risk mgt in today's world

Risky Business

Using Risk Management in Today’s Uncertain World

What Skydiving Taught me about Risk

Copyright 2014 by Babineaux Educational Services and Training, Inc.

Who am I?Mike Babineaux, CPSM, C.P.M., A.P.P.Experience

40 years Supply Management Experience 30 year FedEx Veteran 20 year Skydiving Career

2000+ jumps & 24 hrs freefall time

SCM Educator and Trainer Babineaux Education, Services and Training, Inc. www.BESTraining.com 901.413.8893

Risky Business

Using Risk Management in Today’s Uncertain World

What Skydiving Taught me about Risk

Copyright 2014 by Babineaux Educational Services and Training, Inc.

"Unfortunately, the sky is a demanding mistress, and totally unforgiving of any

lapse in vigilance, attention, concentration, or focus."

Pat Works(fellow skydiver & good friend)

Risky Business(What Skydiving Taught me about

Risk)

Risky Business(Using Risk Management in Today’s Uncertain World)

How many of your companies have a formal Supply Risk Management

Policy and Procedure?

Earlier than Friday, March 11, 2011?

Risky Business(Using Risk Management in Today’s Uncertain World)

Earlier than Friday, 11 March 2011?

Fukushima Daiichi nuclear disaster

Upside to Fukushima Daiichi Nuclear DisasterBy Patrick Burnson, Executive EditorNovember 24, 2011 - SCMR Editorial

• A “White-Hot” Topic • Companies more aware • The need is significant

ObjectiveUnderstand a risk management profile and strategy

Agenda & Direction

Definitions Supply Chain Risk Risk Analysis Risk Management

Agenda & Direction

Definitions Risk Stakeholders Assessment Mitigation Monitoring Tolerance

1. exposure to the chance of injury or loss

2. the amount that the insurance company may lose

Definition - Risk

Definition - StakeholderIn Skydiving the stakeholders are the airport operators, the aircraft owners and operators, the equipment operators and ultimately – the skydiver themselves.

In general they’re any person (s) with a vested interest in something; those who will be affected by and/ or can influence a decision-making process.

Applied to an organization's supply management structure, this definition would include all persons and organizations that have something that would be at risk in the event of a supply disruption.

The ISM Glossary - “Identifying and quantifying the risk of a supply disruption using a framework that describes:• the attributes of suppliers, • their relationships and interactions with the assessment organization”

A formal policy and Procedure that’s SOP

Definition - Risk Assessment

Risk mitigation entails specific steps undertaken by supply management professionals to reduce the impact of factors that might lead to injury, loss, damage or failure and thus reduce the liability of the organization in its relations with various stakeholder groups, including employees, suppliers and customers

Definition - Risk Mitigation

The identification of which factors must be monitored in order for prompt detection and

reaction to occur

Definition - Risk Monitoring

Global Event Monitoring Becoming more important

Disasters often are only reported locally and take organizations by surprise

Definition - Risk Monitoring

Japan Europe United States

Global Event Monitoring Becoming more important

A second-tier supplier to one of the organization's first-tier suppliers can be hit by weather, political issues, import

restrictions, etc. which will impact the entire chain.

Definition - Risk Monitoring

2nd Tier Supplier

Prime Supplier You

Global Event Monitoring Becoming more important

Definition - Risk Monitoring

“I didn't know we had a supplier there!"

Definition - Risk Tolerance

The risk of not having enough of the “rights”– Quantity– Time– Place

and the organization's tolerance around this type of risk

Definition - Risk Tolerance

The risk of not having enough of the “rights”– Quantity – How few?– Time – How late?– Place – How close?

Not having the right stuff to the right place at the right time leads to . . .

LostSales

Idle Equipment

IdleLabor

Economic Issue

Agenda & Direction

Definitions Risk Stakeholders Assessment Mitigation Monitoring Tolerance

Definitions

Supply Chain Risk Risk Analysis

Risk Management

Agenda & Direction

Supply Chain Risk

Supplier Management

Supply Chain Stability

Recovery/ Continuance

Time

The way a customer manages its suppliers is a strong predictor of supply chain stability and of its

ability to continue or recover in the event of a disruption.

Prime

1st Tier

2nd Tier

Responsible for ensuring the

performance of their suppliers

and their suppliers' suppliers

Supply Chain Responsibilities and Relationships

Prime

2nd Tier+

1st Tier

Must examine their

relationship to the second

and third tier suppliers as

well as the risk management capabilities of the primary contractor

Supply Chain Responsibilities and Relationships

Prime

1st Tier

2nd Tier

The relationship

and interactions

they have with the primary

supplier often determine the level of risk (or

disruption potential) of a supply chain.

Supply Chain Responsibilities and Relationships

Beyond Tier ConsiderationsBeyond Tier Considerations

A supply chain is only as strong as its weakest link

The identification (and mitigation) of potential weaknesses is a critical aspect of risk management

Risk management must go beyond the tier suppliers and their relationships

Beyond Tier ConsiderationsBeyond Tier ConsiderationsThird-party service providers such as

transportation and warehousing organizations must not be overlooked.

Beyond Tier ConsiderationsBeyond Tier ConsiderationsTheir operations may contain greater potential supply risk than the primary or secondary suppliers or contractors.

Definitions Supply Chain Risk Risk Analysis Risk Management

Agenda & Direction

Agenda & Direction

Definitions Supply Chain Risk Risk Analysis

Category Identification Probability Estimation

Risk Analysis - Major Categories

• Financial• Operational• Reputation/Brand• Legal• Environmental• Technical

Risk Analysis - Financial Risk

• Bankruptcy• Mergers & Acquisitions• Currency Exchange

Fluctuations• Commodity Price

Volatility

Risk Analysis – Operational Risk

Inadequate or failed internal processes, people and systems (e.g. fraud or theft)

Risk Analysis – Reputation/Brand

The degradation of a firm’s reputation by negative interactions with the market place

Uncertainty in the applicability or interpretation of contracts, laws or regulations

Risk Analysis – Legal Risk

Risk Analysis – Environmental Risk

Losses from environmental events

Liability losses from environmental impacts

Risk Analysis – Technical Risk

Technology will not perform as planned

Technology will become obsolete

Agenda & Direction

Definitions Supply Chain Risk Risk Analysis

Category Identification Probability Estimation

Risk Analysis – Probability Estimation

Identification of major categories of risk

and

The relative probability of a disruption with associated impact of disruption.

Probability Estimation Procedure Steps

1. Define network/category of concern

Estimating the probability of a supply chain disruption event is difficult and dependent upon the environment built by the suppliers and customers within a trading network.

Probability Estimation Procedure Steps

2. Examine history of disruptionsOnce the network is defined, the general history of disruption potential of this environment can be examined by gathering historical data or by polling experts within the network.

The experts can describe the "typical" disruptions for this network and can provide some rough probabilities, e.g., once per year this happens or once every three years one of the suppliers goes out of business.

Probability Estimation Procedure Steps

3. Define typical disruptionsSome typical disruptions are:

• Misalignment of interests (e.g., a supplier is no longer interested in the organization's account due to market dynamics or legal issues)

• Disasters (weather, war, earthquake, etc.)

• Union work stoppage • Regulatory shutdown,• Transportation snafu’s

Probability Estimation Procedure Steps

4. Match specific suppliers with specific eventsOnce the base probability estimate is complete for network disruption events, specific suppliers can be assigned the likelihood of specific events occurring with specific suppliers, using the results of a supplier-by-supplier risk assessment.

Probability/Impact/Visibility Assessment

Low Impact High

High

Low

HighestPriority

Maximize Focus

LowestPriority

Minimize Focus

Prob

abili

ty

Visibility

High

Low

Agenda & Direction

Definitions

Supply Chain Risk

Risk Analysis

Risk Management

Risk Management

Risk Planning Risk Assessment Risk Mitigation Risk Monitoring

Risk Management - Planning

Steps

1. Confirm scope and current state2. Conduct impact assessment3. Define alternatives4. Develop plans5. Implement readiness

Risk Management - Planning

1. Confirm scope and current state

•Interview stakeholders•Catalog assets & systems•Identify critical functions•Review disaster recovery plans•Identify constraints

Risk Management - Planning

2. Conduct impact assessment

Identify: major threats, vulnerabilities and key risks

• Financial and asset impacts? • Supply chain and stakeholder

impacts?• How can the network absorb these

impacts and respond to them?

Risk Management - Planning

3. Define alternatives

Select risk mitigation alternatives and supply chain and network

contingencies

• What is the organization's risk tolerance? • What can be insured against?• What can be done to manage the rest? • Who can be called upon to step up

production? • How can capacity be shifted?

Risk Management - Planning

4. Develop Plans

• Select the appropriate mitigation recommendations and develop action plans to implement them.

• Define business continuity supply, demand management, contingency and mitigation plans.

• Tightly define business continuity operations.

Risk Management - Planning

5. Implement Readiness•Establish maintenance and detection processes•Validate business continuity plans•Implement threat detection measures•Execute risk mitigation and maintenance measures

Plans should be continuously examined for effectiveness, including sharing plans with appropriate supply

chain partners

Risk Management

Risk Planning Risk Assessment Risk Mitigation Risk Monitoring

A risk assessment identifies and quantifies the risk of a supply disruption

Risk Profile•Single supplier, group or network•Risk Identification•Numerical score (e.g. 1 – 5)•Higher score = lower disruption

potential

Risk Management - Assessment

Labor Unrest Risk Profile Matrix Example

SupplierB

SupplierA

SupplierC

Risk Profile Risk Profile MatrixMatrix

Risk Management

Risk Planning Risk Assessment Risk Mitigation Risk Monitoring

Specific steps to: •Reduce the impact of factors that might lead to injury, loss, damage or failure•Reduce the liability

Risk Management - Mitigation

The Mitigation Effort

Simple monitoring and/or acceptance to

Full-blown contingency plan calling for complete redundancy

Risk Management - Mitigation

Risk Management

Risk Planning Risk Assessment Risk Mitigation Risk Monitoring

Risk Management - MonitoringMost important part of a Risk

Management Program

Timing:• Some areas should only be monitored yearly (e.g.

physical locations do not change that often)

• Other areas should be monitored weekly (e.g. delivery and quality performance)

Risk Management - MonitoringAnother most important part of a

Risk Management ProgramWHO monitors WHAT:

Critical decisions to make BEFORE a disruption, NOT AFTER

Agenda & Direction Summary

Definitions Supply Chain Risk Risk Analysis Risk Management

Agenda & Direction

Definitions Risk Stakeholders Assessment Mitigation Monitoring Tolerance

Definitions Supply Chain Risk

Warehousing Transportation

Agenda & Direction

Agenda & Direction

Definitions Supply Chain Risk Risk Analysis

Category Identification Probability Estimation

Agenda & Direction

Definitions Supply Chain Risk Risk Analysis Risk Management

Planning Assessment Mitigation Monitoring

Final Word

Thanks for Your Time and Attention

Risky Business

Using Risk Management in Today’s Uncertain World

What Skydiving Taught me about Risk

Copyright 2014 by Babineaux Educational Services and Training, Inc.