1 Supply Chain Risk Management Vinod R. Singhal Scheller College of Business Georgia Institute of Technology Atlanta, GA, May 2, 2013 Presented in the MOT Program at Sogang University Seoul, South Korea

2  Identify the primary sources of supply chain risks.  Identify the causes of supply chain risks  Estimate the likelihood (probability, frequency, or chances) of the risk occurring.  Estimate the financial consequences (impact) of risks.  Prioritize risks based on likelihood and financial impact.  Identify strategies and actions to mitigate the frequency and\or financial consequences of supply chain risks.  Review the risk management process and continuously improve the process. A process for managing supply chain risks

3  Natural disasters  Inaccurate forecasts  Supplier Poor Performance Long lead times Bankruptcy  Customers Changing needs Variability in demand Bankruptcy  Logistics Equipment shortages Congestion Accidents Regulations Categories of supply chain risks  Internal risks Inflexible capacity Equipment breakdown Long lead times  Procurement Long-term vs. short-term Squeeze prices Single sourced  Supply chain structure Complexity Globalization Outsourcing Single sourcing Over concentration Lean supply chains

4  Labor Strikes\absenteeism Inflexible workforce  Information technology Unreliable IT systems Non-integrated IT network Lack of timely information Categories of supply chain risks  Macro-economic factors Exchange rate Interest rate Tax policies Credit squeeze  Government/regulatory Security Rules and regulations

5 Debra Elkins: A framework for Business Interruption Risk Analysis: GM Research Lab Paper

6  Estimate the likelihood of occurrence of risk Estimate the probability/frequency Qualitative assessment (point scale or categories)  Estimate the financial consequences Estimate the $ value of the risk Qualitative assessment (point scale or categories) Likelihood/consequences of supply chain risks

7  Information from your own organization  Trade association and trade publications  Conferences  Internet, newspaper, and magazines  Universities  Experts and consultants Getting information about supply chain risks

E XAMPLE R ESULTS OF I NITIAL R ISK I DENTIFICATION 8 Initial risk ranking is conducted by checklist method, and typically results in 40 to 80 critical plus major risks. Initial ranking is followed by discussions (calibrations) to agree the most significant 10 to 25 risks.

9 Survey

10 Who should be involved

11  Contingency planning Analyze what could potentially go wrong Identify and analyze possible alternatives Develop plans – what to do, when, how, and who Assign responsibility and give authority Monitor the situation Execute the plan as needed Strategies for managing supply chain risks

12  Redundancy Extra inventory Extra capacity Backup systems Multiple suppliers Multiple sites Dedicated resource to products, processes Strategies for managing supply chain risks

13  Reduce the frequency (probability) of disruptions Better forecasting Better planning Communicate, collaborate, and share Build trust in the network  Develop ability to predict disruptions (business intelligence) Select, define, and track key performance indicators Analyze disruptions to develop key leading indicators Track leading indicators Need visibility Strategies for managing supply chain risks

14  Elapsed time between the occurrence and detection of disruptions Aim for zero elapsed time Real time visibility of the extended supply chain  Time it takes to resolve disruptions Quick resolution, prevent escalation and worsening A process for dealing/responding to disruptions Developing capabilities to react and respond Strategies for managing supply chain risks

15  Know your suppliers Two-way communication - build trust and relationship with critical suppliers Set up a financial rating system – profitability, cash flows, ownership structure, debt structure Set up an early warning system – quality, capacity, delivery issues, financial issues Know your suppliers’ suppliers Interdependencies of your suppliers – same customers, same industries, same shareholders Strategies for managing supply chain risks

16  Know your customers Two-way communication - build trust and relationship with key customers Set up a financial rating system – profitability, cash flows, ownership structure, debt structure Set up an early warning system – payment timing, inventory Concentration of customer base Know your customers’ customers Other suppliers to your customers Strategies for managing supply chain risks

17  Visibility Aware of what is happening in supply chains Select key leading indicators of supply chain Monitor these indicators using appropriate benchmark Communicate deviations to appropriate levels  Collaborate and cooperate with your supply chain partners Develop trust among supply chain partners Show that you are willing to collaborate Agree upfront on how to share the benefits Share information, joint decision making/problem solving Strategies for managing supply chain risks

18  Improve the accuracy of forecasts Long-term forecasts are less accurate than short-term Aggregate forecasts are easier than disaggregate Collect data from your supply chain partners Question the assumptions that go into building a forecast  Reduce mean and variance of lead times Remove non-value added steps and activities Improve the reliability and robustness of processes Consider lead time issues in planning and forecasting Strategies for managing supply chain risks

19  Flexibility - Product design - standardization - modularity - parts commonality - Manufacturing - flexible technology and capacity - committed and uncommitted capacity - standard processes - cross-training - Sourcing - flexible contracts - multiple sourcing - supplier capabilities - spot markets Strategies for managing supply chain risks

20 Strategies for managing supply chain risks Turbo charge your imagination Build Scenarios Probabilities Face reality Quick response Share the bad news

21  Have you done a post-mortem or review of your risk management processes and framework?  Have you evaluated the effectiveness of your process?  What worked and what did not?  What can be improved?  Have the key lessons been recorded for other members of your firm to learn from? Improving the supply chain risk management process

22  Managing supply chain risks should be a critical issue for top management  Top management should provide leadership and resources for the organization to address supply chain risk issues  Firms need to develop capabilities for effectively managing risks  Ability to manage supply chain risks can determine whether a firm can compete effectively Final Thoughts