Supply Chain Continuity – The New World of Risk

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Supply Chain Continuity The New World of Risk

• Lori C. Adamo
• Code Red Business Continuity Services, LLC
• Michael J. Gravier, PhD, CTL
• Bryant University

NEDRIX Annual Conference October 19th 21st,
2009
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• Todays Agenda
• What is Supply Chain Management .
• Risk in Supply Chain Management.
• Using Business Continuity to manage and
  mitigate your Risk.
• Supply Chain Risk Assessments and
  Methodologies.

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International Importance of SCM

• Imports and export markets experiencing rapid
  growth from 1989 to 2007
• imports increased from 473 to 1,953M
• exports increased from 363M to 1,162M
• 70 of US-made products are subject to direct
  international competition
• Development of international economic
  relationships
• NAFTA, EU, ECOWAS, OAS, ASEAN, etc.

One US-made Jeep has 60 American-made parts One
US-made Toyota has 70 American-made parts
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Supply Chain Insights

• Multiplier Effect
• Supply Chain Risks
• Risks of Popular Supply Chain Strategies

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Model Supply Chain
Identify Experiment Analyze
Extend Validate Discussion
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Supply Chain Complexity
1
1
1
1
1
2
2
Consumer/end user
2
3
3
3
3
Tier 2 Supplier
4
4
2
Tier 1 Customer
Tier 1 Supplier
Tier 2 Customer
Manufacturer
Adapted from Lambert, Douglas M., and Terrance L.
Pohlen, Supply Chain Metrics, International
Journal of Logistics Management, Vol. 12, No. 1
(2001), pp. 1-15.
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Inventory Positions and Major Flows in a
Supply Chain
Orders
Orders
Orders
Payments
Payments
Payments
Manufacturers
Retailers
Suppliers
Wholesalers
Information
Information
Information
Product
Product
Product
5 7 10
Variable costof materialAcquisition
costOther variablecostsTotal variablecost
of productFull manufac-tured costSelling
price
10 1 14254060
Variable costof productOther acquisition
costsSelling price
60 2 70
Variable costof productOther acquisition
costsSelling price
70 2 120
Variable costof productFull manufac-tured
costSelling price
Source Adapted from Douglas M. Lambert and Mark
L. Bennion, New Channel Strategies for the
1980s, in Marketing ChannelsDomestics and
International Perspectives, ed. Michael G. Harvey
and Robert F. Lusch (Norman Center for Economic
ManagementResearch, School of Business
Administration, University of Oklahoma, 1982), p.
127.
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Manufacturers

• 60-70 of value added
• Services just surpassed
• Often have huge capacities
• Traditionally channel captains

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Retailers

• Numerous outlets
• Highest margins
• Small relative to manufacturers/wholesalers

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Supply Chain Geography
1 icon 1,000 companies
Manufacturers
n898
Wholesalers
n13,732
Retailers
n46,742
Households
X 100,000 Over 100 million households
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Service Impacts

• 1 manufacturer 100,000 households
• 1 manufacturer 15.3 wholesalers
• 1 manufacturer 52 retailers
• 1 wholesaler 3.4 retailers
• 1 wholesaler 7,283 households
• 1 retailer 2,139 households

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A Few Risks

• Natural disasters
• Tsunamis, quakes, droughts, hurricanes
• Epidemics
• SARS, H1N1, bird flu, mad cow
• Rogue nations
• North Korea threatens 45 of worlds
  semiconductors
• Supplier quality
• Toyota floor mats, lead paint, contaminated
  breast milk
• Unethical supplier actions
• Child labor, blood diamonds, unfair wages
• Other
• Change in currency rate
• Recession

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Definition of Risk a chance of danger, damage,
loss, injury or some other undesired
circumstance.

• What are the potential losses if the risk is
  realized, what losses will result?
• How likely are those losses, i.e. the
  probability of the occurrence of the event that
  leads to the realization of the risk?
• What is the significance of the losses?

In Sum Global Supply chains are complex,
constantly evolving, face multiple uncertainties,
and are of importance to all levels of the
organization.
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Pitfalls of Popular Techniques

• JIT
• Possible negative environmental consequences
• At risk from disrupted transportation
• Requires complex internal management structures
• Lean
• Ideal for high volume, low variety products with
  predictable demand patterns
• Reduced supplier base
• Adaptability of remaining suppliers may be
  inadequate
• Supplier lock-in
• Six Sigma
• Doesnt distinguish good from bad processes
• Not suitable for corporate re-engineering

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SUMMARY OF RISKS
Summary of Risks
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• Supply Chains Today
• An increase in globalization has led to longer
  supply chains and less visibility
• US Trade with foreign countries in goods has
  reached almost three trillion dollars.
• Todays supply chains are more virtual, more
  global and more dependent on external partners.
• With the growth of outsourcing and
  partnerships, the ability to manage product
  quality has also been strained.
• SO how do we meet these challenges?

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Business Continuity Planning (BCP) Phases






Project Initiation
Functional Requirements
Design Dev
Implementation
BRP
Supply Chain Management
Testing
BIA
Maint
DRP
Project Mgmt
Policies Standards
Cont Imp.

Risk Assessment

CMT
Execute
Disaster Recovery Institute Model
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Classifying risks into supply, operations, demand
and security risks.
Step 1 Risk Identification
Step 2 Risk Assessment and Evaluation
Decision analysis, Case Study, Perception Based.
Work with Procurement to select vendors and
suppliers.
Step 3 Selection of Appropriate Risk Management
Step 4 Implementation of Supply Chain Risk
Management Strategies
Business Continuity Strategies and Planning.
Step 5 Mitigation of Supply Chain Risks
Test your Plan with your critical Suppliers.
Manuj and Mentzer (2008), Global Supply Chain
Risk Management, Journal of Business Logistics,
Vol. 29, No. 1, pp. 133-155.
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What is a Business Impact Analysis?
It is an information-gathering exercise designed
to methodically identify

• The processes or functions performed by an
  organization
• The resources required to support each process
  performed
• Interdependencies between processes and/or
  departments
• The impact of failing to perform a process
• The criticality of each process
• A recovery time objective (RTO) for each
  process
• A recovery point objective (RPO) for the data
  that supports each process

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Risk Assessments and Business Impact Analysis

• Supply Chain Management relies on the
  information
• uncovered by a Risk Assessment a Business
• Impact Analysis.
• Defines Probability, Impact and Tolerance
  to a disruption.

• Often performed as a step in the development of
• business continuity plans, the BIA, along
  with risk
• analysis (RA), provides the foundation for
  strategy
• that will allow the organization to continue
  to perform
• developing and selecting a business
  continuity.
• critical processes in the event of a
  disruption
• 1. Identifies and prioritizes your supply
  chain process and
• determines RTO.

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Risk Assessment and Evaluation
Loss of 10 if supply disruption lasts over 3
weeks
Many competitors with no quality differences who
can supply to our customers
10,000 Per day
0.25
2.50
NO
Serious
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Points to begin Planning

• What are our suppliers doing to support our
  disruption?
• How are they affected by a geographic
  disruption.
• The supply chain complexity brought about by
  global sourcing can also
• complicate and delay recovery efforts as, for
  example communications
• delays can result from time zone differences,
  language,
• transportation stoppage or cultural barriers.

• Planning for continuity in the supply chain
  will ultimately involve
• working collaboratively with suppliers and
  other key business partners.
• Plan for our own recovery and resiliency.
  Resiliency is the Key!

• One must ask themselves
• Is my sourcing strategy a fit for my business
  continuity requirements?
• What are my key suppliers doing abut business
  continuity?
• Can we survive a crisis together?

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Integrated Logistics Supply Chain Management
Activities
Procurement Strategic Sourcing
Transportation Management
These departments are where you can be impacted!
Inventory Planning Management
Customer Service Support
Physical Distribution
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How can a BIA help to manage your Supply Chain?

• Identify and assess the impacts on the business
  caused by disruptions.
• Identify recovery requirements Networked
  technologies that allow continued operations
  through redundant communications systems.
• Identify interdependencies. (mapping strategy)
• Prioritize the order in which business units
  will need to recover.
• Identify staffing ramp-up during recovery.
• Identify business unit work-arounds while in
  recovery mode.
• Once these items have been identified, work with
  your suppliers to educate, then strategize a
  recovery together.

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Develop BIA with your Critical Suppliers

• Understand which business processes are tied to
  profit, image and continuity of business.
• Understand which applications are needed to
  support vital business processes and customer
  service.
• Understand which resources, suppliers, vendors
  and staff are most critical to your business
  continuity, as well as those who support those
  processes and applications.
• Are the single source suppliers?
• Dependency Relationship with high Risk Supplier?
• How are we impacted if one fails?

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Evaluate the types of supplier relationships exist

• High dependency high availability utilities,
  generic components
• High dependency low availability highly
  specialized product
• components
• Mid dependency high availability generic IT
  equipment monitors
• Mid dependency low availability specialized
  IT equipment
• scanners
• Low dependency high availability consumables
  paper
• Low dependency low availability redundant
  design furniture.
• Business Continuity solutions should be focused
  on strategically significant supplier
  dependencies enhanced through risk assessment and
  a business impact analysis.

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• Major Factors of a Good Supply Chain Business
  Continuity Plan
• Awareness that the supply chain is susceptible
  to potentially crippling disruption
• Prevention through risk identification, risk
  assessment, risk treatment and risk monitoring
• Remediation plans for recovery from a
  disruption
• Knowledge management calls for a shareable,
  post-event audit of supply chain disruptions
  throughout the organization and supply chain.

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Major Factors of a Good Supply Chain Business
Continuity Plan

• Networked technologies that allow for continued
  operations through redundant communications
  systems.
• A highly mobile, global, collaborative
  workforce access to relevant data anytime and
  anywhere real-time data and decision support,
  visibility, velocity and flexibility across the
  value chain, shared solutions, process and
  assets.
• Each of these capabilities relies on an
  intelligent collaboration and communications
  platform.

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Preparation is Key

• Prepared Responses let you react only when you
  have to

• Business Supply Chain Scenario Planning
  Development

• Basic Supply Chain capabilities and enablement

• Visibility Event Management, the key to
  staying ahead
• Review situational changes in your
  organizations risks and
• vulnerabilities, analyze how your current
  plans stack up against
• them.
• Be aware of Critical Suppliers who can no longer
  meet SLAs, or
• meet your recovery needs

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Last Thought
There are no secrets to success. It is the result
of preparation, hard work, and learning from
failure.  Colin Powell (Chairman of the US
Joint Chiefs of Staff (1989-93

• Mark Twain once said
• "The secret of success is honesty and fair
  dealing. If you can fake these, you've got it
  made."

Lori C. Adamo ladamo_at_coderedbcs.com Michael
Gravier mgravier_at_bryant.edu
Thank you!