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MANAGING RISK PDM. Professional Development Meeting [insert date] . Introductions – Instructor . Introduce yourself!. Name. Company/Organization. Position. Background. Other Accomplishments. APICS Certifications. APICS Training. MANAGING RISK (RME1). Supply Chain Risk Definition. - PowerPoint PPT Presentation
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MANAGING RISK PDM
Professional Development Meeting[insert date]
2 © APICS Confidential and Proprietary
Introductions – Instructor
Introduce yourself!
Company/Organization
Position
Name
APICS TrainingAPICS Certifications
Other AccomplishmentsBackground
MANAGING RISK (RME1)
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Supply Chain Risk Definition
What is supply chain risk?
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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
6 © APICS Confidential and Proprietary
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
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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
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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%
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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
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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
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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
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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
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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:
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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
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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.
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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.
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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
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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
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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
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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
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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
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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
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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.
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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.
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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.
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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.
28 © APICS Confidential and Proprietary
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
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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
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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.
APICS Supply Chain Risk Management Seminar
Thank you!
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