References: Supply Chain Saves the World. Boston, MA: AMR Research (2006); Designing and Managing the Supply Chain – Concepts, Strategies and Case Studies; D. Simchi-Levi, P Kaminski and E. Simchi-Levi; 3rd Edition; McGraw Hill Supply Chain Saves the World Risk Management the Supply Chain Responds SCM-655: Global Supply Operations Strategy 1.System Check 2.BP Unchained 3.Key Concepts 4.Question & Answer

Today’s Journey Risk and the Supply Chain Risk Management Strategies Risk V12-00

Risk Management in the Supply Chain Globalization has brought new energy and opportunity to business around the world. Risk management has become an essential discipline for supply chain professionals tasked to source and deliver globally while limiting exposure to disaster V12-01

Uncertainty About the Future Supply chain places many informed “bets” and asks several key questions: Can we beat competitors to market? Will suppliers respond when our forecast is too low? How can we source a critical custom part? How can we prepare for a disaster? V12-02

Risk Tolerance Risk tolerance varies by company Generally, investors accept more risk with expectation of high return on investment V12-03

Key Areas for Risk Assessment Probability of demand Likelihood of reliable supply Most effective allocation of resources Probability of success of new product launch Market growth Opportunity costs for decisions V12-04

Risk Management Key Elements Forecast and plan for risk and uncertainty Develop a method for assessing current risk Organize for risk V12-05

Risk Concepts Risk: Potential for unwanted negative consequences from events Resilience: Ability to prevent, withstand, and recover from these events Failures: Occurrences that have negative consequences to operations V12-06

Risk of Failure Grid Less-likely failures with high impact More-likely failures with high impact Less-likely failures with low impact More-likely failures with low impact High Low High Impact Likelihood Goal Avoid V12-07

Risk of Failure Examples Servers go down due to a catastrophic event such as an earthquake Servers go down due to hackers, and customers lose service Service slows due to high Internet traffic Service slows due to temp. local energy conservation High Low High Impact Likelihood Goal Avoid V12-08

Where Does Your Company Fit? High Low High Impact Likelihood V12-09 Apple Intel Johnson & Johnson Dell PepsiCo What kids of Risks do our companies face?Where would you place them on the Grid?

Operations & Process Resilience Elements Negative Consequences of Failure Assess the potential causes of, and risks from failure Prevent Failure Occurring Mitigate the Effects of Failure Recover from the Effects of Failure Failure V12-10

Failure Mode and Effect Analysis Risk Priority Number Probability of Occurring Degree of Severity Likelihood of Detection Normal Operation Failure Severity of Consequences Effect on Customer V12-11

FMEA Example FailureProbability of Occurrence Severity of Failure Probability of Escape from Detection RPN Goods not secured Goods incorrectly secured Goods incorrectly loaded Which failure should be prioritized for corrective action? RPN = (Occurrence x Severity x Detection) V12-12

Recovering from Failures Communicate Contain Follow up Find root cause Failure prevention What happened? Who is affected? Why did it occur? Failure analyses Recovery planning PlanDiscover ActLearn V12-13

Strategies for Managing Demand Risks Customer Rationalization Price Management and risk sharing Social Responsibility for brand owners Hedging Strategies to mitigate cost risk Demand Driven Logistics to mitigate supply risk Supplier Development Intellectual Property Management Network Design for Agility Buy-side Contract Management Sales & Operations Planning V12-14

Strategy Relationship to Global SCM Demand Supply Product Customer Rationalization Revenue Management Contract Management Network Design for Agility Network Design for Agility Sales & Operations Planning Intellectual Property Management Social Responsibility Hedging Strategies Demand Driven Logistics Supplier Development V12-15