Supply Chain Risk Leadership Council 1 Metrics Track Update October 2008 Ravi Anupindi Tim Astley Andrew Cox Feryal Erhun Frederick Hartung John O’Connor Dave Pollard Lance Solomon

Supply Chain Risk Leadership Council 2 Agenda Track Scope & Objectives Track Deliverables Metrics Portfolio High Level Overview of Metric Definitions Format of Detailed Metrics Definitions Example Metric Definition: Revenue Exposure Next Steps

Supply Chain Risk Leadership Council 3 Metrics Track Scope & Objectives  Develop a list of metrics that represent the standard for measuring risk  Develop standard definitions and mathematical formulas, where appropriate for metrics  Common data sources for creating metrics  Define typical uses for metrics

Supply Chain Risk Leadership Council 4 Metrics Track Deliverables  Develop list of standard metrics to measure risk  Develop definitions of standard metrics, including math formulas, where appropriate  Define data sources & programs dependencies  Publish metrics and definitions to the council  Commitment from council to use metrics and report out progress  Publish metrics in SCRLC newsletter

Supply Chain Risk Leadership Council 5 Metrics Portfolio Time to Recover Revenue Exposure Resiliency Index Business Continuity Plan Effectiveness Tactical Monitoring SCRLC Metrics Portfolio

Supply Chain Risk Leadership Council 6 Metrics Portfolio Time to Recover Revenue Exposure Resiliency Index Business Continuity Plan Effectiveness Tactical Monitoring SCRLC Metrics Portfolio  Measures operational impact of a supply chain disruption  Useful in establishing recovery objectives  Enables assessment of multiple supply chain components

Supply Chain Risk Leadership Council 7 Metrics Portfolio Time to Recover Revenue Exposure Resiliency Index Business Continuity Plan Effectiveness Tactical Monitoring SCRLC Metrics Portfolio  Measures financial impact of a supply chain disruption  Useful in prioritizing mitigation efforts  Allows assessment of supply chain disruptions to help target recovery plans

Supply Chain Risk Leadership Council 8 Metrics Portfolio Time to Recover Revenue Exposure Resiliency Index Business Continuity Plan Effectiveness Tactical Monitoring SCRLC Metrics Portfolio  Combines multiple measures into a single metric  Enables comparison of different organizational entities (e.g. business units, product families, etc)  Useful for Executive Level discussions

Supply Chain Risk Leadership Council 9 Metrics Portfolio Time to Recover Revenue Exposure Resiliency Index Business Continuity Plan Effectiveness Tactical Monitoring SCRLC Metrics Portfolio  Evaluates completeness of BCP programs  Evaluates quality of BCP response

Supply Chain Risk Leadership Council 10 Metrics Portfolio Time to Recover Revenue Exposure Resiliency Index Business Continuity Plan Effectiveness Tactical Monitoring SCRLC Metrics Portfolio  Provide an early warning system for unknown events or weaknesses in the supply chain

Supply Chain Risk Leadership Council 11 Format For Metrics Definitions High level description of the metric Definition Details on how the metric can be calculated, where applicable Mathematical Formula Data sources that are typically used in the calculation Typical Data Source Where the metric can be applied (e.g. Corporate, BU, Product) Level of Application How the metric is used and what can it drive Typical Uses

Supply Chain Risk Leadership Council 12 Example Metrics Definition – Revenue Exposure  Definition The maximum amount of gross revenue potentially lost during a supply chain disruptionThe maximum amount of gross revenue potentially lost during a supply chain disruption Defined as an amount of time as TTRDefined as an amount of time as TTR  Mathematical Formula Revenue * TTR + Go Forward Market Share LossRevenue * TTR + Go Forward Market Share Loss oGo Forward Market Share Loss may be hard to estimate but it is included to drive thought around how TTR may impact revenue exposure based on how your competition can react Revenue and TTR need to be in the same time unitsRevenue and TTR need to be in the same time units  Typical Data Sources Sales/Shipment HistorySales/Shipment History ForecastsForecasts See TTR sourcesSee TTR sources  Level of Application From a piece of equipment on the factory floor to the enterpriseFrom a piece of equipment on the factory floor to the enterprise  Typical Uses Benchmarking with competitorsBenchmarking with competitors Prioritizing mitigation effortsPrioritizing mitigation efforts Trade-off cost of mitigation vs. TTR and Revenue Exposure reductionTrade-off cost of mitigation vs. TTR and Revenue Exposure reduction Impact on stock priceImpact on stock price Crisis response analysisCrisis response analysis

Supply Chain Risk Leadership Council 13 Next Steps  Agreement to adopt the metrics by Council membership  Publish Metrics: Newsletter, Website  More Detailed Standards?  More definition on real time measurements?

Supply Chain Risk Leadership Council 14 Backup

Supply Chain Risk Leadership Council 15 Metrics Definition: TTR  Definition Amount of time required to restore 100% operational output (units) following a supply chain disruptionAmount of time required to restore 100% operational output (units) following a supply chain disruption Defined as an amount of time (i.e., weeks, days, hours, shifts, etc.)Defined as an amount of time (i.e., weeks, days, hours, shifts, etc.)  Mathematical Formula N/AN/A  Typical Data Sources BCP ProgramBCP Program Lead TimesLead Times Transit TimesTransit Times Governmental SourcesGovernmental Sources  Level of Application From a piece of equipment on the factory floor to the enterpriseFrom a piece of equipment on the factory floor to the enterprise There are 2 measures of TTRThere are 2 measures of TTR oTTR at an alternate site oTTR at the impacted site  Typical Uses Trade-off of TTR Mitigation vs. CostTrade-off of TTR Mitigation vs. Cost TTR Benchmarking with competitorsTTR Benchmarking with competitors Need to look across all nodes to assess supply chain TTRNeed to look across all nodes to assess supply chain TTR Setting TTR goals to focus mitigation effortsSetting TTR goals to focus mitigation efforts Manage customer expectations on continuity of supplyManage customer expectations on continuity of supply

Supply Chain Risk Leadership Council 16 Metrics Definition: Revenue Exposure  Definition The maximum amount of gross revenue potentially lost during a supply chain disruptionThe maximum amount of gross revenue potentially lost during a supply chain disruption Defined as an amount of time as TTRDefined as an amount of time as TTR  Mathematical Formula Revenue * TTR + Go Forward Market Share LossRevenue * TTR + Go Forward Market Share Loss oGo Forward Market Share Loss may be hard to estimate but it is included to drive thought around how TTR may impact revenue exposure based on how your competition can react Revenue and TTR need to be in the same time unitsRevenue and TTR need to be in the same time units  Typical Data Sources Sales/Shipment HistorySales/Shipment History ForecastsForecasts See TTR sourcesSee TTR sources  Level of Application From a piece of equipment on the factory floor to the enterpriseFrom a piece of equipment on the factory floor to the enterprise  Typical Uses Benchmarking with competitorsBenchmarking with competitors Prioritizing mitigation effortsPrioritizing mitigation efforts Trade-off cost of mitigation vs. TTR and Revenue Exposure reductionTrade-off cost of mitigation vs. TTR and Revenue Exposure reduction Impact on stock priceImpact on stock price Crisis response analysisCrisis response analysis

Supply Chain Risk Leadership Council 17 Metrics Definition: Resiliency Index  Definition A Score from 0 to10, with 10 being most resilient supply chainA Score from 0 to10, with 10 being most resilient supply chain Index Components:Index Components: oSubstitution % oTTR (e.g., Mfg, Test Environments, Component Suppliers, etc) o% Single / Sole Sourced oLikelihood of Disruption oNetwork (Transportation, Factories, etc.) redundancy oIT Infrastructure & Process Redundancy oRelationships with recovery organizations (regulatory authorities, government, surveyors, damage assessment, etc.) oOrganizational structure and dedicated risk management function  Mathematical Formula Weighted average based on each component having a weight and a score from 0 to 10Weighted average based on each component having a weight and a score from 0 to 10 Each component scoring method will be industry specificEach component scoring method will be industry specific oFor example, TTR scoring could be scored on a range of 12 – 52 weeks or a range of 4 – 20 weeks  Typical Data Sources Business Continuity Plan recovery timesBusiness Continuity Plan recovery times Approved Vendor ListApproved Vendor List Lead timesLead times Actuary dataActuary data  Level of Application Business UnitBusiness Unit FactoryFactory Supply ChainSupply Chain ProductProduct  Typical Uses Driving behavior towards design for riskDriving behavior towards design for risk Measuring overall supply chain riskMeasuring overall supply chain risk Insurance risk improvement discussionsInsurance risk improvement discussions

Supply Chain Risk Leadership Council 18 Metrics Definition: Business Continuity Plan Effectiveness  Definition % of suppliers completed% of suppliers completed % of revenue covered with BCPs% of revenue covered with BCPs % of spend covered with BCPs% of spend covered with BCPs % of long lead time items with BCPs% of long lead time items with BCPs % of part/site mappings completed% of part/site mappings completed # of BCP exercises per time period# of BCP exercises per time period Frequency of BCP updates & reviewingFrequency of BCP updates & reviewing BCP Quality Score (0 to 10 with 10 being world-class)BCP Quality Score (0 to 10 with 10 being world-class) o0, 1, 4, 7 and 10 are the only scores to use to provide differentiation oCritical assessment areas: BCP test/drilled (command post, table top, simulation), Frequency of updating, assessed by third party, communication plan, documented roles & responsibilities  Mathematical Formula # of suppliers completed / # of suppliers surveyed# of suppliers completed / # of suppliers surveyed Revenue enabled by suppliers completed / Total Revenue enabled by suppliers surveyedRevenue enabled by suppliers completed / Total Revenue enabled by suppliers surveyed # of Part/Site mappings completed / # of Part/Site mappings requested# of Part/Site mappings completed / # of Part/Site mappings requested # of suppliers for parts with lead time > xxx with BCP/ # of suppliers for parts with lead time > xxx# of suppliers for parts with lead time > xxx with BCP/ # of suppliers for parts with lead time > xxx  Typical Data Sources Approved Vendor List linked to BOMApproved Vendor List linked to BOM Sales Order History or ForecastSales Order History or Forecast BCP survey tracking resultsBCP survey tracking results  Level of Application Supplier, site and part levelSupplier, site and part level  Typical Uses Measuring response rates for BCP requestsMeasuring response rates for BCP requests Measuring amount of revenue coverage for a BCP programMeasuring amount of revenue coverage for a BCP program

Supply Chain Risk Leadership Council 19 Metrics Definition: Tactical Risk Measurement  Definition Introduce a new metric which will track several tactical/operational indicators and warn decision makers about potential risks based on the current levels of these indicators.Introduce a new metric which will track several tactical/operational indicators and warn decision makers about potential risks based on the current levels of these indicators. Inventory levels, cycle times (demand and supply), quality, etc.Inventory levels, cycle times (demand and supply), quality, etc.  Mathematical Formula (Potentially) Use SPC techniques to track the changes in indicators over time and issue warning signals for out-of- control indicators(Potentially) Use SPC techniques to track the changes in indicators over time and issue warning signals for out-of- control indicators  Typical Data Sources Planning System – inventoryPlanning System – inventory Shop floor system – cycle timeShop floor system – cycle time  Level of Application Product levelProduct level  Typical Uses Early warning system for unknown risk or unknown eventsEarly warning system for unknown risk or unknown events A well-defined tactical/operational metric can bring a competitive advantage. (Remember the Nokia-Ericsson-Philips case.)A well-defined tactical/operational metric can bring a competitive advantage. (Remember the Nokia-Ericsson-Philips case.)