1

Risk Management in Supply Chain

Group 4:

Parikshit Sangvikar -29

Labdhi Vora - 16

Bhavik Shah - 08

Disclaimer: The credit of the content also goes to different authors and sources from which data has been procured

2 Agenda

What is (supply chain) risk?

What are typical supply chain risks?

How to manage supply chain risks?

3 What is Supply Chain Risk Management

Risk = probability of occurrence x consequences

Supply chain risk management (SCRM) is

"the implementation of strategies to manage both everyday and exceptional risks along the supply chain based on continuous risk assessment with the objective of reducing vulnerability and ensuring continuity".

Source: Cranfield University, School of Management

4Risk Exposure

5Why are today’s supply chains so

DYNAMIC AND COMPLEX?

Faster (Growth, Innovation)

Stronger (Competition)

Cheaper (Lean, economies of scale, efficient)

Quicker (JIT, agile)

Shorter (Lead times)

Wider (Globalization)

Lesser inventory (VMI)

Changing (Demands, Technology)

Heavier (Requirements, Workload)

6 Why is supply chain risk important?

Even a relatively small supply chain disruption caused by a localized event may have consequences across the global economic system

No control over causes to events in supply chain

Only control over consequences of events in supply chain

7 Location of risk in the supply chain

SUPPLY RISK

PROCESSRISK

DEMANDRISK

NETWORK/CONTROL

RISK

Environmental Risk

8 Supply Risk

Dependency only on key suppliers

Quality and management issues arising from outsourcing

Variability in lead-times

Poor quality of RM supplied

Delays in transportation

9 Process Risk

Manufacturing yield variability

Lengthy set-up times and inflexible processes

Equipment reliability

Capacity shortage/bottlenecks

Outsourcing key business processes

Power failure

Breakdown of machines

Absenteeism during festive season,

Problems in IT systems

Warehouse problems

10 Demand Risk

Loss of major customers

Volatility of demand

Concentration of customer base

Short life cycles

Innovative competitors

Inaccurate forecasts

11 Network/Control Risk

Inefficient communication

Poor visibility along the pipeline

Inappropriate rules that distort demand

Lack of collaborative planning and forecasts

Bullwhip effects due to multiple reasons

Security Risks - theft, data loss, counterfeiting, terrorism, piracy

12 Environmental Risk

Macro Risks

Economic shifts, recession, exchange rates, custom, natural disasters, labor unrest Policy Risks

Actions and sanctions of governments, shifts in legislation Competition Risks

Uncertainty about competitors’ moves and actions Resource Risks

Lack of human resources, capital or technology No disaster management focus

13 Supply Chain Risk?

14 Managing Supply Chain Risk

Map the supply chain

Identify the critical paths

Utilise cause and effect analysis (TQM tools)

Implement supply chain event management

Adopt agile practices

Formalise supply chain risk management

Using global sourcing to minimize the risk

15Risk mapping - example (Reference: Anil S Sathe presentation,

Oct 21st, 2013)

  Inherent Risk Analysis & Evaluation (Step II)Existing Controls/Treatment Plans

(Step III)

Risk Description (Event/Scenario)

Risk TypeInternal / External

Risk Information Variables

Impact Risk Category

(People, Assets/ Revenue

/Production Loss, Environment, Reputation & Compliance)

LikelihoodExisting Control

Description

Product Failure - technical Operation

alInternal

Defect percentage identified

CriticalNot Likely (Less than

10%) Quality Control and Assurance Process

Risk of significant breakdowns of Plant and Machinery

Operational

Internal Reported

BreakdownsCritical

Not Likely (Less than 10%)

Preventive Maintenance process

Inadequate future capacity creation Strategic Internal

Demand vs Supply Gap

High Not Likely (<10%)Appropriate planning/forecast

Delayed availability or un-availability of Supplies

Operational

Internal and

External

Reported unavailabilities

Critical Not Likely (less than 10%)Project Planning and Management

16 Identify Critical Paths

Critical paths are characterised by:-

Long lead-times

No short-term alternative source of supply

Bottlenecks

High levels of identifiable risk (i.e. supply, demand, process, control and environmental risk)

17 Cause And Effect Analysis

Pareto analysis (80% of disruptions will share 20% of the causes)

Asking ‘why?’ five times

Fishbone charts

Failure mode and effects analysis

18Cause And Effect Analysis

Reference: Cranfield University, School of Management

Failure to Deliver on

Time

No StockAvailable

Lead-TimeToo Short

CarrierPerformance

QualityProblems

CapacityConstraint

InflexibleSystems

InadequateCommunications

PoorScheduling

InadequateSupplier

Management

Materials Supply Problem Failure to

Achieve Plan

ForecastingProblems

Poor ProcessControl

19Why Analysis

1. Q. Why did the machine stop?

A. There was an overload and the fuse blew.

2. Q. Why was there an overload?

A. The bearing was not sufficiently lubricated.

3. Q. Why was it not sufficiently lubricated?

A. The lubrication pump was not pumping sufficiently.

4. Q. Why was it not pumping sufficiently?

A. The shaft of the pump was worn and rattling.

5. Q. Why was the shaft worn?

A. There was no strainer and metal scrap got in.

Repeating why five times like this can help uncover the root problem and correct it. If this procedure were not carried through, one might simply replace the fuse or the pump shaft. In that case the problem would reoccur in a few months.

Taiichi Ohno Toyota Production System

20 Failure mode and effects analysis (FMEA)

Asks three questions:- What could go wrong?- What effect would this failure have?- What are the key causes of this failure?

Provides an assessment of risk for each possible failure:S = severity of effectO = likelihood of occurrenceD = likelihood of detection

21Risk Analysis Scoring

SystemS = Severity 1. no direct effect on operating service level

2. minor deterioration in operating service level3. definite reduction in operating service level4. serious deterioration in operating service level5. operating service level approaches zero

O = Likelihood of occurrence 1. probability of once in many years2. probability of once in many operating months3. probability of once in some operating weeks4. probability of weekly occurrence5. probability of daily occurrence

D = Likelihood of detection 1. detectability is very high2. considerable warning of failure before occurrence3. some warning of failure before occurrence4. little warning of failure before occurrence5. detectability is effectively zero

22 Agility holds the key

Agile supply chains are designed to respond rapidly to unpredictable change. They are based upon a number of principles:-

Very close connection to final marketplace

Visibility of real demand

High levels of synchronicity upstream and downstream

Organisational focus on processes rather than functions

Advanced level of collaborative planning with supply chain partners

Continuous search for time compression opportunities

23 Globalization

Globalization allows us:

To site facilities in safer locations

Tap into educated overseas workforces and set up production centers closer to sources of raw material

By opening the door to using vendors and suppliers from around the world

The number of vendors and suppliers that companies can tap to fill gaps in their supply chain.

24 Robust Or Resilient

A robust process can be defined as “a process able to deal with reasonable variability”

A resilient supply chain can be defined as “a supply chain with the ability to recover quickly from unexpected events impacting supply chain performance”

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Characteristics of Robust and Resilient supply chains (Reference: Cranfield University, School of Management)

Robust Resilient

‘Lean thinking’ central to supply chain management

Risk mitigation central to supply chain management

Lean Agile

Strong Elastic

Internal quality control Internal and external risk management

Responsive to reasonable variation in input

Capable of responding to sudden and significant variation in input

Low inventory levels throughout

Built in spare capacity and buffers at critical nodes

Supply chain Velocity Supply chain Velocity & Acceleration

A culture of quality awareness (i.e. Six Sigma)

A culture of risk and quality awareness

Processes are stable and under control

Non-value adding activities and processes removed

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Creating a Resilient Supply Chain: Strategic Approaches (Reference: Cranfield University, School of Management)

The Resilient Supply Chain

1. Supply Chain (re)engineering

Supply Chain Design

Supply Chain Understanding

Supply Base Strategy

2. Supply Chain Collaboration

Collaborative Planning

Supply Chain Intelligence3. Supply Chain

Risk Management Culture

4. Agility

Visibility

Velocity

Supply Chain Continuity Teams

Board level responsibility & leadership

Consider risk in decision making

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“A fire at a key Philips semiconductor factory in 2000 caused a worldwide shortage of the radio frequency chips used by both Nokia and Ericsson. Nokia immediately lined up another source and redesigned other chips so they could be produced elsewhere. However, Ericsson responded more slowly and lost an estimated $400 million in mobile phone handsets.”

MIT Sloan Management Review

Summer 2006

28 Supply Chain risks examples

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“The entire Japanese vehicle industry ground to a halt following an earthquake that stopped production of piston rings for engines provided by Riken, the industry leader in the domestic market.

Toyota, in particular, was forced to stop operations at all 12 of its domestic plants.”

Financial Times, 24 July 2007

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“Yesterday it emerged that ice-cream supplies may run short because Unilever’s only UK factory, based in flood-stricken Gloucester, has been closed for the past ten days.

The company usually manufacturers five million ice-creams and lollipops a day at the plant. It has stocks in freezers but it could be days before normal production resumes. Industry insiders predict that there will now be an ice-cream war as rival brands attempt to exploit Unilever’s predicament and gain market share.”

The Times, 31 July 2007