Supply Chain Exposure: Risk & Crisis Management for ... David Sedgwick.pdf · Risk & Crisis Management for Business Survival ... David Sedgwick MBA, MIRM, ... 29 Queen’s Road Central

Supply Chain Exposure:Risk & Crisis Management for Business Survival

Institute of Purchasing & Supply of Hong Kong

4 November 2010

Aon Hong Kong Limited 怡安保險顧問有限公司21st Floor | Aon China Building | 29 Queen’s Road Central | Hong Kong香港中環皇后大道中29號怡安華人行21樓

Your Guide for Today……

David Sedgwick MBA, MIRM, AMIOSH, ACII, CIB Director, Sales and Business Development & Strategic Risk

Consulting, Aon Hong Kong Limited British Hong Kong-based Over 35 years global risk management experience


A Focus-down Approach

Supply Chain Risks

Supply Chain Risk Management

CrisisManagement


Supply Chain Threat Conditions Over-reliance on products, services or capital equipment to

fulfil demand for high-revenue, high-margin customers Focused production, services or centralised distribution High dependency on key suppliers for raw materials,

products or services “Lean” practices – efficiency at the expense of resilience Reduction/consolidation of supplier base Outsourcing of key business functions


Problem Case Studies Unethical practices in a retail clothing supply chain Safety/quality issues relating to toys Loss of Intellectual Property through supply chain off-shoring Power shortages in mining industry Crane failure at a major UK port Damage to fibre optic cables linking Europe with Indian

service centres Earthquake damage to sub-sea telephone cable off Taiwan


Supply Chain Drivers Intellectual property (brand presence) Forecasts (accuracy) Procurement (who, where, when?) Inventory (JIT or JTL?) Logistics (how, when?) Capacity Quality/safety Schedule Cost


The Attraction of China as a Supplier Base The world’s fastest-growing economy Cheap labour, materials and components Cheap power and transportation The largest untapped market for products and services Political stability Easy access to regional and international markets

N.B. how many of these criteria still apply?


China: The Downside of Growth Urbanisation:

– Population movement– Concentration/gridlock

Employment:– Large workforces (20,000+)– Education/training– Cultural differences

Natural Catastrophe:– Earthquake– Mud-slides– Weather– Flood


China: The Downside of Growth Man-made Catastrophe:

– Fire/explosion– Safety– Pollution– Corruption

Legislative Framework:– Ministries/bureaux– National v local interpretation– Variable enforcement regimes

Timing:– Rate of change (too quick?)– Infrastructure capacity


Significant Risk Exposures Fire/explosion Natural catastrophe/weather Logistics (multiple modes) Product shelf-life/safety Contractual disputes Political Exchange rates Crime Corruption


Key Impact Areas Marketing:

– Missed opportunities– Delayed product launches– Reduced agility

Sales:– “Padded” delivery times

Procurement:– Inaccurate forecasting

Inventory:– Over-stocking


Key Impact Areas Operations:

– Inaccurate forecasting– Over-production

Management Decisions:– Wrong/ineffective decisions– Non-optimal production scheduling– Unnecessary interventions


Key Supply Chain Risk Questions Do we understand the dependencies in the supply chain? Have we identified the weaknesses? Do we understand the levels of risk introduced? How flexible/agile is our supply chain? Have we identified the Key Risk Indicators upstream and

downstream? Does our Business Continuity Management Plan fully

reflect supply chain risks?


Supply Chain Risk Management: Definition

“A systematic process of managing unwanted events or unwanted change in the supply chain”


Supply Chain Risk Management Map the supply chain – end-to-end! Identify the sensitivities along the supply chain Determine Risk Tolerances (“pain” levels) Assess the risks (Likelihood and Impact) to:

– Costs (direct and indirect)– Quality (performance-based or perceived)– Schedule (ability to deliver on time)– Brand (image/reputation, presence)


Supply Chain Risk Management For intolerable risks, develop mitigation strategies:

– Node/link-specific Business Continuity Management Plans– In-sourcing vs. out-sourcing– Single vs. dual/multiple sourcing– Contract design– Demand management– Logistics enhancement


SCRM “Laggers” Characteristics More reactive than proactive Risk management has little impact on design of supply chain Perception of exposure is low Risk horizon narrow, with focus on own business functions Business Continuity Management has <3 techniques Little or nor testing of Business Continuity Management Plan Little environmental scanning – unable to see trends until too

late No KPIs for performance measurement


SCRM “Leaders” Characteristics Address customers/suppliers as well as own business functions Increasing level of scrutiny of suppliers resilience Partnership approach with exchanges of critical information Risk management affects the design of the supply chain Diverse approach to Business Continuity Management – 8+

strategies to ensure flexibility and resilience of supply chain Periodic testing of Business Continuity Management Plans Broad view of threats form a variety of sources Understanding of performance via appropriate KPIs Application of continuous improvement processes


Crisis Management Plan: Purpose

“To provide a documented framework and process to enable the company to efficiently and effectively

manage any crisis event, regardless of cause”


Crisis Management: Objectives To demonstrate care and concern for those affected by crisis,

e.g.:– Consumers and/or customers,– Suppliers and/or distributors,– Stakeholders,– Employees.

To demonstrate control over any event and to be the authoritative source for any information surrounding the event,

To protect the image and reputation of the company as a reliable manufacturer and supplier of safe, quality products.


Crisis Management Team: Core Members Chief Executive Officer Head of Procurement Head of Production/Manufacturing Head of Engineering Head of Sales & Marketing Head of Public Relations Head of Legal


Crisis Management Team: Support Secretarial/administrative support Head of Research & Development Head of Medical/Microbiological Insurance broker/consultant Others?


Crisis Control Centre Separate location Multiple telephones, faxes, internet connections Video-conferencing facilities Clocks with international times


Authority to Invoke Crisis Management Plan Rests with Chief Executive Officer only!

– Company performance is his responsibility– The Crisis has occurred on his “watch”– Has authority to make key decisions– Has authority to allocate extraordinary resources– Can carry Board and shareholders with him


Crisis Management Plan Implementation Convene Crisis Management Team Assemble at Crisis Control Centre Complete Crisis Risk Assessment

– What happened/Nature/extent of problem/who affected?– Impact on business/reputation?

Establish Crisis Communications– Customers/consumers/shareholders– Regulators/media/public

Post-Crisis Reporting– Crisis impact on business– Lessons learned/success of Crisis Management Plan


Benefits of Supply Chain Risk & Crisis Management A better appreciation threats to achieving business objectives A consistent approach to the management of risks to the

supply chain Support for rational allocation of risk management resources Support for compliance with developing Codes of Corporate

Governance and CRSA processes Increases the potential for “no surprises”

Documents

Supply Chain Exposure: Risk & Crisis Management for ... David Sedgwick.pdf · Risk & Crisis Management for Business Survival ... David Sedgwick MBA, MIRM, ... 29 Queen’s Road Central