Risk Management Systems 2006
No.
of
Sup
plie
rs
0
5000
10000
5000 10000
No. of Supply SKUs or parts
Highly Competitive(High Buyer Power)
Concentrated(High Supplier Power)
Highly Complex / Competitive(High Buyer Leverage)
Concentrated / Invested(High Supplier Power)
SC Complexit
y
Your Company
State of Supply Risk Management (SRM)
Dr. Kevin McCormack
www.drkresearch.org
Importance of Supply Risk
82% of companies are concerned about the risk in their Supply chain……but only 11% actively manage them (Aberdeen Research)
Almost two-thirds of respondents to McKinsey's latest global survey say the risks to their supply chain have increased over the past five years.
A significant number of executives say their company doesn't spend enough time
or resources on mitigating risk. Nearly one-quarter say their company does no formal risk assessment (McKinsey)
50% of the executives expect risks associated with raw-material supplies or parts to increase over the next three years
36% anticipate increased risk of service failures due to longer supply chains and lead times
94% said the disruption impacted profitability (Accenture)
Risk in general can be defined as a collection of pairs of likelihood (L) and outcomes / impact (O) of events.
The distribution pattern of the (likelihood; outcome) pairs is called a risk profile.
Definitions of risk must also have a time dimension or a specific time horizon (day, month, year, etc.) and a specific perspective or view that defines the unit of analysis (boundaries, what’s not included, etc.).
Risk Defined
Risk DefinedThe International Organization for Standardization (ISO, 2002) defines two of the essential components of risk:
1. losses (along with related amounts) and
2. uncertainty of their occurrence.
In the financial industry, operational risk is defined as the risk of loss resulting from inadequate or failed internal processes, people and systems or from external events (New Basel Capital Accord, 2006).
Risk Events and Disruptions
• Supply Chain Disruptions – any event that negatively impacts the intended functioning of the supply chain.
• Discrete Events (yes/no) • Internal (machine break down, fire, strike, product failure)• External (weather related, earthquake, etc.)
• Continuous Events (a matter of degree)
• Internal (performance metrics variability, warranty trends)• External (supply / demand shifts, economic factors)
14 SCOR 9.0 for Risk Management Training
CustomersSuppliers
Suppliers’ Environment Customers’ Environment
Company
Company’s Environment
Customer and Market Intelligence
Supplier and Market Intelligence
Business Intelligence
Sourcing (CPO)
The Different Perspectives
Copyright© 2007 Supply Chain Redesign, LLC
Time
Supply Base Performance/Capability
Higher
TOTAL QUALITY
MANAGEMENT
SUPPLY BASE ASSESSMENT
SUPPLY BASEREDUCTION
REACTIVE SUPPLIER
DEVELOPMENT
STRATEGIC SUPPLIER
DEVELOPMENT
Lower
Evolutionary Strategies
Evolution of Supplier Development Supply Network
Management
Evolution of Strategic Sourcing
Operate Consolidate Integrate Optimize Innovate
Organizational Maturity
Per
form
ance
, RO
I, V
alu
e
Supply Risk Management
Forecasting Data Mining Text Mining
Spend Analysis
Data Quality
Data Cleansing
Supply Base Optimization
Supplier Ranking
Data Analysis
Commodity Classification
Master Data Management
Performance Management
IntelligenceIntelligence
Busi
ness
Valu
eB
usi
ness
Valu
e
Predictive AnalyticsPredictive Analytics
OptimizationOptimization
Predictive ModelingPredictive Modeling
ForecastingForecasting
Reporting / OLAPReporting / OLAP
Data ManagementData Management
Data AccessData Access
What’s the best that can
happen?
How much and
where?
What will happen
next?
What
happened?
How many, how often?
Foresight vs. Hindsight
Per
form
ance
Time
Preparation
Initial Impact
Recovery
SustainingImpact >0
Disruption Event
Full Impact
Supply Risk Disruption Profiles
“At present”Ave: $120,000,000
Preparation
Initial Impact
Detection and Response
Recovery - minimizedSustainingImpact = 0
Full Impact – Avoided!
“In the future”Estimated Ave: $1,200,000
Detection and response
Risk Screener Results
Risk Screener
Risk Screener
Risk Screener
Risk Screener
Issues from SurveyWhat are the major issues facing your company regarding Supply Chain Risk? - Accurate Data and classification - Information shared up and down the supply chain - Resources focused on "putting out fires" - Global view of supply Data collection, systems. - Processes to be proactive Major risk are associated with food safety and quality issues throughout the
supply chain. - Other risks are sourcing from single supplier/facility. - Financial health of the supply base may pose challenges - companies closing facilities and cutting down production due to higher/unaffordable costs. - Managing complexity Managing deeper into the supply chain to find the weakest link - No set process regarding Supply Chain risk and the supporting the remanufacturing infastructure. - Oil Availability and Cost Export Containers reducing volumes and raw material price escalation - Supplier "non performance" - The major difficulty is predicting demand for our products. This cascades into difficulty predicting the
demand we will place upon our suppliers.
What are the major barriers in your company that prevent the development of effective programs to improve Supply Chain Risk?
- Management view of value added (focus on immediate returns)- A rigid, tops-down planning process is an impediment. - Availability of accurate data and lack of resources to follow thru on plans to mitigate risk. - Corporate Guidelines - Data gathering from suppliers Knowledge management - Resources IT is outsource and it is very difficult to get programs developed to manage Supply Chain
Risk - Not enough resources dedicated to the needed tactical activities - Senior Management "buy in" to prioritize and assign staff resources to develop cohesive supply
chain risk processes and plans - Thoughts that the Supply Chain Risk is already covered.
Group Perspectives
