Outcome Driven Supply Chain

Dr. Etinder Pal SinghFeb 24, 2012

Presented at MDP organized by Center for Management Development & UPES Dehradun

A request

Keep an open mindand

Ask lots of questions

REMEMBER!

• Today’s supply chain is a result of actions taken in the past.

• Tomorrow’s supply chain will be the result of actions that we take today.

Risks in supply chains?

Most important risks faced by multinational

firmsAon Global Risk Management Survey 2009(Survey among 550 multinational companies > $ 1

billion revenue)

1. Economic slowdown2. Regulatory / legislative change3. Business interruption risks4. Increasing competition5. Raw materials / commodity prices6. Damage to reputation7. Cash flow / liquidity risk8. Supply chain failure9. Third party liability10.Difficult to attract top talent

Supply chain risks mentioned three times in Top 10!

Natural disasters reported 1900-2008

Source: EM-DAT (2010)

Risks in the supply chain – an example

The Albuquerque accident• March 2000• Philips semi-conductor plant in Albuquerque, New Mexico, USA– Sole-supplier of radio-frequency chips to Nokia and Ericsson

• Lightning strike lead to small fire in clean rooms at Philips plant

• Sprinkler installation activated in clean rooms• It took 3 weeks before production was up and running again

• After 6 months, production yields were only 50%• It took years before new equipment was delivered and installed

Supply chain risk•Risk is a concept with a lot of different definitions•2 main perspectives:

–Exposure to uncertainty (everyday usage e.g. “it is risky to drink and drive”)

–Outcome of an event (e.g. higher total costs and longer lead-times after a fire in a warehouse:

– Risk = Probability * Consequences)

•What can happen? (risk sources)•How likely is it that it will happen? (probability)•If it does happen, what are the consequences? (consequences)

Source: Jüttner et al. (2003); Zsidisin and Ritchie (2008)

Analysing supply chain risks

• Firms commonly visualise unforeseen and unwanted events by means of a risk-matrix

• A risk-matrix has 2 dimensions: probability and consequences (impact)

• Problem: it relies heavily on risk perception.

Source: Sheffi & Rice Jr. (2005)

Supply chain risk sources

Source: Christopher & Peck (2004)

• Where can risks originate from?

Environmental risk

Supply risk

Risks internal to the firm

Process risk Demand risk

Control risk

Supply risk Process risk Demand risk

Control risk

Supply chain risk sources

Source: Christopher & Peck (2004)

• Where can risks originate from?

Environmental risk

Supply risk

Risks internal to the firm

Process risk Demand risk

Control risk

Supply risk Process risk Demand risk

Control risk

Machine break-downEmployee strike

Order quantity policiesQuality control

Volatile customer-demandWrong order-forecast

Natural disastersPolitical instabilitySevere weather conditions

Bankruptcy of supplierQuality problems at supplierTransportation failure

Supply chain disruptions

• “Supply chain disruptions are unplanned and unanticipated events that disrupt the normal flow of goods and materials within a supply chain”

• Supply chain disruptions: the occurrence of risk

• Consist of: a trigger and the situation that emerges afterwards.

Source: Craighead et al. (2007), Wagner and Bode (2008)

Time

Triggering event

Supply chain risk

Occurrence of risk

Consequential situation

Supply chain

disruption

Exposure to risk

Most frequently occurring disruptions in 2008-2009

1.Sudden drop in customer demand

2.Quality issues at the supplier

3.Poor logistics performance of suppliers (delivery dependability)

4.Severe weather conditions

5.IT-infrastructure problems (hardware, software)

Source: TNO-onderzoek: Risico’s en Kwetsbaarheden in Logistieke Ketens (2010)

What are the consequences of a disruption?

Higher costBad performanceLost salesLower profitsBankruptcy Fear, dangerDamage to reputation

For whom?The company itselfSuppliersCustomersSociety