Institute of Risk Management South Africa

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Institute of Risk Management South Africa

• Supply Chain Risk Management
• Riaan Bredell
• 17 November 2005

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Steve and Robin still
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Presentation Outline

• Supply chain concept
• Supply chain management concept
• Logistics management concept
• Globalisation
• Supply chain realities
• Integrated supply chain risk management (ISCRM)

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CONCEPTS
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Supply Chain Concept
A network of connected and interdependent
organisations mutually and co-operatively
working together to control, manage and improve
the flow of materials and information from
suppliers to end users
Source Christopher (199819)
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Supply Chain Illustration
Source Coyle et al. (200318)
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Supply Chain Management Concept
The planning and management of all activities
involved in sourcing and procurement, conversion,
and all logistics management activities. It
also includes coordination and collaboration
with channel partners, which can be suppliers,
intermediaries, third-party service providers,
and customers.
Source Council of Supply Chain Management
Professionals (2004)
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Logistics Management Concept
That part of supply chain management that plans,
implements, and controls the efficient,
effective forward and reverse flow and storage
of goods, services and related information
between the point of origin and the point of
consumption in order to meet customers'
requirements.
Source Council of Supply Chain Management
Professionals (2004)
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Logistics Illustration
Source Adapted from Coyle, Bardi Langley
(200314)
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GLOBALISATION
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Globalisation

• Dynamic, volatile increasingly uncertain new
  economy
• Loosened trade barriers
• Technological advancements

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Globalisation (cont.)

• Consequential impact
• Structural changes
• New business models
• Increased competition
• Increased uncertainty complexity
• New business risks
• Corporate governance

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Globalisation (cont.)
Globalisation adds stress to the (supply) chain
because facilities within the chain are farther
apart, making coordination much more difficult.
Source Chopra Meindl (200162)
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SUPPLY CHAIN REALITIES
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Supply Chain Realities

• Magnitude complexity of modern supply chains
• Packaging, documentation and labelling are more
  complex
• Complex decisions
• Global sourcing
• Offshore manufacturing

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Supply Chain Realities (cont.)

• Reduction of the supplier base
• Outsourcing
• Centralization of distribution facilities
• Freight is damaged or lost more often
• International transportation and insurance are
  more expensive

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Supply Chain Realities (cont.)

• Cycle times become longer
• Optimum supply chain performance

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Supply Chain Realities (cont.)

• supply chains will grow increasingly vulnerable
  to shocks and security issues (2001)
• many (supply chain and other related business
  models) will fail - because of execution rather
  than the quality of the idea (2001)
• there will be failure among those that spread
  themselves too thinly and do not plan for
  unexpected shocks (2001)

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Supply Chain Realities (cont.)

• supply chain decisions play a significant role
  in the success or failure of a firm (2001)
• increased security restrictions and risks are
  beginning to affect the design of some supply
  chains (2004)
• once a supply chain malfunction is announced,
  stock prices drop as much as 12 irrespective of
  who was at fault (2001)

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Supply Chain Realities (cont.)

• 100 companies (Global 1000) with largest share
  price declines over a one-year period supply
  chain issues have been the cause in 6 of these
  instances (2003)
• after a company announces a supply chain
  disruption its share price can fall an average of
  8.62 on the day of the announcement and can drop
  as much as 20 over the next six months (2002)
• Nike i2 Technologies product shortages,
  surplus inventory, late deliveries, 100 million
  revenue loss share prices plunged with about
  20 (2003)

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Question
Are current supply chain management practices
sufficiently robust to effectively deal with the
uncertainties and complexities associated with
modern supply chains?
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Answer
a need for a different approach to supply
chain management to respond effectively to the
uncertainties of the new business paradigm
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Integrated Supply Chain Risk Management (ISCRM)
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ISCRM

• supply chain risk management, although
  relatively new, could be critical to survival
  (2001)
• Supply chain risk is the weak link in your
  supply chain (2003)
• Poor risk management threatens supply chain
  (2004)

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What is ISCRM?
A formalised, structured and disciplined approach
encompassing the entire supply chain, including
supply chain partners and related activities,
with the purpose of identifying,
exploring, analyzing, evaluating, treating,
monitoring, reviewing and communicating supply
chain risks associated with any supply chain
activity, function or process in a way that will
enable firms to minimise losses and maximise
opportunities.
Source Bredell (2004)
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What is Supply Chain Risk?

• Any uncertain future event that may influence the
  achievement of supply chain objectives
• Beyond our control
• Within our control

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What is the Scope of ISCRM?
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What is the Scope of ISCRM? (cont.)

• External environment
• Supply chain processes
• Supply chain information

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How can ISCRM be Applied?

• Supply chain network design
• Robustness testing of supply chain strategies
• Supply chain scenario planning
• High-level supply chain flow from point of origin
  to point of consumption
• Specific applications, e.g. road transport,
  inbound logistics, corridors, products,
  distribution channels, customers, etc.

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How can ISCRM be Implemented?

• Best implemented within existing risk management
  and governance structures
• Can also be implemented in the absence of
  established structures
• Implementation framework

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How can ISCRM be Implemented? (cont.)
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ISCRM Process

• Fundamental to successful supply chain risk
  management
• Robust ISCRM process
• Continuous process
• Imperative to adhere to core principles

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ISCRM Process (cont.)

• Core principles
• Context
• Risk exploration
• Inherent vs. Residual
• Risk communication
• Risk governance

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Supply Chain Risk Manager

• Organisations with multiple and complex supply
  chains
• Facilitation, integration (internal and external
  to the organisation) and governance role

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ISCRM and Shareholder Value
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Closing Remarks

• It is worthwhile considering the implementation
  of an ISCRM framework.
• Organisations should evaluate the robustness of
  established supply chain management philosophies.
• Organisations cannot afford to be exposed
  unknowingly to supply chain risk exposures that
  may influence the competitiveness of their supply
  chains, impair the reputation of their
  organisations and ultimately destroy shareholder
  value.

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Closing Remarks (cont.)

• Organisations should be cautious in the
  implementation of an ISCRM framework. The
  culture and risk management maturity of the
  organisation will largely dictate the most
  appropriate implementation strategy.
• Organisations should take care in the application
  of the ISCRM process. Integration and
  communication are fundamental aspects of the
  ISCRM process. Failure to comply with the core
  principles may result in inaccurate and
  incomplete risk information.

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Closing Remarks (cont.)

• Organisations should establish a culture that is
  aware of risks and embedded in the minds and
  conduct of supply chain professionals.
• Organisations with multiple and complex supply
  chains should consider to appoint a dedicated
  Supply Chain Risk Manager.

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QUESTIONS??
MANAGE RISK CREATE VALUE