1. Supply Chain Management (SCM) Risk Management and Contingency Planning
Introduction
Risk management definition
Risk Management Framework
Failure Mode and Effect Analysis (FMEA)
Case studies
Risk assessment survey
Conclusions
Further readings
Compiled by:
Alex J. Ruiz-Torres, Ph.D.
From information developed by many.

2. Introduction
Today, organizations operate in increasingly complex and uncertain environments with high risks of supply disruptions making supply management an increasingly complex task (Ellis et al., 2010).
Supply disruptions can be defined as any unforeseen events that disturb the normal flow of goods and materials in a supply chain.
Why is uncertainty more important?
Globalization
Higher level of dependency
Leanization

3. Introduction
Supply disruptions can come from a wide variety of sources, including physical damage at production facilities, natural disasters, strikes and labour disputes, (Chopra and Sodhi, 2004)
Risk management should form an integral part of good purchasing and supply practice.
It is essential to address the 'right' risks and use the 'right' strategies. (Chopra and Sodhi, 2004).

4. Risk Management
Definition: Generally, risk can be defined as the probability of an unwanted outcome happening
Risk management involves three key activities:
risk analysis,
risk assessment and
risk mitigation
Application: it is important to allocate risks to specific persons and/or departments that are best placed to manage them effectively.

5. Risk Management Framework
Map Supply Network: the participants of supply chain. Identify relationships, key measures and ownership.
Identify Risk: Evaluate whether significant risk exists within the network, and whether existing risk management practices are identifying and managing it. This involves building a cross functional team of subject matter experts. … team brainstorms and defines enterprise risks… filter down risks that are relevant to manufacturing and supply chain operations
Assess Risk: Build a Risk map based upon probability of occurrence and loss severity

6. Risk Management Framework
Manage Risk: Build an integrated supply chain process map. For each repeatable risk, build a Impact map indicating where risk is causing primary disruption. Build models to estimate probability of risk and number of events expected. Build models to assess monetary loss at impact points. Prioritize high impact points. Develop various scenarios.
Implement Actions: Build risk mitigation plan for repeatable risks at the high impact points. Set up early warning signals. Prepare contingency plan for non repeatable risk. Put a Regular Risk review mechanism in place. Have some Risk awareness campaign

7. Performance Monitoring
Probability of a supply disruption (in %)
Impact of a disruption: can be expressed as loss in profits, or days of production lost
Frequency of supply disruptions
Duration of a disruption, that is, days, weeks
Reduction of shareholder prices

8. Sources of Supply Chain Risks
Supply-chains are very complex, with many parallel physical and information flows occurring in order to ensure that products are delivered in the right quantities, to the right place in a cost-effective manner.
Supply chain risk is about any threat of interruption to the workings of the supply chain.
Risk may be generated as a result of risk 'drivers' that are either internal or external to the company
External
Environment
Demand
Supply
Process
Internal
Control

9. Sources of Supply Chain Risks
External Drivers:
Demand risk: relates to potential or actual disturbances to flow of product to customers, information, and cash, emanating from within the network, between the focal company and the market. 
Supply risk: is the upstream equivalent of demand risk, it relates to potential or actual disturbances to the flow of product or information emanating within the network, upstream of the focal company.
Environmental: is the risk associated with external and, from the company's perspective, uncontrollable events.

10. Sources of Supply Chain Risks
Internal Drivers:
Process risk: are the sequences of value-adding and managerial activities undertaken by the company. Process risk relates to disruptions to these processes.
Equipment breakdowns
Employee strike
Control risk: are the assumptions, rules, systems and procedures that govern how an organization exerts control over the processes.
Shipping policies
Maintenance policies

11. Risk planning Mitigation and contingency
Mitigation is a hedge against risk built into the operations themselves and, therefore, the lack of mitigating tactics is a risk in itself.
Contingency is the existence of a prepared plan and the identification of resources that can be mobilized in the event of a risk being identified (occurring).

12. Risk reduction mechanisms
Improved information visibility, which reduces the time between the disruption and its discovery.
Excess resources, which reduces the time between disruption discovery and recovery.
Supply Chain Planning and Collaboration, which ensures that the design of the supply chain is made more robust to reduce the probability of these events occurring again.

13. Risk reduction mechanisms
Strategically positioned Excess Resources
Expediting and Premium Freight
Safety Stock
Additional Manpower
Disruption Discovery Visibility Systems
Risk Monitoring systems
Inventory Visibility systems
Event Management systems
Deploy RFID at strategic nodes in supply chain
Predictive analysis modeling tools

14. Risk reduction mechanisms
3. Supply Chain Planning and Collaboration
Supplier Qualification/Assessment tools
C-TPAT and other customs programs
Risk enumeration, severity analysis & contingency planning
Supply chain education and risk management training
Cross-functional risk planning at partner locations
Weekly teleconferences/ Daily status meetings
Defined communication network protocols and mechanisms
Define contingency plan responsibilities
Post event analysis and lessons learned meetings
Diversification planning to reduce constrained node options

15. Risk reduction for Supply Chain
Supplier Qualification
Process of evaluating and approving potential suppliers by quantitative assessment. The purpose of supplier evaluation is to ensure a portfolio of best in class suppliers is available for use.
C-TPAT and other customs programs
The Customs-Trade Partnership Against Terrorism (C-TPAT) is a voluntary supply chain security program led by U.S. Customs and Border Protection (CBP) and focused on improving the security of private companies' supply chains with respect to terrorism. The program was launched in November 2001 with seven initial participants, all large U.S. companies.

16. Risk reduction for Supply Chain
Cross-functional risk planning
A cross functional team places less emphasis on the members' specific roles within the organization and more emphasis on communication and working together to accomplish organizational goals about risk.
Optimization of supply chain system
Application of processes and tools to ensure the optimal operation of a manufacturing and distribution supply chain. This includes the optimal placement of inventory within the supply chain, minimizing operating costs (including manufacturing costs, transportation costs, and distribution costs). This often involves the application of mathematical modeling techniques using computer software

17. Supply Chain Planning and Collaboration
Define contingency plan responsibilities
A contingency plan is a plan devised for an outcome other than in the usual (expected) plan. It is often used for risk management when an exceptional risk that, though unlikely, would have catastrophic consequences.
The plan may also include standing policies to mitigate a disaster's potential impact, such as requiring employees to travel separately or limiting the number of employees on any one aircraft.
Post event analysis and lessons learned meetings

18. FMEA (Failure Mode and Effects Analysis)
FMEA is an analytical methodology used to ensure that potential problems have been considered and addressed throughout the product and process development cycle. FMEA helps to:
Discover the potential failures, their potential cause mechanisms and the risks designed into a product or process
Develop actions that reduce the risk of failure
Follow-up and evaluate the results of actions on the risks that were discovered

19. FMEA (Failure Mode and Effects Analysis)
Requires the identification of the following basic information:
Item(s)
Failure(s) modes
Probability (likelihood of occurrance) of the mode
Effect(s) of failure
Cause(s) of failure
Current control(s)
Recommended action(s)
Plus other relevant details

20. FMEA (Failure Mode and Effects Analysis)

21. RPN = Severity x Occurrence x Detection
Risk evaluation methods with FMEA
A typical failure modes and effects analysis incorporates some method to evaluate the risk associated with the potential problems identified through the analysis. The most common method, Risk Priority Numbers, is described next.
To use the Risk Priority Number (RPN) method to assess risk, the analysis team must:
Rate the severity of each effect of failure.
Rate the likelihood of occurrence for each cause of failure.
Rate the likelihood of prior detection for each cause of failure (i.e. the likelihood of detecting the problem before it reaches the end user or customer).
Calculate the RPN by obtaining the product of the three ratings:
RPN = Severity x Occurrence x Detection
The RPN can then be used to compare issues within the analysis and to prioritize problems for corrective action. I

22. Some examples
Toyota suffered a major supply disruption caused by power cuts following an earthquake in March As a result Toyota (along with other car manufacturers) was forced to cut production at their plants. The company had to operate at 50% of its normal production volumes and its operating profit was reduced to £3.5b from the predicted £4.1b (SupplyManagement.com, 2011).
In 1998 Hurricane Mitch caused complete disruption of banana production at many plants in Central America resulting in a prolonged supply disruption for Dole and Chiquita, two major banana suppliers. For example, Dole lost 70% of its regional supply, suffered a 4% decline in revenues, and lost over US$100m (Tomlin, 2006). In 1997 a fire at a parts factory of Aisin Seiki Co. Ltd., one of Toyota’s key suppliers, forced Toyota to shut down production in 18 of its Japanese plants for two weeks. This cost Toyota US$195m (Chopra and Sodhi, 2004; Tomlin, 2006).

23. Risk assessment survey
How is the risk landscape changing?
What unique risk aspects should manufacturers consider?
Is risk ownership aligned to address the needs of the organization?
Can today’s risk assessment techniques assess tomorrow’s top risks?
The value and benefits of enhanced risk management
Source: Understanding risk assessment practices at manufacturing companies – Deloitte and MAI – March 2015

24. How is the risk landscape changing?
Top risk of tomorrow

25. How is the risk landscape changing?
The pace and impact of innovation
Product Innovation can rapidly make existing products obsolete. Innovation in the manner and pace at which products are developed, produced, and taken to market has the potential to deliver considerable value to the innovator.
Managing cyber risk
- Almost every top IT risk of tomorrow has a cyber impact element. The traditional discipline of security, may no longer be enough to protect an organization . We must include cyber security education programs, internal audits, and in Cloud computing we have take into account, the confidentiality, security, service continuity, and regulatory compliance in the digital enterprise.