managing risk pdm

MANAGING RISK PDM

Professional Development Meeting[insert date]

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Introductions – Instructor

Introduce yourself!

Company/Organization

Position

Name

APICS TrainingAPICS Certifications

Other AccomplishmentsBackground

MANAGING RISK (RME1)


Supply Chain Risk Definition

What is supply chain risk?


Supply Chain Risk Definition

The variety of possible events and their outcomes that could have a negative effect on the flow of goods, services, funds, or information resulting in some level of quantitative or qualitative loss for the supply chainAPICS Dictionary, 14th edition


Basic Concept of Risk Management Risk stems from

uncertainty or lack of full and timely information

Risk must be evaluated relative to its potential cost exposure and the likelihood of occurrence

Leve

l of r

isk

Risk rewardLow HighLow

High Very undesirable:High risk and low reward

Very desirable:Low risk and high reward

Y

X


What Are the Forms of Supply Chain Risk?

Disruptions caused by problems in distribution flows, computer glitches, actions of competitors, security breaches and product failures.

Disruptions caused by natural disasters such as hurricanes, floods, wind, drought and earthquakes.

Disruptions caused by the inability of suppliers to deliver on time, quality failure, financial failure, compliance failure and channel complexity.

Disruptions caused by quality problems, inventory shortages, late deliveries, capacity shortages, industrial espionage and equipment breakdowns.

Disruptions caused by currency exchanges, recession, financial failure and stock market crashes.

Supply

Process

Demand

Finance

Environment


Supply Chain Risks SurveyNatural disaster disruption

Inadequate relationship management with customers or

suppliersInsufficient monitoring of supply chain performance

Lack of information sharing with suppliers and customers

Liability due to lapses in materials safety

Losses due to theft or other criminal acts

Partner underperformance

Supplier going out of business

Other

APICS 2011 Supply Chain Risk Challenges and Practices folio

63%50%

42%54%

14%12%

40%40%

7%


Why are These Risks Occurring?

Risks due to long lead times, exposure to political, security, regulatory and currency.Risks due to limits to supply chain visibility and coordination.

Risks due to stock outs, and disruptions due to supply and delivery glitches.Risks due to narrowing of the supplier base to a single supplier.Risks due to internal conflicts, cross-purpose objectives and lack of communication.

Low cost country sourcing

Outsourcing

Lean and just-in-time

Supply base rationalization

“Siloed” business processes


Financial Impact of Supply Chain Disruptions

107% Drop

114% Drop

93% Drop

6.9% Lower

10.66%

13.88%

Operating Income

Return on Sales

Return on Assets

Sales Growth

Growth in Cost

Growth in Inventorie

s

Over 10%

Reduction

Impact on Shareholder

Value

Source: Hendrick & Singhal, “The Effect of Supply Chain Disruptions on Long-Term Shareholder Value, Profitability, and Share Price Volatility,” Chain Link Research, January 2011


Key Principles of Risk ManagementSupply chain disruptions have significant impact on company business and financial performance.Companies with mature supply chain and risk management capabilities are more resilient to supply chain disruptions. They are impacted less and they recover faster than companies with immature capabilities.Mature companies investing in supply chain flexibility are more resilient to disruption than mature companies that do not invest in supply chain flexibility.Mature companies investing in risk segmentation are more resilient to disruptions than mature companies that do not invest in risk segmentation.Companies with mature capabilities in supply chain and risk management do better along all surveyed dimensions of operational and financial performance than immature companies.Source: MIT and PwC Research Study, “Supply Chain Risk Management,” 2013

Creating Resilient Supply Chains

MANAGING RISK


Managing Organizational Resiliency

Assess the potential causes of and risks from failure

Plans to mitigate the effects of failure

Recovering from the effects of failure

Countermeasures to failures

Failure


Nissan Motor Company – Case StudyDisruptive Event: 9.0-magnitude earthquake in JapanResult: 80% of Japanese auto plants suspended production

1.Nissan responded by adhering to the principles of its risk management philosophy. It focused on identifying risks as early as possible, actively analyzing these risks, planning countermeasures and rapidly implementing them.

2.The company had prepared a continuous readiness plan encompassing its suppliers including: an earthquake emergency plan; a business continuity plan; and disaster simulation training. Nissan deployed these advanced capabilities throughout risk management and along the supply chain.

Nissan’s quick recovery strategy:


Nissan Motor Company – Case Study (cont.)3.Management was empowered to make decisions

locally without length analysis4.The supply chain model structure was flexible,

meaning there was decentralization with string central control when required. This was combined with simplified product lines

5.There was visibility across the extended enterprise and good coordination between internal and external business functions.

Source: William Schmidt and David Simchi-Levi, “Nissan Motor Company Led: Building Operational Resiliency,” MIT Sloan Management: Case Number 13-150


Negative Consequenc

es

Controlling Risk Strategies

Prevention Recovery

Event Manageme

ntDisruptive

Event

Prevent an event from occurring

Isolate the affects of an event

Minimize the effects of an event

Adapted from Nigel Slack and Michael Lewis, Operations Strategy, p. 477.


Frequency and Impact of Supply Chain Risks

Internal External Natural

Source of supply chain disruption

Low

Med

ium

High

Mag

nitu

de o

f fre

quen

cy a

nd im

pact

ImpactFrequency

Reference: Richard E. Crandall, “Perceptions of Peril,” APICS Magazine

Absorb in normal

operations or mitigate with preplanned

action.

Mitigate with preplanned action or with a rapidly devised

action based on previous experiences

and flexible processes. Mitigate with agile

response that may require innovation

and originality.


Basic Risk Responses

Avoid existing activities that give rise to risk.

Take action to reduce the likelihood or impact related to the risk.

Have back-up processes or resources in case of failure.

Avoidance

Transfer or Share

Redundancy

Accept the chance of a risk occurring because of its low probability or benefit.

Acceptance

Take action to reduce the likelihood or impact related to the risk.Mitigate


Risk Response Plans and Cost

Preventive action:Risk response that occurs

before a harmful risk event occurs; intent is to reduce probability or severity of

the risk.

Contingent action: Risk response that occurs during or after a harmful

risk event; intent is to minimize monetary,

physical or reputation damage.

Risk eventBest-Cost Outcome

vs. Cost of ResponseCost of Occurrence × Probability


Risk Mitigation and Response Attributes

Capability for forward-looking, predictive views of events occurring in the supply chain integrated into a single system of the supply chain.Capability to detect and trigger alerts based on the anticipated impact of a disruptive event.Capability to leverage analytics to model the event and determine its impact and the impact of potential response decisions and actions.Capability to use “what-if” simulation to model alternative mitigation strategies to ensure they provide the best response.

Visibility

Event detection

and alerting

Analytics

Simulation


Risk Mitigation and Response Attributes (cont.)

Capability to merge teams into the evaluation process to both validate the proposed strategy and to propose key improvements.Capability of the risk team to make a joint decision on which mitigation or resolution alternative best meets organizational goals.

Capability to decide which demands to satisfy and then align the supply chain to execute this new prioritization.Capability to use S&OP to integrate all planning layers and functions to review the effect of near-term and long-term risk planning and simulation.

Collaboration

Scenario comparison

Prioritized demand

Integrated S&OP


Steps to Analyzing and Mitigating RiskExplore all avenues of risks (suppliers, logistics, environmental, etc.) affecting the company and assess types and likelihood of risks occurring.Score each risk factor and prioritize each according to low and high likelihood of occurrence and business impact.

Based on risk priority, develop an action plan. The mitigation strategies must be modeled and tested using robust, flexible “what-if” analysis capabilities.Risks priorities will change. Both the risk and mitigation strategies need to be reviewed on a regular basis to ensure new factors are included.

Visualize and understand

risks

Measure and prioritize

Take action

Monitor, review, and

maintain


Risk Response – Methodology

Assess Transportation

failures Climate, weather Variability/quality

problems, incorrect orders

Loss of key asset/ supplier/customer

Licensing, regulations

Theft, vandalism, etc.

Generating preventive action plans for each risk to be mitigated

Implementing preventive action plans

Manageimplementationprojects… Set goals and

expectations Win project

approval and funding

Exercise project management

Measure success

Preparing contingency plans

Prepare Assign roles Disseminate

prioritized plans and practice them

Research best practices

Develop sourcing alternatives

Track shipments with RFID and GPS

Coordinating and sharing risks among SC partners

Share Work with

partners Ensure reliable

roles Coordinate

response to crisis or problems

Transfer risk on basis of who in SC is best able to respond


Risk Response – MethodologyExamples of Supply Chain

RiskExamples of Preventive Action

PlansFailure of mode of transportation, such as a train derailment, a power outage that closes down pipeline pumping stations, operator strikes or other disruptions.

Preventive maintenance of equipment and vehicles, safety training, backup power supplies, extra capacity at all plants, safety sock and maintenance of good labor relations.

Harm to goods, facilities or markets caused by adverse weather, fore floods, vandalism or terrorist activities.

Insurance, geographical diversity, security systems and guards, financial diversifications, GLS tracking or transport vehicles,

Lead time variability, incorrect orders or quality problems.

Safety lead time, counting or quality control at receiving and supplier certification.

Loss of a key asset or supplier. Understanding supplier’s organization and financial solvency, contractually obligated backup suppliers, redundant equipment and repair parts on hand.

Inadvertent noncompliance with regulations, ordnances, licensing requirements and more.

Compliance audits, legal review of new regulations, and supplier certifications.

Theft of real or intellectual property. Security guards, item tagging and verification.

Failure of or dramatic change in patronage by an important customer.

Diversification of customer base, CRM functions and rewarding customer loyalty.


Supply Chain Capabilities to Manage Risk

Agile Executio

n

Ability to rapidly adjust supply chain by increasing or decreasing capacities, improving collaboration, formulating supplier contingency plans and implementing advanced technologies like predictive analytics.

Adaptable

StructureAbility to create products, processes and systems that are easily modified in response to channel conditions.

Visibility Ability to sense, capture and analyze external and internal data and turn it into usable business intelligence.

Flexible Innovatio

n

Ability to make design and development less rigid by reducing changeover times, increasing interchangeability and structuring ways to smoothly and rapidly rebalance order management, production and warehousing in response to changing conditions.


Risk Management Maturity Levels

Level 0No recognition

Level 1Initial

Level 2Buffer Planning

Level 3Proactive

Level 4Optimized

Level 5Sustained

No risk management strategy in place.

Ad hoc processes but not well-defined or documented.

Anticipatory risk planning, build capacity and inventory redundancy, and basic risk governance.

Proactive risk management, use of quantitative tools, business continuity plans, and use of sensors and predictors.

Flexible supply chain, partner risk strategy alignment, quick response and adaptability.

Sustained performance of risk management strategy and processes for more than one year.


Seven Enablers of Supply Chain Risk Maturity

Risk governance

Presence of appropriate risk management structures, processes and culture.

Flexibility and

redundancy

Flexibility and redundancy in product, network and process architectures to absorb disruptions and adapt to change.

Channel partner

alignmentStrategic alignment with supply channel partners regarding risk plans and alternative course of action.

Total supply chain

integrationPresence of information sharing, visibility, and collaboration of demand and supply parts of the supply chain.


Seven Enablers of Supply Chain Risk Maturity (cont.)

Internal functional alignment

Alignment and integration of risk plans and activities on a strategic, tactical and operational level.

Complexity manageme

nt

Ability to standardize, rationalize and simplify supply chain complexities to remove or dampen opportunities for disruptive events.

Data, models and

analyticsDevelopment of intelligence and analytical tools to support supply chain and risk management functions.

Additional Resources

MANAGING RISK


Resources to Learn More

APICS Risk Folios www.apics.org/riskfolios

APICS Supply Chain Risk Management Seminarwww.apics.org/seminars

APICS 2014www.apicsconference.org

APICS Risk Management Education Certificatewww.apics.org/risk

http://www.apics.org/riskfolios

http://www.apics.org/seminars

http://www.apicsconference.org/

http://www.apics.org/risk


Congratulations!

Download the transcript to track your progress and learn how you can qualify for the remaining hours at www.apics.org/risk.

Participation in today’s session qualifies for one elective hour (RME1) toward the APICS Risk Education Certificate.

http://www.apics.org/risk

APICS Supply Chain Risk Management Seminar

Thank you!

managing risk pdm

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