Lora & David's Risk Management Webinar Presentation

4/11/2014
1
Supply Chain Insights LLC Copyright © 2014, p. 1
Supply Chain
Risk Management
Speakers
Lora Cecere
Founder
Supply Chain Insights
lcecere@supplychaininsights.com
David Simchi-Levi
MIT Professor
Founder Ops Rules
dslevi@MIT.EDU

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Definition Given to Respondents
Study Overview

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Reporting Relationship
• The What
• The So What
• Recommendations
• Wrap-up
Agenda

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Current State
Risk Management Low on the List

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But, Should it Be?
Gap Analysis
Major Supply Chain Disruptions

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An Issue
Top Two Supply Chain Disruptions in 5 Years:
2011’s Tsunami in Japan and 2012’s Hurricane Sandy

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Importance to Supply Chain Strategy
• The What
• The So What
• Recommendations
• Wrap-up
Agenda

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Current Assessment
Demand Volatility Is Only Top 3 Driver in
Past, Present and Future

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• The What
• The So What
• Recommendations
• Work from MIT
• Wrap-up
Agenda
Disruption: Current Visibility

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Financial Health: Monitoring
Most Important Risk Management Techniques

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onquergSqplyeaasklo:NSqltSƐŬ͗
lErǁl aagnNĐ:lƚnlyeaaskltSƐŬ
David Simchi-Levi
E-mail: dslevi@mit.edu
21
W hatW e’llCover…
• Introduction
TheRiskExposureIndex
• SupplierSegmentation
Implementation atFord
• W rap-up
22

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ManySourcesofRisks
• Naturaldisasters
• Geopoliticalrisks
• Epidemics
• Terroristattacks
• Environmentalrisks
• Volatilefuelprices
• RisingLaborcosts
• Currencyfluctuations
• Counterfeitpartsandproducts
• Portdelays
• Marketchanges
• Suppliers’performance
• Forecastingaccuracy
• Executionproblems
Unknown-Unknown
Known-Unknown
Uncontrollable
Controllable
23
ManySourcesofRisks
• Epidemics
• Portdelays
• Marketchanges
Unknown-Unknown
Known-Unknown
Uncontrollable
Controllable
24

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ManySourcesofRisks
• Epidemics
• Portdelays
• Marketchanges
Unknown-Unknown
Known-Unknown
Uncontrollable
Controllable
25
Epidemics
Fuel Prices
Geopolitical
Problems
Currency
Fluctuations
Commodity
Prices
Port
Delays Product Design
Problems
Forecast
Accuracy
Suppliers‘
Performance
The Risk Framework
Expected
Impact
Ability to ControlLOW
Unknown-Unknown
HIGH
HIGH
Known-Unknown
LOW
Counterfeits
Government
Regulations
Natural Disasters
Environmental
Risks
26

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Managing SupplyChain Risk:TheChallenge
• Verydifficulttopredictmanysourcesofrisk,especially
theunknown-unknown
• Impactofdisruptioncan bedevastating
• Largeinvestmentinidentifying everypossibleriskinthe
supplychain
• Existing toolsandtechniqueshavebeen inadequate
Mostlyad-hoc,intuition,gutfeeling
Exposuretoriskmayresideinunlikelyplaces
Mayleadtothewrongactionsandwasteresources
Noabilitytoprioritizemitigationinvestment
27
CaseStudy1:TheRiskExposureIndex
• High techmanufacturing company
• ContractmanufacturersinAsia
• AssemblyplantsinNorthAmerica
• Manysuppliersallovertheworld
• Sellsitsproductsdirectlyandthroughdistributors
28©Copyright2014D.Simchi-Levi

4/11/2014
15
Tier+1Tier+2U
SP+otrA
smmeblya+oynCAm
smmeblya uLmAtberm
TD
DTD
cimArilLAtrm
utCArnMA+
fnCLpnMALrerm
SP+PLddyierm
oriCAeB+uirMLiA+
htnrB
uRidmeA+
fnCLpnMALrer
wnW+fnAeriny++
PLddyierm
29
PAtrem
cimArilLAtrm
•Time-To-Recovery (TTR): The time it takes to recover to full functionality after a disruption
cimArilLAitC
©Copyright2014D.Simchi-Levi
cimArilLAitCTier+1Tier+2U
SP+otrA
smmeblya+oynCAm
smmeblya uLmAtberm
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SP+PLddyierm
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htnrB
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PLddyierm
30
PAtrem
cimArilLAtrm
2 Weeks
1 Week
2 Weeks
2 Weeks
2 Weeks
TTR =2 Weeks
2 Weeks

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SP+otrA
smmeblya+oynCAm
smmeblya uLmAtberm
TD
DTD
cimArilLAtrm
utCArnMA+
fnCLpnMALrerm
SP+PLddyierm
oriCAeB+uirMLiA+
htnrB
uRidmeA+
fnCLpnMALrer
wnW+fnAeriny++
PLddyierm
31
PAtrem
cimArilLAtrm
• Financial Impact (FI): Lost sales during TTR
2 Weeks
1 Week
2 Weeks
2 Weeks
2 Weeks
TTR =2 Weeks
2 Weeks
SP+otrA
smmeblya+oynCAm
smmeblya uLmAtberm
TD
DTD
cimArilLAtrm
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32
PAtrem
cimArilLAtrm
2 Weeks
$400M
1 Week
$100M
2 Weeks
$1.5B
2 Weeks
$100M
2 Weeks
$2.5B
TTR =2 Weeks
FI = $400M
2 Weeks
$300M

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SP+otrA
smmeblya+oynCAm
smmeblya uLmAtberm
TD
DTD
cimArilLAtrm
utCArnMA+
fnCLpnMALrerm
SP+PLddyierm
oriCAeB+uirMLiA+
htnrB
uRidmeA+
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wnW+fnAeriny++
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33
PAtrem
cimArilLAtrm
•The Risk Exposure Index (REI) is the maximum FI over all nodes in the supply chain
2 Weeks
$400M
1 Week
$100M
2 Weeks
$1.5B
2 Weeks
$100M
2 Weeks
$2.5B
TTR =2 Weeks
FI = $400M
2 Weeks
$300M
SP+otrA
smmeblya+oynCAm
smmeblya uLmAtberm
TD
DTD
cimArilLAtrm
utCArnMA+
fnCLpnMALrerm
SP+PLddyierm
oriCAeB+uirMLiA+
htnrB
uRidmeA+
fnCLpnMALrer
wnW+fnAeriny++
PLddyierm
34
PAtrem
cimArilLAtrm
•The Risk Exposure Index (REI) is the maximum FI over all nodes in the supply chain
2 Weeks
$400M
1 Week
$100M
2 Weeks
$1.5B
2 Weeks
$100M
2 Weeks
$2.5B
TTR =2 Weeks
FI = $400M
2 Weeks
$300M

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ThebenefitsofusingtheRiskExposureIndex
• Itprovidesa$measureofrisk--itestimatethecostofrisk;
• Itisbased ontheentirenetworkrather;
• Itavoidstheneed toforecasttheunknown-unknown;
• Itforcesadiscussion tounderstand whyTTR forsimilar
facilitiesorsuppliersisdifferent;
• ItforcesaprocesstoreduceTTR invariousstagesofthe
supplychain;
• Itmakessureyou haveagoodunderstanding ofsupplychain
dependencies.
35
• Introduction
Implementation atFord
• W rap-up
36

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CaseStudy2:FordMotorCompany
• Global automotive industry
leader based in Dearborn, MI.
• Manufactures and distributes
automobiles in 200 markets
across six continents.
37
©Copyright 2014 D. Simchi-Levi
FordBrands
38
©Copyright 2014 D. Simchi-Levi

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FordSupplyChain
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oynCAm
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NS+PLddyierm
ks+PLddyierm
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unmAiCF+oynCAm
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PLddyierm
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Tier2 Tier1 AssemblyPlants Dealers
40

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821
465
129
252
94
0
100
200
300
400
500
600
700
800
900
Hera+DtW DtW feB ,iFR Hera+,iFR
FinancialImpactofDifferentSupplier’sSites
Number of Sites
Financial Impact
Another 2K+ sites with negligible Impact
41
20000 40000 60000 80000 100000 120000 140000
o stImprasnI10ImSuuumleaaůŝĞnmlŝIĞ
Disruption ImpactandTotalSpendbySupplierFacility
(Number of Vehicles Effected)
TotalSpendbySupplierSite
Disclaimer: Data shown here is for demonstration only . It does not represent realnumbers used in analysis
42

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Disruption ImpactandTotalSpendbySupplierFacility
Financial Impact (Profit)
8192 58192 108192 158192 208192 258192 308192
o stImprasnI10ImSuuumleaaůŝĞnmlŝIĞtTotalSpendbySupplierSite
43
SupplierSegmentation
8192 58192 108192 158192 208192 258192 308192
o stImprasnI10ImSuuumleaaůŝĞnmlŝIĞt
44

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8192 58192 108192 158192 208192 258192 308192
o stImprasnI10ImSuuumleaaůŝĞnmlŝIĞtTotalSpendbySupplierSite
• Long Term Contracts
• Track Inventory
• Partnership
• Risk Sharing Contracts
• Track Performance
• Require Multiple Sites
• Inventory
• Dual Sourcing
• New Product Design
45
8192 58192 108192 158192 208192 258192 308192
o stImprasnI10ImSuuumleaaůŝĞnmlŝIĞt
• Long Term Contracts
• Track Inventory
• Partnership
• Risk Sharing Contracts
• Track Performance
• Require Multiple Sites
• Inventory
• Dual Sourcing
• New Product Design
46

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ImpactonAutomotiveManufacturer
• Optimization modelidentified at-risksuppliers
Identifiedthehiddenriskofhighvolume-low margin
components
• Segmentsuppliers
Somesuppliersarerequiredtohavealternateplantsindifferent
regions
Implementnew productdesignstrategytoconsolidatesimilar
parts providesupplierswitheconomiesofscaletosetupa
secondplant
Trackdailyinventorylevelsforsomesuppliers
47
• Introduction
AutomotiveManufacturer
• W rap-up
48

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49
KeyObservations
• InvestNow orPayLater
FirmsneedtoinvestinRiskMitigationStrategiesortheywill
paythepricelater.
• Managing SupplyChain Risks
DealingwiththeUnknown-Unknown
MeasuringtheRiskExposureIndex
Implementing SupplyChainFlexibility
Implementing SupplierSegmentation
YourTurn!
How to contact me:
David Simchi-Levi
dslevi@mit.edu 50

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Questions?
Public Training
www.supplychaininsights.com/services/training
• Chicago, IL – June 18-19, 2014
• Philadelphia, PA – August 6-7, 2014
• Dallas, TX – November 5-6, 2014

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Complimentary Webinars
www.supplychaininsights.com/upcoming-webinarswww.supplychaininsights.com/upcoming-webinars
UPCOMING WEBINARS
April 10, 2014: Risk Management
April 24, 2014: Supply Chain Resiliency
May 8, 2014: Our Research Difference
May 15, 2014: Metrics That Matter Book
June 12, 2014: Digital Supply Chain
PAST WEBINARS: ON DEMAND
From Mar. 6, 2014: Voice of the Supply Chain
From Nov. 14, 2013: Healthcare Value Chain
From Nov. 13, 2013: The Shaman’s Circle
From Oct. 10, 2013: Metrics That Matter
From Aug. 30, 2013: Supply Chain Matters
Annual Event September 2014

4/11/2014
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Who is Lora?
• Founder of Supply Chain Insights
• Partner at Altimeter Group (leader in open
research)
• 7 years of Management Experience leading
Analyst Teams at Gartner and AMR Research
• 8 years Experience in Marketing and Selling
Supply Chain Software at Descartes Systems
Group and Manugistics (now JDA)
• 15 Years Leading teams in Manufacturing and
Distribution operations for Clorox, Kraft/General
Foods, Nestle/Dreyers Grand Ice Cream and
Procter Gamble.
Where Do You Find Lora?
Contact Information:
lora.cecere@supplychaininsights.com
Blog: 100 Posts/Year
www.supplychainshaman.com
(10000 pageviews/month)
Forbes: Write 2X/Month
http://www.forbes.com/search/?q=lora+cecere
Twitter: lcecere 4800 followers.
LinkedIn: linkedin.com/pub/lora-
cecere/0/196/573 (Linkedin Influencer over 6000
followers in the network)

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Two in Five Report the Head of the Supply Chain Is
Responsible for Supply Chain Risk Management

Lora & David's Risk Management Webinar Presentation

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