drk confidential do not distribute without permission 1 supply chain risk assessment model logic and...
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Supply Chain Risk Assessment
Model Logic and MeasuresDr. Kevin McCormack
August 2007
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PerformancePerformance
CAUSES (Categories of Predictive
Measures)DisruptionEVENTS
CONSEQUENCES (Impacts)
Human ResourcesHuman Resources
Supply Chain Disruption
Supply Chain Disruption
Financial HealthFinancial Health
EnvironmentalEnvironmental
RelationshipRelationship
Quality, Delivery, Service ProblemsQuality, Delivery, Service Problems
Supplier Union Strike,Ownership Change, Workforce Disruption
Supplier Union Strike,Ownership Change, Workforce Disruption
Supplier LockedTier II StoppageSupplier LockedTier II Stoppage
Supplier Bankruptcy (or financial distress)Supplier Bankruptcy (or financial distress)
Disasters (Weather, Earthquake, Terrorists)Disasters (Weather,
Earthquake, Terrorists)
Misalignment of Interests
Misalignment of Interests
Finished Goods Shipments Stopped Finished Goods
Shipments Stopped
Locate and Ramp Up Back up Supplier
Locate and Ramp Up Back up Supplier
Emergency Buy and Shipments
Emergency Buy and Shipments
ReputationReputation
Market Share LossMarket Share Loss
EFFECTSRevenueLosses
and Recovery Expenses
OTHERIMPACTSForgoneIncome
Emergency Rework and
Rushed FG Shipments
Emergency Rework and
Rushed FG Shipments
Recall for Quality Issues
Recall for Quality Issues
Sudden Loss of Supplier
Sudden Loss of Supplier
Structuring the Relationships of Supply Chain Risk
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Highest and AverageProb. X Risk Score
SupplierSurveys
Risk Indicators
Risk Events
InternalAnalysts
EnvironmentalAnalysts
Risk Indicators by event
Risk Indicators by entity
Internal Analysts and SMEs
Risk Event
Probability
Combine andCalculate
Supplier Risk Event Impact
By entity
Supplier Risk Score
Risk EventImpact
Supplier Risk Score (probability)
Total Impact by Entity
Supply Chain Network
Diagnostics
Risk Management
Analyst’s Modifier
Risk Matrix
100000
1000000
10000000
100000000
1000000000
10000000000
16 17 18 19 20 21 22 23 24 25 26 27
Scaled Risk Probability
Rev
enu
e at
Ris
k
Overall Data Flow
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Supplier 1
Part A
Part B
Part C
Finished Good 1
Revenue - $5 mil
Finished Good 3
Revenue - $50 mil
Finished Good 2
Revenue - $20 mil
Revenue Impact Part A - $75 milRevenue Impact Part B - $20 milRevenue Impact Part C - $70 mil
Total Supplier Impact - $165 mil
Objective: Find the FG revenue impact on a part basis if a supplier disruption occurs
Revenue Impact Calculation
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Re
ven
ue
Imp
act
Supplier F
Supplier I
Supplier C
Supplier D
Supplier E
Supplier K
Supplier L
Supplier G
Supplier H
Supplier K
Supplier A
Supplier B
Supplier M
Supplier N
Risk Probability Index (RPI)
Supplier Risk Index
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Risk Wheel
DiagnosticAnalytical
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Risk Index (RI)
(Diagnostic Mode)
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SC Risk AssessmentUnits of Analysis
s
s
s
s
s
s
s
SC NetworkOrganizer
Commodity Category
Interactions and Relationship
Supplier Attributes
Supplier Environment
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PerformancePerformance
CAUSES (Categories of Predictive
Measures)DisruptionEVENTS
CONSEQUENCES (Impacts)
Human ResourcesHuman Resources
Supply Chain Disruption
Supply Chain Disruption
Financial HealthFinancial Health
EnvironmentalEnvironmental
RelationshipRelationship
Quality, Delivery, Service ProblemsQuality, Delivery, Service Problems
Supplier Union Strike,Ownership Change, Workforce Disruption
Supplier Union Strike,Ownership Change, Workforce Disruption
Supplier LockedTier II StoppageSupplier LockedTier II Stoppage
Supplier Bankruptcy (or financial distress)Supplier Bankruptcy (or financial distress)
Disasters (Weather, Earthquake, Terrorists)Disasters (Weather,
Earthquake, Terrorists)
Misalignment of Interests
Misalignment of Interests
Finished Goods Shipments Stopped Finished Goods
Shipments Stopped
Locate and Ramp Up Back up Supplier
Locate and Ramp Up Back up Supplier
Emergency Buy and Shipments
Emergency Buy and Shipments
ReputationReputation
Market Share LossMarket Share Loss
EFFECTSRevenueLosses
and Recovery Expenses
OTHERIMPACTSForgoneIncome
Emergency Rework and
Rushed FG Shipments
Emergency Rework and
Rushed FG Shipments
Recall for Quality Issues
Recall for Quality Issues
Sudden Loss of Supplier
Sudden Loss of Supplier
Structuring the Relationships of Supply Chain Risk
Copyright© 2006 Supply Chain Redesign, LLC
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Relationships 1 2 3 4 5On a corporate basis, please select the expected percentage of revenue you plan to come from the xxx industry segment in 2006.
>90% 65%-90% 15%-65% 5%-15% <5%
On a facility basis, what percentage of your total revenue is from Co.X? >75% 50 – 75% 25 – 50% 5 – 25% <5%
Taking into account the importance of the following metric when evaluating a partnership, how would you rank Co.X relative to your other customers? – Annual revenue, Profit Margin, Growth Potential, Cooperation, Data SharingHow often do you share the following information with Co.X? - Cost structure (price drivers), Process /Material Change Notification, Production Schedule, Inventory Status, Accreditation information, EPA violations and EPHS validation history (* EPHS – Essential Public Health Service), 2nd tier supplier information, New product/tech opportunity, Proof of insurance, Financial ratio data, Order fulfillment / process results, Performance data.
Share regularly
Share when asked
Don’t share and prefer not to share
Bottom 20%
Top 20% 20% - 40% 40% - 60% 60% - 80%
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Performance 1 2 3 4 5Please select the accreditations your facility has (check all that apply). 3 or 4
checked1 or 2 checked
0 checked
ISO900x, ISO13485/13488, ISO14000, FDA registered
(new with each network)
How many of your engineers directly support the manufacturing of this subcategory?
>10 5 – 10 3 – 5 2 – 3 0 -1
What is your facility’s current capacity utilization in this sub category? <50% 50% - 70% 70% - 80% 80% - 90% >90%
In the coming year, do you plan changes to your facility’s capacity in manufacturing for this sub category?
Increase around 20%
Increase around 10%
No change Decrease around 10%
Decrease around 20%
With 3 weeks advanced notification, how much of a demand increase can you satisfy in your next order for this subcategory for Co.X (assuming an average order)?
>50% 20% - 50% 10% - 20% 1% - 10% 0%
Excluding engineers, how many employees are involved in the manufacturing process for this sub category (including assemblers, inspectors, shipping, etc.)?
> 100 50 - 100 25 - 50 25-May <5
On average, how quickly you respond to a technical issue from Co.X? <2 hours 2 hours – 12 hours
12 hours – 24 hours
24 hours – 48 hours
>48 hours
What is the Material Reject Rate (percentage of material rejected out of all deliveries) for the supplier?
>99.5% >99% <=99.5%
>98% <=99%
>97% <=98%
<=97%
What is the Supplier Corrective Action Receipt percentage (percentage of CAR out of all deliveries)?
0% >0% <=.25%
>.25% <=.75%
>.75% <=1%
>1%
When was the last on-site audit or mail-in quality survey? <1 yr good Q rep 1-2 yrs >2 yrs No audit
What is the latest Audit Score of the supplier ( percentage of audit result score divided by maximum possible scores)?
>99% >98% <=99%
>80% <=98%
>65% <=80%
<=65%
What is the supplier’s latest on-time delivery percentage (no early or late, based upon contract, percentage of on-time delivery out of all deliveries)?
>99% >98% <=99%
>97% <=98%
>95% <=97%
<=95%
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Financial Health 1 2 3 4 5Please rank your company’s business growth in 2005 in the industry for this sub category.
Top 20% 20% - 40% 40% - 60% 60% - 80% Bottom 20%
What is the risk level of supplier's financial status (3rd Party report)? Low Low to Medium
Medium Medium to High
High
Excellent Above Average
Average Below Average
Poor
Please rate the overall performance of your company last year.Please rate the overall performance of the company last yearrelative to major competitors.Please rate the overall performance of the business unit serving $Company$ last year.Please rate the overall Customer Satisfaction level of this business unit last year.Please rate the overall profitability of the business unit last year
Please rate your accounts recievable cycle time (collection time).Please rate your accounts payable cycle time (paying suppliers)
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Environmental Indicators 1 2 3 4 5What is the potential of a major supply chain disruption due to market dynamics?
Minimum Below Average
Average Above Average
High
What is the potential of a major supply chain disruption due to merger and acquisition issues?
Minimum Below Average
Average Above Average
High
What is the potential of a major supply chain disruption due to regulatory issues?
Minimum Below Average
Average Above Average
High
What is the potential of a major supply chain disruption due to a disaster (natural disaster, political, terrorist, etc.)?
Minimum Below Average
Average Above Average
High
What is the potential of a major supply chain disruption due to a transportation disruption (accident, transportation union strike, etc.)?
Minimum Below Average
Average Above Average
High
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Risk Probability Index (RPI)
(Analytical Mode)
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Relationship
Supply Chain Disruption
Human Resources
Performance
FinancialHealth
EnvironmentalIndicators
Supplier Risk Probability Index (RPI)
Supply Chain Risk Categories v. Events 1
2
3
4
5
6
Misalignment of interest
Supplier Bankruptcy
Supplier Locked
(Regulatory)
Supplier Union Strike
Tier 2Stoppage
Supplier Ownership
Change
QualityProblem
Delivery Problem
Disasters
Service Problem
Categories Events
WorkforceDisruption
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Misalignment of Interests 1 2 3 4 5On a corporate basis, please select the expected percentage of revenue you plan to come from the xxx industry segment in 2006.
>90% 65%-90% 15%-65% 5%-15% <5%
On a facility basis, what percentage of your total revenue is from Co.X? >75% 50 – 75% 25 – 50% 5 – 25% <5%
Taking into account the importance of the following metric when evaluating a partnership, how would you rank Co.X relative to your other customers? – Annual revenue, Profit Margin, Growth Potential, Cooperation, Data SharingWhat is the potential of a major supply chain disruption due to market dynamics?
Minimum Below Average
Average Above Average
High
Bottom 20%
Top 20% 20% - 40% 40% - 60% 60% - 80%
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Quality Problem 1 2 3 4 5What is the likelihood of the following disruptions in your supply chain that could impact BSC? - Process Change
Once every five years or more
Once every three years
Once every other year
Once every year
More than once every year
What is the Material Reject Rate (percentage of material reject out of all deliveries) for the supplier?
>99.5% >99% <=99.5%
>98% <=99%
>97% <=98%
<=97%
What is the Supplier Corrective Action Receipt percentage (percentage of CAR out of all deliveries)?
0% >0% <=.25%
>.25% <=.75%
>.75% <=1%
>1%
When was the last on-site audit or mail-in quality survey? <1 yr No audit good rep
1-2 yrs >2 yrs No audit
What is the latest Audit Score of the supplier ( percentage of audit result score divided by maximum possible scores)?
>99% >98% <=99%
>80% <=98%
>65% <=80%
<=65%
On average, how often do you monitor and review your suppliers’ performance?
Monthly Quarterly Annually Only if issues arise
Never
What is the likelihood of the following disruptions in your supply chain that could impact Co.X? - Quality Problem
Once every five years or more
Once every three years
Once every other year
Once every year
More than once every year
Excluding engineers, how many employees are involved in the manufacturing process for this sub category (including assemblers, inspectors, shipping, etc.)?
> 100 50 - 100 25 - 50 25-May <5
Please select the accreditations your facility has (check all that apply). 3 or 4 checked
1 or 2 checked
0 checked
ISO900x, ISO13485/13488, ISO14000, FDA registered
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Delivery Problem 1 2 3 4 5How often do you share the following information with Co.X? - Performance data
Share regularly
Share when asked
Don’t share
What is the supplier’s latest on-time delivery percentage (no early or late, based upon contract, percentage of on-time delivery out of all deliveries)?
>99% >98% <=99%
>97% <=98%
>95% <=97%
<=95%
What is your facility’s current capacity utilization in this sub category? <50% 50% - 70% 70% - 80% 80% - 90% >90%
Do you share the forecast and scheduling information with your suppliers? Share regularly
Share when asked
Don’t share
With 3 weeks advanced notification, how much of a demand increase can you satisfy in your next order for this subcategory for Co.X (assuming an average order)?
>50% 20% - 50% 10% - 20% 1% - 10% 0%
What is the likelihood of the following disruptions in your supply chain that could impact Co.X? - Capacity Shortage
Once >5 Once =3yrs Once =2 yrs
Once per yr.
>1 per yr
Excluding engineers, how many employees are involved in the manufacturing process for this sub category?
> 100 50 - 100 25 - 50 25-May <5
In the coming year, do you plan changes to your facility’s capacity in manufacturing for this sub category?
Increase around 20%
Increase around 10%
No change Decrease around 10%
Decrease around 20%
How often do you share the following information with Co.X? - Inventory Status
Share regularly
Share when asked
Don’t share
How often do you share the following information with Co.X? - Order fulfillment / process results
Share regularly
Share when asked
Don’t share
How often do you share the following information with Co.X? - Production schedule
Share regularly
Share when asked
Don’t share
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Examples of Risk Management Actions
Risk Probability Index
RevenueImpact ($)
L
HL
H
Profile 1No Risk
Management
Profile 2 With Risk
Management
Equal Revenue Impact and lower risk With Risk
Management
(Event Probability x Score)
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Examples of Risk Management Actions
Risk Probability Index
RevenueImpact ($)
L
HL
H
Supplier 1No Risk
Management
Supplier 2
Distributing Spend (and reducing Revenue Impact) to several equal and lower risk suppliers.
Overall Revenue / RPI is reduced
(Event Probability x Score)
Supplier 3
Supplier 2
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Examples of Risk Management Actions
Risk Probability Index
RevenueImpact ($)
L
HL
H
Supplier 1No Risk
Management
Distributing Spend (and reducing Revenue Impact) to several equal and lower risk suppliers.
Overall Revenue / RPI is reduced
(Event Probability x Score)
Supplier 1With risk reduction
actions
Supplier 1With spend reduction
actions
Supplier 1With combination
actions
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Week 0 Week 1-2 Week 3-4 Week 5-6 Week 7 Week 7 Week 8
Data Collection
Follow up
Preparation Analyze MitigateReport
4.0Analyze
Survey Data
Collection
Validate 6.0
Mitigate
Supplier Information Set UpInternal Information Set Up
Report
Note:Cycle Time – 6-8 weeks1 Category = 30 suppliers
- Manual Process
- IT Enabled Process - Combination
Ass
essm
ent
Tea
m
1.0 Kick off
2.0 Preparation
5.0 Report
Kick Off
Rev
iew
Tea
m
Provide Set up information
Category Manager and Suppliers
Set up Survey Internal Data
3.0 Data Collection
Survey Review & Event
Probability
Subject Matter Experts and Suppliers
Review/ Validate
Preliminary Data
Category Manager and Risk Manager
ID and Begin Mitigation
Category Manager and Risk Manager
Supply Chain Risk Assessment Process
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Case 1
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Supplier Risk Wheel: Supplier Example
Delivery Risks1 Planned capacity decrease 2 Relatively low number of production employees assigned to company parts3 Inventory status information is not shared with company4 Medium to low ability to satisfy demand fluctuations with 5 week notice
Service Risk1 Low number of engineers assigned to company parts
Quality Risk1 Relatively low number of production employees in the process for company2 Six month supplier rating is medium3 Medium likelihood of quality problems affecting company
Union Strike Risk1 Highly unionized production facilities
Disaster Risk1 Transportation mode and route may cause disruption
Case 1
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Case 2
0010.8aMonitor and Manage Program
Technology
Supply Risk Management
Risk ProgramMGMNT
VPSCM
0010.1DevelopProgram and Plan
Risk Analyst
BI/MI
Commodity Manager
Supplier
Assign RiskManagement
Strategy and Guidelines
0010.3Define TargetValue Chain Plan Assessment
0010.5aSet up andDistribute Survey
0010.6 aInterview Suppliers andID Part No.
0010.7Gather Spend,Perf Data and Rev impact
0010.9Analyze Results,Validate,
0010.10bDevelopRisk MitigationActions
0010.11bProposeRisk MitigationActions
0010.6 bComplete Interview
Data Collection
Implement&
Sustain0010.13bReview, ReviseReassess
Planning
0010.2Set PrioritiesAssign Resources
0010.4aGather contactInfo and pre-survey Feedback
0010.4bProvide pre-survey Feedback
Preparation
0010.5bCompleteSurvey
0010.4bProvide pre-survey Feedback
0010.3DefineValue Chain Plan Assessment
0010.7Gather SpendData and Rev impact
0010.8bReview and Adjust Strategy and Program
SAP NTNT NT
0010.9ReviewValidateResults
0010.10aDevelopRisk MitigationActions
NT
Phase III
0010.11dReview/ApproveRisk MitigationActions
0010.11cReview/AdjustRisk MitigationActions
0010.11aProposeRisk MitigationActions
Mitigation Planning
0010.12aRollout,Implement &Sustain
0010.12cMonitor Rollout, Adjust
0010.11aProposeRisk MitigationActions
NT
0010.13aReview, ReviseReassess
NT
0010.12aImplement And Sustain
Analysis and Reporting
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Case 2 Mitigation
Risk Probability Index
RevenueImpact ($)
L
HL
H
Profile 1No Risk
Management
Profile 2 With Risk
Management
Equal Revenue Impact and lower risk With Risk
Management
(Event Probability x Score)
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Case 2
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Case 2