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A detailed presentation on the different risks encountered in supply chain systems of organizations and also a guide on how to tackle them effectively
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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”
25
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
26
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
27
“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
29
“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
30
“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