Title: Supply Chain Continuity – The New World of Risk
1Supply Chain Continuity The New World of Risk
- Lori C. Adamo
- Code Red Business Continuity Services, LLC
- Michael J. Gravier, PhD, CTL
- Bryant University
NEDRIX Annual Conference October 19th 21st,
2009
2- Todays Agenda
- What is Supply Chain Management .
- Risk in Supply Chain Management.
- Using Business Continuity to manage and
mitigate your Risk. - Supply Chain Risk Assessments and
Methodologies.
3(No Transcript)
4International Importance of SCM
- Imports and export markets experiencing rapid
growth from 1989 to 2007 - imports increased from 473 to 1,953M
- exports increased from 363M to 1,162M
- 70 of US-made products are subject to direct
international competition - Development of international economic
relationships - NAFTA, EU, ECOWAS, OAS, ASEAN, etc.
One US-made Jeep has 60 American-made parts One
US-made Toyota has 70 American-made parts
5Supply Chain Insights
- Multiplier Effect
- Supply Chain Risks
- Risks of Popular Supply Chain Strategies
6Model Supply Chain
Identify Experiment Analyze
Extend Validate Discussion
7Supply Chain Complexity
1
1
1
1
1
2
2
Consumer/end user
2
3
3
3
3
Tier 2 Supplier
4
4
2
Tier 1 Customer
Tier 1 Supplier
Tier 2 Customer
Manufacturer
Adapted from Lambert, Douglas M., and Terrance L.
Pohlen, Supply Chain Metrics, International
Journal of Logistics Management, Vol. 12, No. 1
(2001), pp. 1-15.
8 Inventory Positions and Major Flows in a
Supply Chain
Orders
Orders
Orders
Payments
Payments
Payments
Manufacturers
Retailers
Suppliers
Wholesalers
Information
Information
Information
Product
Product
Product
5 7 10
Variable costof materialAcquisition
costOther variablecostsTotal variablecost
of productFull manufac-tured costSelling
price
10 1 14254060
Variable costof productOther acquisition
costsSelling price
60 2 70
Variable costof productOther acquisition
costsSelling price
70 2 120
Variable costof productFull manufac-tured
costSelling price
Source Adapted from Douglas M. Lambert and Mark
L. Bennion, New Channel Strategies for the
1980s, in Marketing ChannelsDomestics and
International Perspectives, ed. Michael G. Harvey
and Robert F. Lusch (Norman Center for Economic
ManagementResearch, School of Business
Administration, University of Oklahoma, 1982), p.
127.
9Manufacturers
- 60-70 of value added
- Services just surpassed
- Often have huge capacities
- Traditionally channel captains
10Retailers
- Numerous outlets
- Highest margins
- Small relative to manufacturers/wholesalers
11Supply Chain Geography
1 icon 1,000 companies
Manufacturers
n898
Wholesalers
n13,732
Retailers
n46,742
Households
X 100,000 Over 100 million households
12Service Impacts
- 1 manufacturer 100,000 households
- 1 manufacturer 15.3 wholesalers
- 1 manufacturer 52 retailers
- 1 wholesaler 3.4 retailers
- 1 wholesaler 7,283 households
- 1 retailer 2,139 households
13A Few Risks
- Natural disasters
- Tsunamis, quakes, droughts, hurricanes
- Epidemics
- SARS, H1N1, bird flu, mad cow
- Rogue nations
- North Korea threatens 45 of worlds
semiconductors - Supplier quality
- Toyota floor mats, lead paint, contaminated
breast milk - Unethical supplier actions
- Child labor, blood diamonds, unfair wages
- Other
- Change in currency rate
- Recession
14Definition of Risk a chance of danger, damage,
loss, injury or some other undesired
circumstance.
- What are the potential losses if the risk is
realized, what losses will result? - How likely are those losses, i.e. the
probability of the occurrence of the event that
leads to the realization of the risk? - What is the significance of the losses?
In Sum Global Supply chains are complex,
constantly evolving, face multiple uncertainties,
and are of importance to all levels of the
organization.
15Pitfalls of Popular Techniques
- JIT
- Possible negative environmental consequences
- At risk from disrupted transportation
- Requires complex internal management structures
- Lean
- Ideal for high volume, low variety products with
predictable demand patterns - Reduced supplier base
- Adaptability of remaining suppliers may be
inadequate - Supplier lock-in
- Six Sigma
- Doesnt distinguish good from bad processes
- Not suitable for corporate re-engineering
16SUMMARY OF RISKS
Summary of Risks
17- Supply Chains Today
- An increase in globalization has led to longer
supply chains and less visibility - US Trade with foreign countries in goods has
reached almost three trillion dollars. - Todays supply chains are more virtual, more
global and more dependent on external partners. - With the growth of outsourcing and
partnerships, the ability to manage product
quality has also been strained. - SO how do we meet these challenges?
18 Business Continuity Planning (BCP) Phases
Project Initiation
Functional Requirements
Design Dev
Implementation
BRP
Supply Chain Management
Testing
BIA
Maint
DRP
Project Mgmt
Policies Standards
Cont Imp.
Risk Assessment
CMT
Execute
Disaster Recovery Institute Model
18
19Classifying risks into supply, operations, demand
and security risks.
Step 1 Risk Identification
Step 2 Risk Assessment and Evaluation
Decision analysis, Case Study, Perception Based.
Work with Procurement to select vendors and
suppliers.
Step 3 Selection of Appropriate Risk Management
Step 4 Implementation of Supply Chain Risk
Management Strategies
Business Continuity Strategies and Planning.
Step 5 Mitigation of Supply Chain Risks
Test your Plan with your critical Suppliers.
Manuj and Mentzer (2008), Global Supply Chain
Risk Management, Journal of Business Logistics,
Vol. 29, No. 1, pp. 133-155.
20What is a Business Impact Analysis?
It is an information-gathering exercise designed
to methodically identify
- The processes or functions performed by an
organization - The resources required to support each process
performed -
- Interdependencies between processes and/or
departments - The impact of failing to perform a process
- The criticality of each process
- A recovery time objective (RTO) for each
process - A recovery point objective (RPO) for the data
that supports each process
21Risk Assessments and Business Impact Analysis
- Supply Chain Management relies on the
information - uncovered by a Risk Assessment a Business
- Impact Analysis.
- Defines Probability, Impact and Tolerance
to a disruption. -
- Often performed as a step in the development of
- business continuity plans, the BIA, along
with risk - analysis (RA), provides the foundation for
strategy - that will allow the organization to continue
to perform - developing and selecting a business
continuity. - critical processes in the event of a
disruption - 1. Identifies and prioritizes your supply
chain process and - determines RTO.
22Risk Assessment and Evaluation
Loss of 10 if supply disruption lasts over 3
weeks
Many competitors with no quality differences who
can supply to our customers
10,000 Per day
0.25
2.50
NO
Serious
23Points to begin Planning
- What are our suppliers doing to support our
disruption? - How are they affected by a geographic
disruption. - The supply chain complexity brought about by
global sourcing can also - complicate and delay recovery efforts as, for
example communications - delays can result from time zone differences,
language, - transportation stoppage or cultural barriers.
- Planning for continuity in the supply chain
will ultimately involve - working collaboratively with suppliers and
other key business partners. - Plan for our own recovery and resiliency.
Resiliency is the Key! -
- One must ask themselves
- Is my sourcing strategy a fit for my business
continuity requirements? - What are my key suppliers doing abut business
continuity? - Can we survive a crisis together?
24Integrated Logistics Supply Chain Management
Activities
Procurement Strategic Sourcing
Transportation Management
These departments are where you can be impacted!
Inventory Planning Management
Customer Service Support
Physical Distribution
25How can a BIA help to manage your Supply Chain?
- Identify and assess the impacts on the business
caused by disruptions. - Identify recovery requirements Networked
technologies that allow continued operations
through redundant communications systems. - Identify interdependencies. (mapping strategy)
- Prioritize the order in which business units
will need to recover. - Identify staffing ramp-up during recovery.
- Identify business unit work-arounds while in
recovery mode. - Once these items have been identified, work with
your suppliers to educate, then strategize a
recovery together.
26Develop BIA with your Critical Suppliers
- Understand which business processes are tied to
profit, image and continuity of business. - Understand which applications are needed to
support vital business processes and customer
service. - Understand which resources, suppliers, vendors
and staff are most critical to your business
continuity, as well as those who support those
processes and applications. - Are the single source suppliers?
- Dependency Relationship with high Risk Supplier?
- How are we impacted if one fails?
27Evaluate the types of supplier relationships exist
- High dependency high availability utilities,
generic components - High dependency low availability highly
specialized product - components
- Mid dependency high availability generic IT
equipment monitors - Mid dependency low availability specialized
IT equipment - scanners
- Low dependency high availability consumables
paper - Low dependency low availability redundant
design furniture. - Business Continuity solutions should be focused
on strategically significant supplier
dependencies enhanced through risk assessment and
a business impact analysis.
28- Major Factors of a Good Supply Chain Business
Continuity Plan - Awareness that the supply chain is susceptible
to potentially crippling disruption - Prevention through risk identification, risk
assessment, risk treatment and risk monitoring - Remediation plans for recovery from a
disruption - Knowledge management calls for a shareable,
post-event audit of supply chain disruptions
throughout the organization and supply chain.
29Major Factors of a Good Supply Chain Business
Continuity Plan
- Networked technologies that allow for continued
operations through redundant communications
systems. - A highly mobile, global, collaborative
workforce access to relevant data anytime and
anywhere real-time data and decision support,
visibility, velocity and flexibility across the
value chain, shared solutions, process and
assets. - Each of these capabilities relies on an
intelligent collaboration and communications
platform.
30(No Transcript)
31Preparation is Key
- Prepared Responses let you react only when you
have to
- Business Supply Chain Scenario Planning
Development
- Basic Supply Chain capabilities and enablement
- Visibility Event Management, the key to
staying ahead - Review situational changes in your
organizations risks and - vulnerabilities, analyze how your current
plans stack up against - them.
- Be aware of Critical Suppliers who can no longer
meet SLAs, or - meet your recovery needs
-
32Last Thought
There are no secrets to success. It is the result
of preparation, hard work, and learning from
failure. Colin Powell (Chairman of the US
Joint Chiefs of Staff (1989-93
- Mark Twain once said
- "The secret of success is honesty and fair
dealing. If you can fake these, you've got it
made."
Lori C. Adamo ladamo_at_coderedbcs.com Michael
Gravier mgravier_at_bryant.edu
Thank you!