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4/11/2014
1
Supply Chain Insights LLC Copyright © 2014, p. 1
Supply Chain
Risk Management
Supply Chain Insights LLC Copyright © 2014, p. 2
Speakers
Lora Cecere
Founder
Supply Chain Insights
lcecere@supplychaininsights.com
David Simchi-Levi
MIT Professor
Founder Ops Rules
dslevi@MIT.EDU
4/11/2014
2
Supply Chain Insights LLC Copyright © 2014, p. 3
Definition Given to Respondents
Supply Chain Insights LLC Copyright © 2014, p. 4
Study Overview
4/11/2014
3
Supply Chain Insights LLC Copyright © 2014, p. 5
Reporting Relationship
Supply Chain Insights LLC Copyright © 2014, p. 6
• The What
• The So What
• Recommendations
• Wrap-up
Agenda
4/11/2014
4
Supply Chain Insights LLC Copyright © 2014, p. 7
Current State
Supply Chain Insights LLC Copyright © 2014, p. 8
Risk Management Low on the List
4/11/2014
5
Supply Chain Insights LLC Copyright © 2014, p. 9
But, Should it Be?
Gap Analysis
Supply Chain Insights LLC Copyright © 2014, p. 10
Major Supply Chain Disruptions
4/11/2014
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Supply Chain Insights LLC Copyright © 2014, p. 11
An Issue
Supply Chain Insights LLC Copyright © 2014, p. 12
Top Two Supply Chain Disruptions in 5 Years:
2011’s Tsunami in Japan and 2012’s Hurricane Sandy
4/11/2014
7
Supply Chain Insights LLC Copyright © 2014, p. 13
Importance to Supply Chain Strategy
Supply Chain Insights LLC Copyright © 2014, p. 14
• The What
• The So What
• Recommendations
• Wrap-up
Agenda
4/11/2014
8
Supply Chain Insights LLC Copyright © 2014, p. 15
Current Assessment
Supply Chain Insights LLC Copyright © 2014, p. 16
Demand Volatility Is Only Top 3 Driver in
Past, Present and Future
4/11/2014
9
Supply Chain Insights LLC Copyright © 2014, p. 17
• The What
• The So What
• Recommendations
• Work from MIT
• Wrap-up
Agenda
Supply Chain Insights LLC Copyright © 2014, p. 18
Disruption: Current Visibility
4/11/2014
10
Supply Chain Insights LLC Copyright © 2014, p. 19
Financial Health: Monitoring
Supply Chain Insights LLC Copyright © 2014, p. 20
Most Important Risk Management Techniques
4/11/2014
11
onquergSqplyeaasklo:NSqltSƐŬ͗
lErǁl aagnNĐ:lƚnlyeaaskltSƐŬ
David Simchi-Levi
E-mail: dslevi@mit.edu
21
W hatW e’llCover…
• Introduction
TheRiskExposureIndex
• SupplierSegmentation
Implementation atFord
• W rap-up
22
4/11/2014
12
ManySourcesofRisks
• Naturaldisasters
• Geopoliticalrisks
• Epidemics
• Terroristattacks
• Environmentalrisks
• Volatilefuelprices
• RisingLaborcosts
• Currencyfluctuations
• Counterfeitpartsandproducts
• Portdelays
• Marketchanges
• Suppliers’performance
• Forecastingaccuracy
• Executionproblems
Unknown-Unknown
Known-Unknown
Uncontrollable
Controllable
23
ManySourcesofRisks
• Naturaldisasters
• Geopoliticalrisks
• Epidemics
• Terroristattacks
• Environmentalrisks
• Volatilefuelprices
• RisingLaborcosts
• Currencyfluctuations
• Counterfeitpartsandproducts
• Portdelays
• Marketchanges
• Suppliers’performance
• Forecastingaccuracy
• Executionproblems
Unknown-Unknown
Known-Unknown
Uncontrollable
Controllable
24
4/11/2014
13
ManySourcesofRisks
• Naturaldisasters
• Geopoliticalrisks
• Epidemics
• Terroristattacks
• Environmentalrisks
• Volatilefuelprices
• RisingLaborcosts
• Currencyfluctuations
• Counterfeitpartsandproducts
• Portdelays
• Marketchanges
• Suppliers’performance
• Forecastingaccuracy
• Executionproblems
Unknown-Unknown
Known-Unknown
Uncontrollable
Controllable
25
Epidemics
Fuel Prices
Geopolitical
Problems
Currency
Fluctuations
Commodity
Prices
Port
Delays Product Design
Problems
Forecast
Accuracy
Suppliers‘
Performance
The Risk Framework
Expected
Impact
Ability to ControlLOW
Unknown-Unknown
HIGH
HIGH
Known-Unknown
LOW
Counterfeits
Government
Regulations
Natural Disasters
Environmental
Risks
26
4/11/2014
14
Managing SupplyChain Risk:TheChallenge
• Verydifficulttopredictmanysourcesofrisk,especially
theunknown-unknown
• Impactofdisruptioncan bedevastating
• Largeinvestmentinidentifying everypossibleriskinthe
supplychain
• Existing toolsandtechniqueshavebeen inadequate
Mostlyad-hoc,intuition,gutfeeling
Exposuretoriskmayresideinunlikelyplaces
Mayleadtothewrongactionsandwasteresources
Noabilitytoprioritizemitigationinvestment
27
CaseStudy1:TheRiskExposureIndex
• High techmanufacturing company
• ContractmanufacturersinAsia
• AssemblyplantsinNorthAmerica
• Manysuppliersallovertheworld
• Sellsitsproductsdirectlyandthroughdistributors
28©Copyright2014D.Simchi-Levi
4/11/2014
15
CaseStudy1:TheRiskExposureIndex
Tier+1Tier+2U
SP+otrA
smmeblya+oynCAm
smmeblya uLmAtberm
TD
DTD
cimArilLAtrm
utCArnMA+
fnCLpnMALrerm
SP+PLddyierm
oriCAeB+uirMLiA+
htnrB
uRidmeA+
fnCLpnMALrer
wnW+fnAeriny++
PLddyierm
29
PAtrem
cimArilLAtrm
•Time-To-Recovery (TTR): The time it takes to recover to full functionality after a disruption
cimArilLAitC
©Copyright2014D.Simchi-Levi
CaseStudy1:TheRiskExposureIndex
cimArilLAitCTier+1Tier+2U
SP+otrA
smmeblya+oynCAm
smmeblya uLmAtberm
TD
DTD
cimArilLAtrm
utCArnMA+
fnCLpnMALrerm
SP+PLddyierm
oriCAeB+uirMLiA+
htnrB
uRidmeA+
fnCLpnMALrer
wnW+fnAeriny++
PLddyierm
30
PAtrem
cimArilLAtrm
•Time-To-Recovery (TTR): The time it takes to recover to full functionality after a disruption
2 Weeks
1 Week
2 Weeks
2 Weeks
2 Weeks
TTR =2 Weeks
2 Weeks
©Copyright2014D.Simchi-Levi
4/11/2014
16
CaseStudy1:TheRiskExposureIndex
cimArilLAitCTier+1Tier+2U
SP+otrA
smmeblya+oynCAm
smmeblya uLmAtberm
TD
DTD
cimArilLAtrm
utCArnMA+
fnCLpnMALrerm
SP+PLddyierm
oriCAeB+uirMLiA+
htnrB
uRidmeA+
fnCLpnMALrer
wnW+fnAeriny++
PLddyierm
31
PAtrem
cimArilLAtrm
•Time-To-Recovery (TTR): The time it takes to recover to full functionality after a disruption
• Financial Impact (FI): Lost sales during TTR
2 Weeks
1 Week
2 Weeks
2 Weeks
2 Weeks
TTR =2 Weeks
2 Weeks
©Copyright2014D.Simchi-Levi
CaseStudy1:TheRiskExposureIndex
cimArilLAitCTier+1Tier+2U
SP+otrA
smmeblya+oynCAm
smmeblya uLmAtberm
TD
DTD
cimArilLAtrm
utCArnMA+
fnCLpnMALrerm
SP+PLddyierm
oriCAeB+uirMLiA+
htnrB
uRidmeA+
fnCLpnMALrer
wnW+fnAeriny++
PLddyierm
32
PAtrem
cimArilLAtrm
•Time-To-Recovery (TTR): The time it takes to recover to full functionality after a disruption
• Financial Impact (FI): Lost sales during TTR
2 Weeks
$400M
1 Week
$100M
2 Weeks
$1.5B
2 Weeks
$100M
2 Weeks
$2.5B
TTR =2 Weeks
FI = $400M
2 Weeks
$300M
©Copyright2014D.Simchi-Levi
4/11/2014
17
CaseStudy1:TheRiskExposureIndex
cimArilLAitCTier+1Tier+2U
SP+otrA
smmeblya+oynCAm
smmeblya uLmAtberm
TD
DTD
cimArilLAtrm
utCArnMA+
fnCLpnMALrerm
SP+PLddyierm
oriCAeB+uirMLiA+
htnrB
uRidmeA+
fnCLpnMALrer
wnW+fnAeriny++
PLddyierm
33
PAtrem
cimArilLAtrm
•Time-To-Recovery (TTR): The time it takes to recover to full functionality after a disruption
• Financial Impact (FI): Lost sales during TTR
•The Risk Exposure Index (REI) is the maximum FI over all nodes in the supply chain
2 Weeks
$400M
1 Week
$100M
2 Weeks
$1.5B
2 Weeks
$100M
2 Weeks
$2.5B
TTR =2 Weeks
FI = $400M
2 Weeks
$300M
©Copyright2014D.Simchi-Levi
CaseStudy1:TheRiskExposureIndex
cimArilLAitCTier+1Tier+2U
SP+otrA
smmeblya+oynCAm
smmeblya uLmAtberm
TD
DTD
cimArilLAtrm
utCArnMA+
fnCLpnMALrerm
SP+PLddyierm
oriCAeB+uirMLiA+
htnrB
uRidmeA+
fnCLpnMALrer
wnW+fnAeriny++
PLddyierm
34
PAtrem
cimArilLAtrm
•Time-To-Recovery (TTR): The time it takes to recover to full functionality after a disruption
• Financial Impact (FI): Lost sales during TTR
•The Risk Exposure Index (REI) is the maximum FI over all nodes in the supply chain
2 Weeks
$400M
1 Week
$100M
2 Weeks
$1.5B
2 Weeks
$100M
2 Weeks
$2.5B
TTR =2 Weeks
FI = $400M
2 Weeks
$300M
©Copyright2014D.Simchi-Levi
4/11/2014
18
ThebenefitsofusingtheRiskExposureIndex
• Itprovidesa$measureofrisk--itestimatethecostofrisk;
• Itisbased ontheentirenetworkrather;
• Itavoidstheneed toforecasttheunknown-unknown;
• Itforcesadiscussion tounderstand whyTTR forsimilar
facilitiesorsuppliersisdifferent;
• ItforcesaprocesstoreduceTTR invariousstagesofthe
supplychain;
• Itmakessureyou haveagoodunderstanding ofsupplychain
dependencies.
35
©Copyright2014D.Simchi-Levi
W hatW e’llCover…
• Introduction
TheRiskExposureIndex
• SupplierSegmentation
Implementation atFord
• W rap-up
36
4/11/2014
19
CaseStudy2:FordMotorCompany
• Global automotive industry
leader based in Dearborn, MI.
• Manufactures and distributes
automobiles in 200 markets
across six continents.
37
©Copyright 2014 D. Simchi-Levi
FordBrands
38
©Copyright 2014 D. Simchi-Levi
4/11/2014
20
FordSupplyChain
Tier+1Tier+2Tier+3U
EemA+utnmA
NnmA+utnmA
ktrAR+sberiMnC+
smmeblya+oynCAm
smmeblya cenyerm
TrLMg
TrniC
ktrAR+sberiMnC+
NCFiCe+oynCAm
TrnCmbimmitC+
oynCAm
PAnbdiCF+oynCAm
sos+PLddyierm
NS+PLddyierm
ks+PLddyierm
VtrFiCF+oynCAm
unmAiCF+oynCAm
sos+PLddyierm
NS+PLddyierm
ks+PLddyierm
ks+PReeA+PAeey+
PLddyierm
sos+PLddyierm
ks+PAeey+hnr+
PLddyierm
NS+PLddyierm
ks+PLddyierm
edca- fbc~4 1f5–da  c5‹…ƒa—’’~›a dƒ‹
- —~–‹Ǧe‹c5a1c–™f5
f‰acƒba–‹ c•aˆ5f a•f ca•—’’~‹c5•
f ’~cša - a•–5—…–—5c
f ’fc–•aƒ5ca•dƒ5cbaƒ…5f••a —~–‹’~ca
ƒ••c „~‹c•
̱Ͷae‹c5aͳa•—’’~‹c5•a•‹–c•
̱ͷͷab‹ˆˆc5c–a’ƒ5–•a
efacd;’‡•caˆceec‹ˆa” ƒd‹aǣc‡c‹cfŠ‹…ŠcdŠ‡c•—’’Ž‹‡”ǯ•c’”a†—…d‹acˆƒ…‹Ž‹d;c‹•c
Ža•dǢc•‡…a†cƒ••a…‹ƒd‡†cf‹dŠc•—’’Ž‹‡”ǯ•cˆƒ…‹Ž‹d;cƒ†cdaaŽ‹‰cƒ”‡cŽa•dǤ
Tier2 Tier1 AssemblyPlants Dealers
40
4/11/2014
21
821
465
129
252
94
0
100
200
300
400
500
600
700
800
900
Hera+DtW DtW feB ,iFR Hera+,iFR
FinancialImpactofDifferentSupplier’sSites
Number of Sites
Financial Impact
Another 2K+ sites with negligible Impact
41
20000 40000 60000 80000 100000 120000 140000
o stImprasnI10ImSuuumleaaůŝĞnmlŝIĞ
Disruption ImpactandTotalSpendbySupplierFacility
(Number of Vehicles Effected)
TotalSpendbySupplierSite
Disclaimer: Data shown here is for demonstration only . It does not represent realnumbers used in analysis
42
4/11/2014
22
Disruption ImpactandTotalSpendbySupplierFacility
Financial Impact (Profit)
8192 58192 108192 158192 208192 258192 308192
o stImprasnI10ImSuuumleaaůŝĞnmlŝIĞtTotalSpendbySupplierSite
Disclaimer: Data shown here is for demonstration only . It does not represent realnumbers used in analysis
43
SupplierSegmentation
Financial Impact (Profit)
8192 58192 108192 158192 208192 258192 308192
o stImprasnI10ImSuuumleaaůŝĞnmlŝIĞt
TotalSpendbySupplierSite
Disclaimer: Data shown here is for demonstration only . It does not represent realnumbers used in analysis
44
4/11/2014
23
SupplierSegmentation
Financial Impact (Profit)
8192 58192 108192 158192 208192 258192 308192
o stImprasnI10ImSuuumleaaůŝĞnmlŝIĞtTotalSpendbySupplierSite
• Long Term Contracts
• Track Inventory
• Partnership
• Risk Sharing Contracts
• Track Performance
• Require Multiple Sites
• Inventory
• Dual Sourcing
• New Product Design
Disclaimer: Data shown here is for demonstration only . It does not represent realnumbers used in analysis
45
SupplierSegmentation
Financial Impact (Profit)
8192 58192 108192 158192 208192 258192 308192
o stImprasnI10ImSuuumleaaůŝĞnmlŝIĞt
TotalSpendbySupplierSite
• Long Term Contracts
• Track Inventory
• Partnership
• Risk Sharing Contracts
• Track Performance
• Require Multiple Sites
• Inventory
• Dual Sourcing
• New Product Design
Disclaimer: Data shown here is for demonstration only . It does not represent realnumbers used in analysis
46
4/11/2014
24
ImpactonAutomotiveManufacturer
• Optimization modelidentified at-risksuppliers
Identifiedthehiddenriskofhighvolume-low margin
components
• Segmentsuppliers
Somesuppliersarerequiredtohavealternateplantsindifferent
regions
Implementnew productdesignstrategytoconsolidatesimilar
parts providesupplierswitheconomiesofscaletosetupa
secondplant
Trackdailyinventorylevelsforsomesuppliers
47
W hatW e’llCover…
• Introduction
TheRiskExposureIndex
• SupplierSegmentation
AutomotiveManufacturer
• W rap-up
48
4/11/2014
25
49
KeyObservations
• InvestNow orPayLater
FirmsneedtoinvestinRiskMitigationStrategiesortheywill
paythepricelater.
• Managing SupplyChain Risks
DealingwiththeUnknown-Unknown
MeasuringtheRiskExposureIndex
Implementing SupplyChainFlexibility
Implementing SupplierSegmentation
YourTurn!
How to contact me:
David Simchi-Levi
dslevi@mit.edu 50
4/11/2014
26
Supply Chain Insights LLC Copyright © 2014, p. 51
Questions?
Supply Chain Insights LLC Copyright © 2014, p. 52
Public Training
www.supplychaininsights.com/services/training
• Chicago, IL – June 18-19, 2014
• Philadelphia, PA – August 6-7, 2014
• Dallas, TX – November 5-6, 2014
4/11/2014
27
Supply Chain Insights LLC Copyright © 2014, p. 53
Complimentary Webinars
www.supplychaininsights.com/upcoming-webinarswww.supplychaininsights.com/upcoming-webinars
UPCOMING WEBINARS
April 10, 2014: Risk Management
April 24, 2014: Supply Chain Resiliency
May 8, 2014: Our Research Difference
May 15, 2014: Metrics That Matter Book
June 12, 2014: Digital Supply Chain
PAST WEBINARS: ON DEMAND
From Mar. 6, 2014: Voice of the Supply Chain
From Nov. 14, 2013: Healthcare Value Chain
From Nov. 13, 2013: The Shaman’s Circle
From Oct. 10, 2013: Metrics That Matter
From Aug. 30, 2013: Supply Chain Matters
Supply Chain Insights LLC Copyright © 2014, p. 54
Annual Event September 2014
4/11/2014
28
Supply Chain Insights LLC Copyright © 2014, p. 55
Who is Lora?
• Founder of Supply Chain Insights
• Partner at Altimeter Group (leader in open
research)
• 7 years of Management Experience leading
Analyst Teams at Gartner and AMR Research
• 8 years Experience in Marketing and Selling
Supply Chain Software at Descartes Systems
Group and Manugistics (now JDA)
• 15 Years Leading teams in Manufacturing and
Distribution operations for Clorox, Kraft/General
Foods, Nestle/Dreyers Grand Ice Cream and
Procter  Gamble.
Supply Chain Insights LLC Copyright © 2014, p. 56
Where Do You Find Lora?
Contact Information:
lora.cecere@supplychaininsights.com
Blog: 100 Posts/Year
www.supplychainshaman.com
(10000 pageviews/month)
Forbes: Write 2X/Month
http://www.forbes.com/search/?q=lora+cecere
Twitter: lcecere 4800 followers.
LinkedIn: linkedin.com/pub/lora-
cecere/0/196/573 (Linkedin Influencer over 6000
followers in the network)
4/11/2014
29
Supply Chain Insights LLC Copyright © 2014, p. 57
Two in Five Report the Head of the Supply Chain Is
Responsible for Supply Chain Risk Management

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Lora & David's Risk Management Webinar Presentation

  • 1. 4/11/2014 1 Supply Chain Insights LLC Copyright © 2014, p. 1 Supply Chain Risk Management Supply Chain Insights LLC Copyright © 2014, p. 2 Speakers Lora Cecere Founder Supply Chain Insights lcecere@supplychaininsights.com David Simchi-Levi MIT Professor Founder Ops Rules dslevi@MIT.EDU
  • 2. 4/11/2014 2 Supply Chain Insights LLC Copyright © 2014, p. 3 Definition Given to Respondents Supply Chain Insights LLC Copyright © 2014, p. 4 Study Overview
  • 3. 4/11/2014 3 Supply Chain Insights LLC Copyright © 2014, p. 5 Reporting Relationship Supply Chain Insights LLC Copyright © 2014, p. 6 • The What • The So What • Recommendations • Wrap-up Agenda
  • 4. 4/11/2014 4 Supply Chain Insights LLC Copyright © 2014, p. 7 Current State Supply Chain Insights LLC Copyright © 2014, p. 8 Risk Management Low on the List
  • 5. 4/11/2014 5 Supply Chain Insights LLC Copyright © 2014, p. 9 But, Should it Be? Gap Analysis Supply Chain Insights LLC Copyright © 2014, p. 10 Major Supply Chain Disruptions
  • 6. 4/11/2014 6 Supply Chain Insights LLC Copyright © 2014, p. 11 An Issue Supply Chain Insights LLC Copyright © 2014, p. 12 Top Two Supply Chain Disruptions in 5 Years: 2011’s Tsunami in Japan and 2012’s Hurricane Sandy
  • 7. 4/11/2014 7 Supply Chain Insights LLC Copyright © 2014, p. 13 Importance to Supply Chain Strategy Supply Chain Insights LLC Copyright © 2014, p. 14 • The What • The So What • Recommendations • Wrap-up Agenda
  • 8. 4/11/2014 8 Supply Chain Insights LLC Copyright © 2014, p. 15 Current Assessment Supply Chain Insights LLC Copyright © 2014, p. 16 Demand Volatility Is Only Top 3 Driver in Past, Present and Future
  • 9. 4/11/2014 9 Supply Chain Insights LLC Copyright © 2014, p. 17 • The What • The So What • Recommendations • Work from MIT • Wrap-up Agenda Supply Chain Insights LLC Copyright © 2014, p. 18 Disruption: Current Visibility
  • 10. 4/11/2014 10 Supply Chain Insights LLC Copyright © 2014, p. 19 Financial Health: Monitoring Supply Chain Insights LLC Copyright © 2014, p. 20 Most Important Risk Management Techniques
  • 11. 4/11/2014 11 onquergSqplyeaasklo:NSqltSƐŬ͗ lErǁl aagnNĐ:lƚnlyeaaskltSƐŬ David Simchi-Levi E-mail: dslevi@mit.edu 21 W hatW e’llCover… • Introduction TheRiskExposureIndex • SupplierSegmentation Implementation atFord • W rap-up 22
  • 12. 4/11/2014 12 ManySourcesofRisks • Naturaldisasters • Geopoliticalrisks • Epidemics • Terroristattacks • Environmentalrisks • Volatilefuelprices • RisingLaborcosts • Currencyfluctuations • Counterfeitpartsandproducts • Portdelays • Marketchanges • Suppliers’performance • Forecastingaccuracy • Executionproblems Unknown-Unknown Known-Unknown Uncontrollable Controllable 23 ManySourcesofRisks • Naturaldisasters • Geopoliticalrisks • Epidemics • Terroristattacks • Environmentalrisks • Volatilefuelprices • RisingLaborcosts • Currencyfluctuations • Counterfeitpartsandproducts • Portdelays • Marketchanges • Suppliers’performance • Forecastingaccuracy • Executionproblems Unknown-Unknown Known-Unknown Uncontrollable Controllable 24
  • 13. 4/11/2014 13 ManySourcesofRisks • Naturaldisasters • Geopoliticalrisks • Epidemics • Terroristattacks • Environmentalrisks • Volatilefuelprices • RisingLaborcosts • Currencyfluctuations • Counterfeitpartsandproducts • Portdelays • Marketchanges • Suppliers’performance • Forecastingaccuracy • Executionproblems Unknown-Unknown Known-Unknown Uncontrollable Controllable 25 Epidemics Fuel Prices Geopolitical Problems Currency Fluctuations Commodity Prices Port Delays Product Design Problems Forecast Accuracy Suppliers‘ Performance The Risk Framework Expected Impact Ability to ControlLOW Unknown-Unknown HIGH HIGH Known-Unknown LOW Counterfeits Government Regulations Natural Disasters Environmental Risks 26
  • 14. 4/11/2014 14 Managing SupplyChain Risk:TheChallenge • Verydifficulttopredictmanysourcesofrisk,especially theunknown-unknown • Impactofdisruptioncan bedevastating • Largeinvestmentinidentifying everypossibleriskinthe supplychain • Existing toolsandtechniqueshavebeen inadequate Mostlyad-hoc,intuition,gutfeeling Exposuretoriskmayresideinunlikelyplaces Mayleadtothewrongactionsandwasteresources Noabilitytoprioritizemitigationinvestment 27 CaseStudy1:TheRiskExposureIndex • High techmanufacturing company • ContractmanufacturersinAsia • AssemblyplantsinNorthAmerica • Manysuppliersallovertheworld • Sellsitsproductsdirectlyandthroughdistributors 28©Copyright2014D.Simchi-Levi
  • 15. 4/11/2014 15 CaseStudy1:TheRiskExposureIndex Tier+1Tier+2U SP+otrA smmeblya+oynCAm smmeblya uLmAtberm TD DTD cimArilLAtrm utCArnMA+ fnCLpnMALrerm SP+PLddyierm oriCAeB+uirMLiA+ htnrB uRidmeA+ fnCLpnMALrer wnW+fnAeriny++ PLddyierm 29 PAtrem cimArilLAtrm •Time-To-Recovery (TTR): The time it takes to recover to full functionality after a disruption cimArilLAitC ©Copyright2014D.Simchi-Levi CaseStudy1:TheRiskExposureIndex cimArilLAitCTier+1Tier+2U SP+otrA smmeblya+oynCAm smmeblya uLmAtberm TD DTD cimArilLAtrm utCArnMA+ fnCLpnMALrerm SP+PLddyierm oriCAeB+uirMLiA+ htnrB uRidmeA+ fnCLpnMALrer wnW+fnAeriny++ PLddyierm 30 PAtrem cimArilLAtrm •Time-To-Recovery (TTR): The time it takes to recover to full functionality after a disruption 2 Weeks 1 Week 2 Weeks 2 Weeks 2 Weeks TTR =2 Weeks 2 Weeks ©Copyright2014D.Simchi-Levi
  • 16. 4/11/2014 16 CaseStudy1:TheRiskExposureIndex cimArilLAitCTier+1Tier+2U SP+otrA smmeblya+oynCAm smmeblya uLmAtberm TD DTD cimArilLAtrm utCArnMA+ fnCLpnMALrerm SP+PLddyierm oriCAeB+uirMLiA+ htnrB uRidmeA+ fnCLpnMALrer wnW+fnAeriny++ PLddyierm 31 PAtrem cimArilLAtrm •Time-To-Recovery (TTR): The time it takes to recover to full functionality after a disruption • Financial Impact (FI): Lost sales during TTR 2 Weeks 1 Week 2 Weeks 2 Weeks 2 Weeks TTR =2 Weeks 2 Weeks ©Copyright2014D.Simchi-Levi CaseStudy1:TheRiskExposureIndex cimArilLAitCTier+1Tier+2U SP+otrA smmeblya+oynCAm smmeblya uLmAtberm TD DTD cimArilLAtrm utCArnMA+ fnCLpnMALrerm SP+PLddyierm oriCAeB+uirMLiA+ htnrB uRidmeA+ fnCLpnMALrer wnW+fnAeriny++ PLddyierm 32 PAtrem cimArilLAtrm •Time-To-Recovery (TTR): The time it takes to recover to full functionality after a disruption • Financial Impact (FI): Lost sales during TTR 2 Weeks $400M 1 Week $100M 2 Weeks $1.5B 2 Weeks $100M 2 Weeks $2.5B TTR =2 Weeks FI = $400M 2 Weeks $300M ©Copyright2014D.Simchi-Levi
  • 17. 4/11/2014 17 CaseStudy1:TheRiskExposureIndex cimArilLAitCTier+1Tier+2U SP+otrA smmeblya+oynCAm smmeblya uLmAtberm TD DTD cimArilLAtrm utCArnMA+ fnCLpnMALrerm SP+PLddyierm oriCAeB+uirMLiA+ htnrB uRidmeA+ fnCLpnMALrer wnW+fnAeriny++ PLddyierm 33 PAtrem cimArilLAtrm •Time-To-Recovery (TTR): The time it takes to recover to full functionality after a disruption • Financial Impact (FI): Lost sales during TTR •The Risk Exposure Index (REI) is the maximum FI over all nodes in the supply chain 2 Weeks $400M 1 Week $100M 2 Weeks $1.5B 2 Weeks $100M 2 Weeks $2.5B TTR =2 Weeks FI = $400M 2 Weeks $300M ©Copyright2014D.Simchi-Levi CaseStudy1:TheRiskExposureIndex cimArilLAitCTier+1Tier+2U SP+otrA smmeblya+oynCAm smmeblya uLmAtberm TD DTD cimArilLAtrm utCArnMA+ fnCLpnMALrerm SP+PLddyierm oriCAeB+uirMLiA+ htnrB uRidmeA+ fnCLpnMALrer wnW+fnAeriny++ PLddyierm 34 PAtrem cimArilLAtrm •Time-To-Recovery (TTR): The time it takes to recover to full functionality after a disruption • Financial Impact (FI): Lost sales during TTR •The Risk Exposure Index (REI) is the maximum FI over all nodes in the supply chain 2 Weeks $400M 1 Week $100M 2 Weeks $1.5B 2 Weeks $100M 2 Weeks $2.5B TTR =2 Weeks FI = $400M 2 Weeks $300M ©Copyright2014D.Simchi-Levi
  • 18. 4/11/2014 18 ThebenefitsofusingtheRiskExposureIndex • Itprovidesa$measureofrisk--itestimatethecostofrisk; • Itisbased ontheentirenetworkrather; • Itavoidstheneed toforecasttheunknown-unknown; • Itforcesadiscussion tounderstand whyTTR forsimilar facilitiesorsuppliersisdifferent; • ItforcesaprocesstoreduceTTR invariousstagesofthe supplychain; • Itmakessureyou haveagoodunderstanding ofsupplychain dependencies. 35 ©Copyright2014D.Simchi-Levi W hatW e’llCover… • Introduction TheRiskExposureIndex • SupplierSegmentation Implementation atFord • W rap-up 36
  • 19. 4/11/2014 19 CaseStudy2:FordMotorCompany • Global automotive industry leader based in Dearborn, MI. • Manufactures and distributes automobiles in 200 markets across six continents. 37 ©Copyright 2014 D. Simchi-Levi FordBrands 38 ©Copyright 2014 D. Simchi-Levi
  • 20. 4/11/2014 20 FordSupplyChain Tier+1Tier+2Tier+3U EemA+utnmA NnmA+utnmA ktrAR+sberiMnC+ smmeblya+oynCAm smmeblya cenyerm TrLMg TrniC ktrAR+sberiMnC+ NCFiCe+oynCAm TrnCmbimmitC+ oynCAm PAnbdiCF+oynCAm sos+PLddyierm NS+PLddyierm ks+PLddyierm VtrFiCF+oynCAm unmAiCF+oynCAm sos+PLddyierm NS+PLddyierm ks+PLddyierm ks+PReeA+PAeey+ PLddyierm sos+PLddyierm ks+PAeey+hnr+ PLddyierm NS+PLddyierm ks+PLddyierm edca- fbc~4 1f5–da  c5‹…ƒa—’’~›a dƒ‹ - —~–‹Ǧe‹c5a1c–™f5 f‰acƒba–‹ c•aˆ5f a•f ca•—’’~‹c5• f ’~cša - a•–5—…–—5c f ’fc–•aƒ5ca•dƒ5cbaƒ…5f••a —~–‹’~ca ƒ••c „~‹c• ̱Ͷae‹c5aͳa•—’’~‹c5•a•‹–c• ̱ͷͷab‹ˆˆc5c–a’ƒ5–•a efacd;’‡•caˆceec‹ˆa” ƒd‹aǣc‡c‹cfŠ‹…ŠcdŠ‡c•—’’Ž‹‡”ǯ•c’”a†—…d‹acˆƒ…‹Ž‹d;c‹•c Ža•dǢc•‡…a†cƒ••a…‹ƒd‡†cf‹dŠc•—’’Ž‹‡”ǯ•cˆƒ…‹Ž‹d;cƒ†cdaaŽ‹‰cƒ”‡cŽa•dǤ Tier2 Tier1 AssemblyPlants Dealers 40
  • 21. 4/11/2014 21 821 465 129 252 94 0 100 200 300 400 500 600 700 800 900 Hera+DtW DtW feB ,iFR Hera+,iFR FinancialImpactofDifferentSupplier’sSites Number of Sites Financial Impact Another 2K+ sites with negligible Impact 41 20000 40000 60000 80000 100000 120000 140000 o stImprasnI10ImSuuumleaaůŝĞnmlŝIĞ Disruption ImpactandTotalSpendbySupplierFacility (Number of Vehicles Effected) TotalSpendbySupplierSite Disclaimer: Data shown here is for demonstration only . It does not represent realnumbers used in analysis 42
  • 22. 4/11/2014 22 Disruption ImpactandTotalSpendbySupplierFacility Financial Impact (Profit) 8192 58192 108192 158192 208192 258192 308192 o stImprasnI10ImSuuumleaaůŝĞnmlŝIĞtTotalSpendbySupplierSite Disclaimer: Data shown here is for demonstration only . It does not represent realnumbers used in analysis 43 SupplierSegmentation Financial Impact (Profit) 8192 58192 108192 158192 208192 258192 308192 o stImprasnI10ImSuuumleaaůŝĞnmlŝIĞt TotalSpendbySupplierSite Disclaimer: Data shown here is for demonstration only . It does not represent realnumbers used in analysis 44
  • 23. 4/11/2014 23 SupplierSegmentation Financial Impact (Profit) 8192 58192 108192 158192 208192 258192 308192 o stImprasnI10ImSuuumleaaůŝĞnmlŝIĞtTotalSpendbySupplierSite • Long Term Contracts • Track Inventory • Partnership • Risk Sharing Contracts • Track Performance • Require Multiple Sites • Inventory • Dual Sourcing • New Product Design Disclaimer: Data shown here is for demonstration only . It does not represent realnumbers used in analysis 45 SupplierSegmentation Financial Impact (Profit) 8192 58192 108192 158192 208192 258192 308192 o stImprasnI10ImSuuumleaaůŝĞnmlŝIĞt TotalSpendbySupplierSite • Long Term Contracts • Track Inventory • Partnership • Risk Sharing Contracts • Track Performance • Require Multiple Sites • Inventory • Dual Sourcing • New Product Design Disclaimer: Data shown here is for demonstration only . It does not represent realnumbers used in analysis 46
  • 24. 4/11/2014 24 ImpactonAutomotiveManufacturer • Optimization modelidentified at-risksuppliers Identifiedthehiddenriskofhighvolume-low margin components • Segmentsuppliers Somesuppliersarerequiredtohavealternateplantsindifferent regions Implementnew productdesignstrategytoconsolidatesimilar parts providesupplierswitheconomiesofscaletosetupa secondplant Trackdailyinventorylevelsforsomesuppliers 47 W hatW e’llCover… • Introduction TheRiskExposureIndex • SupplierSegmentation AutomotiveManufacturer • W rap-up 48
  • 25. 4/11/2014 25 49 KeyObservations • InvestNow orPayLater FirmsneedtoinvestinRiskMitigationStrategiesortheywill paythepricelater. • Managing SupplyChain Risks DealingwiththeUnknown-Unknown MeasuringtheRiskExposureIndex Implementing SupplyChainFlexibility Implementing SupplierSegmentation YourTurn! How to contact me: David Simchi-Levi dslevi@mit.edu 50
  • 26. 4/11/2014 26 Supply Chain Insights LLC Copyright © 2014, p. 51 Questions? Supply Chain Insights LLC Copyright © 2014, p. 52 Public Training www.supplychaininsights.com/services/training • Chicago, IL – June 18-19, 2014 • Philadelphia, PA – August 6-7, 2014 • Dallas, TX – November 5-6, 2014
  • 27. 4/11/2014 27 Supply Chain Insights LLC Copyright © 2014, p. 53 Complimentary Webinars www.supplychaininsights.com/upcoming-webinarswww.supplychaininsights.com/upcoming-webinars UPCOMING WEBINARS April 10, 2014: Risk Management April 24, 2014: Supply Chain Resiliency May 8, 2014: Our Research Difference May 15, 2014: Metrics That Matter Book June 12, 2014: Digital Supply Chain PAST WEBINARS: ON DEMAND From Mar. 6, 2014: Voice of the Supply Chain From Nov. 14, 2013: Healthcare Value Chain From Nov. 13, 2013: The Shaman’s Circle From Oct. 10, 2013: Metrics That Matter From Aug. 30, 2013: Supply Chain Matters Supply Chain Insights LLC Copyright © 2014, p. 54 Annual Event September 2014
  • 28. 4/11/2014 28 Supply Chain Insights LLC Copyright © 2014, p. 55 Who is Lora? • Founder of Supply Chain Insights • Partner at Altimeter Group (leader in open research) • 7 years of Management Experience leading Analyst Teams at Gartner and AMR Research • 8 years Experience in Marketing and Selling Supply Chain Software at Descartes Systems Group and Manugistics (now JDA) • 15 Years Leading teams in Manufacturing and Distribution operations for Clorox, Kraft/General Foods, Nestle/Dreyers Grand Ice Cream and Procter Gamble. Supply Chain Insights LLC Copyright © 2014, p. 56 Where Do You Find Lora? Contact Information: lora.cecere@supplychaininsights.com Blog: 100 Posts/Year www.supplychainshaman.com (10000 pageviews/month) Forbes: Write 2X/Month http://www.forbes.com/search/?q=lora+cecere Twitter: lcecere 4800 followers. LinkedIn: linkedin.com/pub/lora- cecere/0/196/573 (Linkedin Influencer over 6000 followers in the network)
  • 29. 4/11/2014 29 Supply Chain Insights LLC Copyright © 2014, p. 57 Two in Five Report the Head of the Supply Chain Is Responsible for Supply Chain Risk Management