1. CHAPTER 16: Risk and Sustainability

2. Overview of supply chain risk and sustainability
Evolving responsibilities of supply chain professionals
Processes and resources
Risk and security management
Sustainability

3. Supply chain risks have increased to support business strategies
Balanced scorecards had expanded supply chain performance measures to include return on assets and revenue
New production introductions amount to 25% of all item volume shipped each year
Sustainability of business operations is critical and led to more long-term focus in strategy development

4. Evolving Responsibilities of Supply Chain Professionals
Functions
Procurement
Manufacturing
Logistics
Figure 16.1 – Evolving Responsibilities of Supply Chain Professionals

5. Evolving Responsibilities of Supply Chain Professionals
Functions
Procurement
Manufacturing
Logistics
Process and Resources
Figure 16.2 – Evolving Responsibilities of Supply Chain Professionals

6. Evolving Responsibilities of Supply Chain Professionals
Process and Resources
Risk and Security
Functions
Procurement
Manufacturing
Logistics
Figure 16.3 – Evolving Responsibilities of Supply Chain Professionals

7. Evolving Responsibilities of Supply Chain Professionals
Process and Resources
Risk and Security
Sustainability
Functions
Procurement
Manufacturing
Logistics
Figure 16.4 – Evolving Responsibilities of Supply Chain Professionals

8. Processes and resources
Product complexity
Outsourcing

9. Product complexity is the number of product design variations a firm offers and supports
Increased complexity results in higher supply chain cost
More inventory, fewer economies of scale and more management attention
Increase complexity often results in increased revenue
May improve profitability and asset utilization
Less complexity (aka more commonality) reduces supply chain costs
E.g. Toyota has only two variants for auto door latches while competitors have over 10
Reduced product variations may lower sales
Firm’s offerings are less attractive with fewer features or characteristics

10. Variation typically results in higher supply chain costs, but more choice for customers
Table 16.1 Benefits of Low Complexity
Table 16.2 Characteristics of High Complexity

11. How do we balance complexity with profit? Over what time period?
Figure 16.5 Complexity and Profitability

12. Table 16.2 – Measureable benefits from use of 3PLs
CHANGE
Logistics cost reduction
15%
Logistics fixed asset reduction
25%
Inventory cost reduction
11%
Average order cycle length
Reduced from 17 to 12 days
Average order fill rate
Increased from 73 to 81 percent
Average order accuracy
Increased from 83 to 85 percent

13. Figure 16.4 – Types of services outsourced to logistics integrators
Outsourced Logistics Service
Percent of Respondents Outsourcing
Domestic transportation 83
International transportation 75
Warehousing 74
Customs brokerage 58
Forwarding 53
Cross-docking 38
Product labeling, packaging, assembly, kitting 36
Reverse logistics (Defective, repair, return) 35
Transportation planning and management 31
Freight bill auditing and payment 28
Information technology (IT) services 20
Supply chain consultancy services provided by 3PL 18
Order entry, processing, and fulfillment 16
Fleet management 15
Customer service 13
Lead logistics provider/4th party logistics services

14. Outsourcing is a risk management technique
Use of third-party logistics (3PL) firms or logistics integrators to provide services on a contractual basis
3PL providers offer integrated transportation and warehousing services
Integrated service providers
Solicit and coordinate logistics services
Provide resource management expertise
Shift risk of a supply chain activity to an outsourcing partner with expertise
Pooling capacity across clients results in a lower risk of not being able to meet customer demands in a surge

15. Regulations can promote or constrain supply chain activities
Promote activity
Encourage certain work in a specific country/region by providing financial or tax incentives
Constrain activity
Limit types of activities that can be done in a country/region to reduce impacts
Some examples
Environmental
Financial and taxation

16. Risk and security management
Regulation
Financial and taxation
Security

17. Environmental regulation supporting green initiatives has increased
Green initiatives include regulations and activities to directly reduce the supply chain’s impact on the environment
Examples
Federal government mandate to reduce harmful vehicle emissions
WalMart effort with suppliers to reduce packaging waste
Dow Chemical redesign of supply chain to reduce environmental impact

18. Recycling initiatives are experiencing renewed growth
Numerous US states encourage container returns by requiring deposits for consumer beverage containers
Wastes of Electric and Electronic Equipment (WEEE) legislation passed in European Union
Requires recycling of electronic waste
How active should a firm be in promoting recycling initiatives through public policy?
Who should design the reverse logistics systems?
Public policy and legislators?
Private enterprise?
WEEE requires firms manufacturing appliances and electronics in Europe to enable reverse supply chains that accept end-of-life product, return it to a reprocessing facility, and either recondition it for resale or decompose it to components for reuse or recycle.

19. Financial and taxation incentives are increasingly important in supply chain design
Property taxes
Tax holiday waives taxes on property, equipment and/or inventory for a defined period or permanently
Income taxes
Countries with lower corporate tax rates are more attractive
Value-added taxes (VAT)
Taxes only the value added to a product while in that country
E.g. Ireland VAT reduction for electronics and pharmaceutical industries

20. Tax aligned supply chain (TASC)
TASC aims to help firms achieve a favorable worldwide tax rate
Two supply chain strategies are common
Central entrepreneur strategy
Centralize key functions and risks in a low-tax country
Incremental strategy
Consider tax implications of each supply chain change
Probable duration of tax incentives must be carefully evaluated

21. Security of supply chains is more critical with global operations
Developing a secure supply chain
Rationale for supply chain protection
Cross-border operations

22. Developing a secure supply chain
Supply chain security is
the application of policies, procedures, and technology
to protect assets, product, facilities, equipment, information and personnel
from theft, damage, or terrorism
and to prevent the introduction to the supply chain of unauthorized contraband, people, or weapons of mass destruction

23. Supply chains need to be secure and resilient
Resiliency is the ability of the supply chain to withstand and recover form an incident
Resilient supply chains
Are proactive in anticipating and establishing steps to prevent and respond to security incidents
Can quickly rebuild or reestablish alternative means of operations when they experience a security incident

24. Rationale for supply chain protection
Proactively enhance supply chain resiliency against terrorism
Consequences of supply chain security failures
Terrorist attack causes widespread disruption to customer delivery capabilities
Reduced brand equity if customers believe attack was due to neglect
Loss of revenue leads to loss of investor confidence and sale of stock
Disruption could increase regulatory scrutiny
Terrorist attack could result in significant legal liability

25. Enhancing security is driven by two key factors
Brand protection is the primary reason
Fear product contamination will damage customer perceptions
Firms now require greater security from their suppliers with initiatives such as quality certification programs, audits, the Customs-Trade Partnership Against Terrorism (C-TPAT)
Government pressure is another factor
Bioterrorism Act of 2002
Firms engaged in food processing must be able to trace raw materials and finished goods one step up and one step down the supply chain
“Country of origin labeling” (COOL) guidelines have been developed for some agricultural and food products

26. The security framework identifies 10 core competencies that firms must develop
Table 16.5 Supply Chain Security Competency Definitions

27. Table 16.6 Examples of Security Best Practices
Competency
Corporate Example
Process Strategy
Senior management believes that supply chain security is critical for consumer and brand protection
Firm has cross-functional representation on senior level security crisis management team
Management support for security consciousness is indoctrinated through ongoing training
Process Management
Defined procedures to complete product recalls
Standardized procedures to control receipt and shipment of product
Applies Hazard Analysis and Critical Control Point (HACCP) system
Infrastructure Management
Application of gates, locks, access controls, and guards to restrict access to sensitive areas
Application of monitoring equipment to detect unauthorized activity
Controls for non-employees to limit access to facilities and operations
Communication Management
Incorporates modules on preventing contamination/security incidents into employee training
Establishes defined communication protocols in case of a contamination/security incident
Established defined reporting protocols in case of a contamination/security incident
Management Technology
Able to quickly share information with employees in case of a contamination/security incident
Secure information systems
Ability to track transactions by origin, destination, date, description, and route

28. Table 16.6 (cont.) Examples of Security Best Practices
Competency
Corporate Example
Process Technology
Ability to track and trace commodities and products up and down one stage in the supply chain
Ability to track salvage and returned products
Transportation assets are sealed while not under control of the firm
Metrics
Measures to track and monitor vulnerable areas (e.g., products, facilities, supply base)
Supply chain security metrics are based on a combination of internal, industry, and government guidelines
Relationship Management/Service Provider Collaboration Management
Applies external audits (as opposed to self-audits) to verify security procedures
Maintains a database of emergency contact information for service providers
Requires service providers to use government or industry security guidelines
Public Interface Mgmt
Complies with government-required record keeping regulations regarding threats and incidents
Establishes communication strategy for providing information regarding contamination/security incidents to appropriate government/public agencies

29. Security competencies
Security competencies are created through development of security capabilities such as
Infrastructure
Processes
Assets
Resources
Examples of how firms are applying security competencies are listed in Table 16.6

30. Cross-border operations require firms to
Refine internal processes
Self-appraisal of security and contingency planning
Develop crisis management plans using cross-functional teams
Refine collaborative relationships with partners
Trusted partner status of firm and country
Requires demonstration of trust to secure product when in partners control
Refine governmental relationships
Notion of “trusted partner” must develop on a global platform
Which countries are secure?

31. Governments promote economic growth through international trade
Governments are responsible for
Facilitating the movement of people and goods across borders
Safety of people, commerce and country
Traditional focus of government agencies has been control of trade
Contemporary focus is shifting to trade facilitation and securing supply chain operations with trusted partner countries

32. Customs-Trade Partnership Against Terrorism (C-TPAT)
Certify known shippers through self-appraisals of security procedures coupled with customs audits and verifications
For a more detailed discussion regarding C-TPAT visit
The U.S. Department of Homeland Security has established a number of initiatives to enhance food and overall supply chain security. This and the next slide reviews and describes the major initiatives. They also provide references to websites that provide more detail.
C-TPAT motivates firms to source only from certified suppliers (primarily international) to reduce the need for security checks when goods are imported. The website link offers more detail.

33. Container Security Initiative (CSI)
Pre-screening of containers coupled with fast tracking when cargo reaches the U.S.
A more detailed description of the CSI can be found by visiting
CSI motivate firms to pre-screen loads and containers before they leave a foreign port. In effect, this reduces the security concerns at U.S. ports and also reduces congestion. When the goods are pre-screened at foreign ports, they can pass through the port-of-entry much quicker.

34. US government security initiatives impacting ocean, air, rail or truck cargo
Advanced Manifest Rule (AMR)
Requires detailed cargo data before shipping to or from the U.S.
Examples of how AMR has influenced border operations
Advanced Cargo Information (ACI)
Requires more detailed information prior to acceptance into U.S.
Free and Secure Trade (FAST)
Allows low-risk goods transported by trusted carriers for trusted firms to pass rapidly through border crossings
For a more detailed discussion, visit
The AMR and ACI require that detailed data be transmitted to U.S. Customs prior to arrival in the U.S. The time prior to entry varies with mode of transportation with truck being 4 hours, air being 8 hours, and ship being 24 hours. The AMR provides Customs and Border Patrol with information to determine which loads are suspect and therefore need additional screening.

35. Global organizations are also working on security initiatives
International Organization for Standardization (ISO) and Strategic Council on Security Technology
Smart and Secure Tradelanes (SST) initiative
Technology platform to track containers globally and generate chain-of-custody audit trails
For more information on this industry driven initiative select the URL link
World Customs Organization (WCO)
161 member countries involved in the Global Standards for Supply Chain Security Initiative
World Trade Organization (WTO)
Seeks to facilitate trade moving controls and inspection to the export stage

36. Resource availability is a substantial risk for global supply chain operations
Changes in availability of resources dramatically changes supply chain design and operations
Key resources include
Supply chain expertise
Transport capability
Outsourcing is one method of managing this risk

37. Figure 16.6 Dimensions of Sustainability
Economic
Ethics
Education
Environment
Financial
Taxation
Risk
Security
Substitutes
Energy
Conservation
Elimination
Offsets
Waste
Lean
Life Cycle
Cultural
Awareness
Social
Responsibility
Wages &
Benefits
Free
Trade
Geo-Politics
Talent
Development
Technology
Usage
Collaboration
Communication
SUSTAINABILITY
Global
Knowledge
Source: David J. Closs, Cheri Speier, Nathan Meacham. “Sustainability to support end-to-end value chains: the role of supply chain management.” Journal of the Academy of Marketing Science 39:1 (February 2011). Pg. 103.

38. Environmental sustainability initiative examples
Conservation
Energy
Water
Nature
Usage Reduction
Waste / Recycling
Green House Gasses
End of Life Management
Business Practices
Packaging
Facility Construction
Sustainable Sourcing

39. Ethical Sustainability Initiative Examples
Ethics
Employee Relations
Code of Conduct
Volunteerism
Community Involvement
Avoiding Child/Forced Labor
Disaster Relief
Reducing Hunger, Poverty, and Disease
Business Practices
Product Safety
Responsible Marketing
Product Traceability

40. Education sustainability initiative examples
Employee Relations
Workplace Safety
Flexible Hours
Healthy Lifestyle
Community Involvement
Community Outreach
Sustainable Workforce
Business Practices
Supplier Training
Business Continuity
Talent Development
Diversity & Inclusion
Training

41. Economic sustainability initiatives examples
Internal Management
Modal Shift
Transportation Optimization
Continuous Improvement
Fuel Conservation
External Management
Supplier Management
Market Generation

42. Supply chain sustainability examples
Supply chain talent management
Experience and credibility
Changes in fuel prices
Environmental regulation
Sustaining the global supply chain

43. A profile of a supply chain executive
Evaluate and make trade-offs between supply chain functions, other functions and external organizations
Develop and implement integrated and comprehensive supply chain solutions
Share knowledge and experience to help business partners in their supply chain efforts
Analyze the overall business performance to facilitate sustainable competitive advantage

44. Supply chain expertise is particularly important in two areas
Cross-functional expertise regarding breadth of supply chain functionality
Customer accommodation, procurement, logistics, and manufacturing
Broad and deep expertise in global requirements and individual country operations
Development and retention of supply chain executives is one method to manage this risk
Provide potential executives with opportunities and guidance to develop job skills that will lead to success

45. Supply chain management executives must have skills and capabilities in these areas
Functional
Procurement, transportation, demand/supply planning, inventory, manufacturing, global operations and customer fulfillment
Technical
Ability to apply information technology solutions effectively
Leadership
Lead projects in complex, matrixed business environments
Communication, negotiation, problem solving, team leadership and project management

46. Experience and credibility
Supply chain management executives must have skills and capabilities in these areas
Global management
Global planning and operations experience
Experience working outside of home country
Experience and credibility
Ability to evaluate the competitive environment, conceptualize strategy, assess solutions, and implement change

47. Traditional Supply Chain Career Path: Functional Depth
Executive Level
Senior Level
Advisory Level
ISC Staff Level
ISC Entry Level
Demand/Supply
Planning
Procurement
Manufacturing
Global Logistics
Fulfillment
Traditional Career Paths

48. A range of learning opportunities is needed to develop today’s supply chain professional
SCM
Consulting Level
Senior Level
Advisory Level
ISC Staff Level
ISC Entry Level
N/A
Demand/Supply
Planning
Procurement
Manufacturing
Global Logistics
Fulfillment
Supply Chain
Management
Traditional Career Paths
Sample SCM Career Paths
Figure 16.7 Cross-functional supply chain career paths

49. SCM job titles and associated criteria
“ADVISORY” LEVEL
Advisory & Senior level SCM categorization completed by employee’s manager
“SENIOR” LEVEL
Consulting level SCM categorization completed via SCM application & Review Board process
“CONSULTING” LEVEL

50. Transport capability is impacted by the volatility of fuel prices
Diesel fuel represents 30% of overall transportation cost
Dramatic shifts in fuel costs require regular assessments of network structure and strategy
Fuel price volatility has two impacts on supply chain decisions
Influences the viability and flow of global trade
May change domestic logistics network
Figure 17.6 U.S. Diesel Fuel Prices Since 1994 (in USD per gallon)
U.S. DIESEL FUEL PRICES SINCE 1999 (in USD per gallon)
(Source: U.S. Department of Energy)

51. Figure 16.9 Optimal Number of Distribution Centers by Fuel Prices
Illustration of how doubling the fuel price changes the least-total-cost network from 7 to 10 centers
Figure Optimal Number of Distribution Centers by Fuel Prices

52. Supply Chain Dynamics are Changing
Firms looking for more balance between scale and reliability.
Infrastructure congestion is becoming increasingly problematic.
Increased energy cost will shift supply chain mode selection and design.
Increasing importance of being able to quantify the value proposition related to supply chain changes.

53. Changing Dynamics of Supply Chain Design
$/unit
Cost of transport A
Decentralized
Economies of Scale
Centralized

54. Changing Dynamics of Supply Chain Design
Result of increased fuel cost
$/unit
Cost of transport B A
Decentralized
Centralized
Economies of Scale

55. Figure 16.10 Changing Dynamics of Supply Chain Design
Result of increase risk
Result of increased fuel cost
$/unit
Cost of transport C B A
Decentralized
Centralized
Economies of Scale