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Supply Chain Management Under International Terrorism

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Head, MIT Center for Transportation Studies. 2 Yossi Sheffi, MIT. Outline ... Organizing to meet the challenge. 7 Yossi Sheffi, MIT. Preparing for Another Attack ... – PowerPoint PPT presentation

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Title: Supply Chain Management Under International Terrorism


1
Supply Chain Management Under International
Terrorism
  • Yossi Sheffi
  • Professor of Engineering Systems
  • Head, MIT Center for Transportation Studies

2
Outline
  • The Nature of the Challenge
  • Preparing for another attack
  • Managing supply chains under increased
    uncertainty
  • New public-private partnerships
  • Organizing to meet the challenge

3
September 11, 2001The US Perception Has Changed
4
On the Following days
  • Ford idled several production lines
    intermittently due to delays at the Canadian
    border
  • Toyota came within hours of halting production
    since a supplier was waiting for steering wheels
    shipped by air from Germany

5
The Long Haul
  • The War on terrorism is unlike any other that the
    US experienced.
  • Instead of a hired army everybody is exposed
    and everybody is involved.
  • How do you win? And when would you know that
    you won?

6
Aspects of the Effort
  • Preparing for another attacks (including attacks
    on supplier, partners and customers)
  • Managing supply chains under increased
    uncertainty
  • Rethinking the role of the government
  • Organizing to meet the challenge

7
Preparing for Another Attack
  • Supplier relationships
  • Inventory management
  • Knowledge backup

8
Preparing for Another AttackSupplier
Relationships
  • Core suppliers vs. public auctions
  • Use of off-shore suppliers
  • Dual supply relationships

9
Dual Supply Example
  • Medical devices made by Malaysian contractor
  • Cost 100/device
  • Revenue 400/device
  • Fixed costs 200/device
  • P1 400 - 100 - 200 100/device
  • Disruption probability 1
  • P2 0.99(400-100)-200 97/device
  • Local vendor can supply at 150/device and needs
    20 of the volume to have full capability
  • If there is no disruption P3 400
    (0.81000.2150) - 200 90
  • If there is a disruption P4 400 - 150 - 200
    50
  • Expected profit P5 0.99 P3 0.01 P4 89.6
  • The expected added costs of dual manufacturing
    is P2 - P5 7.4 This is the insurance premium

10
Preparing for Another AttackInventory Management
  • The vulnerability of JIT manufacturing
  • Advantages of JIT manufacturing
  • Strategic Inventory
  • SoSo Management
  • Where?
  • For which items?

11
Preparing for Another AttackKnowledge Backup
  • Developing backup processes
  • Backing up the companys knowledge
  • Standardization and cross-training
  • CRM and customer relationships

12
Supply Chains under Uncertainty
  • Better visibility
  • Better collaboration
  • Better forecasting

13
UncertaintyBetter Visibility
  • Transportation visibility involves multiple
    handoffs
  • Need for full supply chain visibility
  • Reasons for the carriers not to share data
  • Independent data acquisition sources

14
UncertaintyImproved Collaboration
  • Last decade VMI, CMI, EDR, QR, JIT, JIT II, CPD,
    CPFR
  • Now implementation
  • New joint emergency planning (alternate shipping
    methods alternate suppliers)
  • Also security knowledge sharing

15
UncertaintyRisk Pooling
  • Postponement
  • Build-to-order
  • Product variability reductions
  • Centralized inventory management
  • Keeping generic parts in centrally-managed
    strategic inventory

16
Public-Private Partnership
  • Information sharing
  • Assuming certain tasks
  • Hazardous materials
  • Direct emergency assistance

17
Public-Private PartnershipInformation Sharing
  • Use of government know-how on nature of threats
    and possible responses share problems with the
    government
  • Change professional/ethical code of conduct

18
Public-Private PartnershipAssuming
Responsibilities
  • Current US procedures still immature
  • Profiling of cargo
  • Scalability of current methods
  • Certification programs
  • FAA known shippers program
  • ISO 9000 like program
  • Certified carriers tracking, sealing, follow-up
  • Certified shippers loading procedures

19
Public-Private PartnershipHazardous materials
  • Many regulations now in place
  • Community right-to-know act
  • Labeling and placarding rules
  • Local emergency planning committees
  • For early response air-traffic-control system
    for moving hazardous materials

20
Public-Private PartnershipDirect Assistance
  • Corporate resources
  • Merchant marine
  • Civil Reserve Air Fleet
  • Data bases of heavy equipment and trained
    personnel

21
Trade-Offs
  • Repeatability vs. predictability
  • Lowest bidder vs. the known supplier
  • Centralization vs. dispersion ( ,
    )
  • Managing risk vs. delivering value
  • Collaboration vs. secrecy
  • Redundancy vs. efficiency
  • Government cooperating vs. direct shareholder
    value

22
Organization
  • Chief Security Officer
  • A business person
  • Meeting business objectives in the new
    environment
  • A central coordination function
  • Incorporating security in the daily life of
    corporations

23
Summary
  • A long term adjustment
  • collateral benefits
  • Better collaboration
  • Better supply chain operations
  • Better controls (less theft, IP loss, better
    standards)
  • Participation in communities

24
Any Questions?
?
?
?
?
?
Yossi Sheffi SHEFFI_at_MIT.EDU
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