Managing Risk of Supply Chain Disruption

8/13/2019 Managing Risk of Supply Chain Disruption

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Managing the Risk ofSupply Chain Disruption

Supply Chain Management and Financial Management Webinar

June 19, 2013

Speakers:Mary Driscoll, APQC

Eric Gerner and John Hejka, Experis

Michael Miedema, Baker Hughes

Thank you for

attending. We willbegin at 11:00 a.m.

(Central Time)

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22013 APQC. ALL RIGHTS RESERVED.

Housekeeping Audio is available through your computer speakers or

through dial-in. All lines are muted.

You can submit questions/comments at any time. We willaddress all questions during the Q&A session at the end oftodays presentation.

Links to the slides and recording will be made availableand sent to all attendees via e-mail.


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Todays Speakers

Mary Driscoll, Senior Research Fellow, APQC

Eric Gerner, Director of Risk Advisory Services, Experis

John Hejka, Finance Transformation COE, Experis

Michael Miedema, Director of Strategic Sourcing,Baker Hughes


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Overview

In April 2013, APQC conducted a survey to test the extentto which supply chain executives and finance managers at

large global organizations are concerned about three

macro-level, external risk factors to supply chain stability: High-impact natural disasters such as major tsunamis, earthquakes,

volcanoes, or floods; Extreme weather such as devastating droughts, wildfires, or cyclones;

and

Political turmoil in vitally important world regions.

APQC also asked about the frequency and adequacy offormal risk assessments involving various tiers of supply

chain participants.


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APQC Research Most organizations caught off guard by unexpected supply chain

disruption.

77%

16%

6%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

Yes No Don't know

Has your organization experienced at least one

unexpected supply chain disruption in the last 24

months?

N = 195


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APQC Research

73%

21%

6%

0%

10%

20%

30%

40%

50%

60%

70%

80%

Yes No Don't Know

Was this disruption serious enough to draw the

sustained attention or intervention of the top

executives at your organization?

N = 151

Supply chain disruption draws the attention of senior executives.


7/3472013 APQC. ALL RIGHTS RESERVED.

APQC Research The majority of large, global organizations are now concerned about

the risk of serious physical disruption of their supply chains due to

high-impact natural disasters, extreme weather, or political turmoil.

87%

13%

87%

12%

86%

14%

0%

20%

40%

60%

80%

100%

Concerned Not Concerned

In your opinion, how concerned are your organizations

leaders today about high impact natural disasters, extreme

weather, or political turmoil.

High-impact natural disasters (N=192) Extreme weather (N=191) Political turmoil (N=192)



N = 196

63%

28%

9%

0%

10%

20%

30%

40%

50%

60%

70%

Yes No Don't Know

Does your organization have key supply chain partners in

areas of the world known for high-impact natural disasters,

extreme weather, or political turmoil?

APQC Research



APQC Research Among survey participants who have had at least one unexpected

disruption in the last 24 months, 56% have added rigor to the process

of assessing supply chain resiliency.

56%

44%44%

56%

0%

20%

40%

60%

Yes, experienced at least one unexpected supply

chain disruption (N=126)

No, did not experience at least one unexpected

supply chain disruption (N=27)

Yes, we have taken steps to add rigor No, we have not taken steps to add rigor



APQC Research Only 26% of organizations have a continuity plan that is sound and

meets business needs, or is well managed. That leaves 74% exposed

to the risk of disruption of physical assets in their supply chain,

whether at a company-owned facility or at a key vendors facility.

31%

43%

26%

0%

20%

40%

60%

No supply continuity plan/under

construction

Supply continuity plan being

revamped or needs further

improvement

Continuity plan is sound and

meets business needs/

sophisticated and well managed

plan

Majority Not in Good Shape

N = 195N = 195



APQC Research Top 3 obstacles that can undermine management of supply chain

disruption risk.

Poor visibility into risk factors among Tier 2 and Tier 3 suppliers

Lack the resources needed to assess risks at supplier sites

Lack a single process owner for management of supply chain disruption risk

Yes No Dont

Know

N

We have poor visibility into risk factors among Tier 2

and Tier 3 suppliers 64.8% 21.2% 14.0% 193

We lack the resources needed to assess risks at

supplier sites 47.4% 41.3% 11.2% 196

We lack a single process owner for management of

supply chain disruption risk 43.8% 44.8% 11.5% 192



All APQC member registrants will receive a

free copy of the final whitepaperandnon-

member registrants will receive the

whitepaper at a discounted price of $50.

Whitepaper Forthcoming


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EnterpriseRiskManagement

Experis | Wednesday, June 19, 2013 13

Risk Management

FrameworkSupply Chain

considerations

APQC Webinar

June 19, 2013

Eric Gerner

Director of Risk Advisory Services


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14

Enterprise Risk Management

Structured Risk Management Drivers Volatility in performanceshock losses

Regulatory scrutiny

SECincreased reporting requirements for risk-related Governance

and Compensation practices and policies, risk identification and analysis

(Rule 33-9089)

Regulatorsassessing formal Risk Management programs as a

component of corporate governance and sustainability

Rating Agencies considering Risk Management practices

(Moodys, Standard & Poors)

Legal

Board of Directors and management exposure Fiduciary responsibility to stakeholders

Shareholder activist groups

Reputation and market cap preservation


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Risk Management according toStandard & Poors

An approach to assure the organization is attending to all risks

A set of expectations among management, shareholders and the board

about which risks the organization will and will not take

A set of methods for avoiding situations that might result in losses

that would be outside the organizations tolerance

A method to shift focus from cost / benefit to risk / reward

A way to help fulfill a fundamental responsibility of a companys board

and senior management

A toolkit for trimming excess risks and a system for intelligently selectingwhich risks need trimming

A language for communicating the effort of the organization effort to maintain

a manageable risk profile


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What Risk Management is NOT(according to S&P)

A method to eliminate all risk

A guarantee that the company will avoid losses

A crammed collection of longstanding and disparate practices

A rigid set of rules that must be followed under all circumstances

Limited to compliance and disclosure requirements

A replacement for internal controls of fraud and malfeasance

A replacement for sound management judgment

Exactly the same from year to year


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Reporting

Execution

Strategy

Tolerance

and Policy

Is there a process

for assessing supplier

risk and capabilities?

Is Board advised of

mission-critical risks?

Is opportunity-seeking

behavior balanced with

risk-taking?

Are boundaries andlimits adequately

defined?

Is there a process

for reporting supply

chain risk and

performance?

Does the organization

structure support

risk reporting?

Are key uncertainties

being managed?

Are there assurances that

supplier capabilities are

effective?

Is a risk-sensitive culture

in place?

Supply Chain GovernanceKey Risk Questions


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18


RiskUniverse

RiskAppetite

RiskTolerance

Organizational

Structure

AuthorityPolicy

Ownership

InformationalFlow

7 - Monitor andAnalyze Risk

1 - EstablishGoals andObjectives

2 - Identify,Assess and

Prioritize Risks

3 - DevelopResponse

Strategies andOptions

4- AssessCapabilities &Information

5 - DevelopPlan of Action

6 - Execute

Plan of Action

RISK MANAGEMENT FRAMEWORK


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Risk AppetiteResidual risk tolerance

Universal Acceptableexposure to

volatility of

outcome

Management

and Control

StructureRisk Universe - Key Supply chain issues

Quality 4 5Cost structure 3 4

Capital Requirements 1 2

Changing economic/political conditions 3 4

Natural Disasters, business interruption 1 2

Reputation 2 3

Information Security and accuracy 2 3

Timeliness 1 2

Fraudulent/unethical activity 1 1

Key customer/capacity 3 4


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Risk Assessment (The Basics )

Timing?

Build risk universe first

Risk in uncertain future event, not auditable entities

Rating criteria

Impact (qualitative vs. quantitative)

Likelihood

Management Effectiveness/Process maturity

Velocity

Inherent and Residual Risk evaluation

Management processes that address inherent risks reduce the residual risk

Inherent risks inadequately addressed by management processes result in

heightened residual risks to the organization

Analytical results for prioritizing exposure areas


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Dealing with Residual Risk

Who owns SLAs

Leverage internal audit (audit clause)

SSAE 16 Type 1or 2

Ongoing assessment

Risk rating

Capabilities

Alignment with goals

Risk tolerance Interrelationship of risks

Monitoring

Constant communicationview as extension of your team


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Supplier Risk Management &Mitigation

June 2013


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Disclaimer

This document (together with its content) is the property of Baker HughesIncorporated. 2013 Baker Hughes Incorporated. All Rights

Reserved.

No part of this document may be reproduced, transmitted or otherwisedistributed in any form or by any means, electronic or mechanical, includingby photocopying, facsimile transmission, recording, rekeying or using anyinformation storage and retrieval system, without the prior written permissionfrom Baker Hughes.

Neither Baker Hughes, nor any of its employees, endorse any ofthe products or services referenced in this document.

The views expressed are not necessarily those of Baker Hughes.

Baker Hughes expressly disclaims any liability in connection with thisdocument, its contents or its use by any third party.


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Purpose & Process

Purpose:

Identify Risk in relation to key suppliers and products Quantify the level of Risk

Develop a plan to mitigate the Risk based on the

overall score or where a single Risk is unacceptable

Approve a mitigation plan at the appropriate

management level

Process: Utilize a Risk Analysis Worksheet to determine the Risk Score for

each key supplier

Where the overall risk score is not acceptable or not acceptable for anysingle element develop and execute an approved mitigation plan


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Areas for Evaluating Risk in Suppliers

SixRiskareas

Single Source/Sole Source (IP)

Financial Stability -Privately or publicly held

Markets Served

Key Customers

Complexity/Critical Processes/Capability

Business Continuity

Capacity/Performance (acceptable KPIs)

Political, Security, HSE, Trade Compliance


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Review & Rating Process

The Commodity Group is responsible for conducting the

risk assessment and mitigation planning, if neededWhere a suppliers products cross multiple CommodityGroups, the Commodity Group with the greatest spend isresponsible for the risk assessment

The risk categories may be adjusted by the CommodityGroup as required to properly evaluate the risk

A whole number value is to be assigned from 1 (lowestrisk) to 5 (highest risk) for each risk category. Wherevera 5 risk is indicated a comment field is to be filled in withan explanation of the reason for the risk level


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Supplier Risk - Example Ratings

PL = PlantSS/SS (IP) = Single Source/Sole SourceFin. Stability = Financial Stability

Vendor

Name

2009

USD(millions)

Vendor

Category

PL SS/SS

(IP)

Fin.

Stability

Complexity/

CriticalProcess

Capability

Succession

Plan

Capacity/

Performance

Political and

AssociatedRisks

Overall

Risk

Comment

Supplier A $5 StrategicPartner

PLTA

1 1 1 1 1 1 6

Supplier B $4 CriticalSupplier

PLTB

5 1 1 1 1 1 10

Supplier C $3 Strategic

Partner

PLT

C1 3 4 4 3 3 18

Supplier D $2 StrategicPartner

PLTD

1 3 3 3 3 3 16

Supplier E $1 StrategicPartner

PLTE

1 4 4 4 4 4 21

Supplier Risk Evaluation Form


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Supplier Risk - Review and Rating Process

Using the risk analysis form to measure the 6 areas of risk, a combined score of the 6 areas between 6and 30 will be assigned to each supplier. 6 being the lowest risk possible and 30 the highest.

Rating Color Combined Score Highest Singlearea Risk Score

Risk Action

Green


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Supplier Risk Rating Form

Vendor Category Key Product Li ne

Single Source/Sole

Source (IP) Financial Stability

Complexity/Critical

Process Capabil ity Succession Plan

Capacity and

Performance Compli ance/Securi ty Overal l Ri sk Score


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Final Q & A


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Presenter Contact Information

Eric Gerner, Experis

Director of Risk Advisory Services

[email protected]

John Hejka, Experis

Finance Transformation COE

[email protected]

Michael Miedema, Baker Hughes

Director of Strategic Sourcing

[email protected]

Mary Driscoll, APQC

Senior Research Fellow, Financial Management

[email protected]
mailto:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]


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Managing Risk of Supply Chain Disruption