Brief presentation managing supply chain risks

Programa de Atualização Profissional
Supply Chain Risk Management
SCRM
summary
by Gláucio Bastos, M.B.A., Ch.E.

abstract
 SCRM target: given a supply chain (SC) from the point of view
of the participants, which may be the manufacturer, the
purchaser, transporter, logistics provider, etc.. from historical
operational data, are initially located the points where
failures, delays, interruptions, defects and material losses
should occur, then for correction are defined effective
strategic measures considering their cost of implementation
and the benefits brought, to eventually the result of SC
operation monitoring with the improvements are
replenished in a continuous process

SCRM need
 even before the recent global economic recession SCs have been
through increasing complexity
 executives faced more extensive and intricate processes of SC in
challenging environments, being forced to reach new territories
in search of opportunities for cost savings and greater agility
 globalization and increasing interdependence of SC increased
further the level of volatility and vulnerability, with no apparent
chance of standardization and exposing the company’s SCs to
risks of amplified failures rarely seen until now, with wider and
larger potential impact than those of recent past
 uncertainty has become usual
 this new environment requires a more intelligent and resilient SC
(able to recover)

method
 from the historical data of the SC, the framework
automatically sets the risk model, generating a network (BN)
with interdependencies between risk variables both
qualitative (relationships between variables) and
quantitative (probability of occurrence of the variables and
calculating the value chain for each situation), which can be
enhanced by the experts experience
 historical data show to each SC process (e.g. each delivery of
a particular product) which was the condition (state) of each
occurrence (variable) – e.g. who was the carrier, there was
and what was the kind of change in the order requested by
the customer, what product configuration was requested,
which requested destination, what kind of client, etc.

resumo

risk components
 SC risks are contingencies that affect logistics operations
 risk merges 02 factors:
 the probability that an adverse event or a threat is
realized
 the impact, that is the effect or negative consequence
of the adverse event

SCRM steps
 identification of SC potential risks
 assessment of risk occurrence likelihood and
consequences severity
 planned mitigation of risks i.e. application of
countermeasures to prevent or reduce (if possible) the
probability of the risk and reduce the damage /
disruptions in SC
 monitoring and control for continuous assessment of
improvement in the SC operation after the
implementation of the strategies

BN elements
 horizontal dimension of BN – SC business processes
 vertical dimension - 03 types of risk variables:
 factors risk: underlying causes affecting the processes
 risk events: factors consequences – e.g. delays,
interruptions, defects
 risk symptoms: actual occurrences of events defined for
example, by measuring the time of manufacture or
collection
 performance measures complete the vertical dimension,
quantifying the value of SC in each situation depending
on the presence or absence of each symptom

issue description

issue description
 consider a SC as a process of delivering a product
to the customer comprising the steps:
 order processing
 product collecting
 product shipping
 product delivery

risk factors by business process
Change_in_order (small, normal, large): order changing by client
Tied_order (tied, untied): order consolidation
Order_type (yes, no): abnormality caused by order type
Shipment_size (yes, no): abnormality by shipment size
Cust_type (yes, no): abnormality by customer type
Product_family (yes, no): abnormality by product family
Product_importance (yes, no): abnormality by product importance
Cust_config (yes, no): abnormality by adapting the configuration
required by the customer
Demand_level (yes, no): abnormality by demand level
Mfg_related_errors (yes, no): errors relatves to manufacturing
Manuf_location (China, Mexico, unknown,USA): factory place
Cust_location (yes, no): abnormality by client place

risk factors by business process
Misroute (yes, no): lost load
Carrier (yes, no): abnormality by transport characteristics
Delivery_mode (yes, no): abnormality by delivery mode
Holidays (yes, no): abnormality by holidays
Insufficient_carrier_capacity (yes, no): abnormality by low transport
capacity
Other_logl_causes (yes, no): abnormality by other logistics causes
Severe_weather (yes, no): abnormality by bad weather
Custom_causes (yes, no): abnormality by customs causes
Cust_causes (yes, no): abnormality by client reasons
Customer_fulfillment (yes, no): abnormality by customer fulfillment
level

problem approach
 risk factors probability:
 from historical data of SC operation, the risk factors are
scored according to their probability of occurrence

issue approach
0%
20%
40%
60%
80%
100%
120%
Likelihood of Abnormal Risk States

issue approach
 risk factors impact on performance measures:
 is defined by simulating the occurrence of each of the
possible states of the risk factors ('evidence') and
calculating the total value of the SC in each of these
situations
 the difference between the totals of the SC for each state
of a risk factor is the value of your impact on SC

issue description
0
100
200
300
400
500
600
700
800
Mini
Max
Impact on Total_process_valueImpact on Total_process_value
Base

assessment tool
by merging probability and impact of each risk factor, one can trace the
SC map of vulnerabilities which use depends on the degree of risk
aversion of the manager:

issue approach
Shipping_dela
y
Delivery_delay
Logistics_dela
y
Cust_config
S2D_Met
O2D_Met
O2S_Met
Pick_delay
Carrier
Custom_cause
s
MFG_related_
errors
MFG_delay
Change_in_or
der
Manuf_location
Other_logl_cau
ses
Impact
Likelihood

issue treatment
 beyond the vulnerability map, other methods of sensitivity
analysis of SC risk factors are applied to define the major or
relevant risk factors to be mitigated
 as a result of this analysis, the following risk factors were
considered relevant:
 ‘change in order’
 ‘customer configuration’, and
 ‘manufacturing location’
 the event more relevant risk was found 'manufacturing
delay‘
 then to evaluate the states behavior of relevant factors was
considered an evidence on the event 'manufacturing delay'

issue treatment
 as a result, for each of these factors the greatest variations
of probabilities with and without 'manufacturing delay',
were:
 ‘change in order’ – ‘small changes’ state – from 65% to
75%
 ‘customer configuration’ – ‘abnormal’ state – from 43%
to 50%
 ‘manufacturing localition’ – ‘Mexico’ state – from 44% to
53%
 in short, occurring ‘manufacturing delay' these are the
states of each factor most likely to have caused the risk
event

issue treatment

issue treatment
 mitigation strategy effects:
 found the relevant risk factors the mitigation strategies
to be applied are set, which are included in the BN
applied to the nodes of those selected risk factors
 then in the same way that the impact was defined for
each risk factor also by calculating the difference
between the total value of SC for each mitigation
measure in the active state (on) and inactive (off)
including its implementation cost, your benefit to SC is
determined

issue treatment
560
580
600
620
640
660
680
700
720
740
760
Allow_flexible_configurations Improve_contract Improve _route_scheduling
Mit. off
Mit. on
Impact of mitigation strategy on Total_process_value
Base

issue treatment
 mitigation strategy results
 therefore the strategy ‘flexible configurations' was
designed and implemented recasting as a whole the
production process and the order processing with
particular emphasis on the Mexico unity, where by the
strategy a production downsizing is implemented there
to reduce the manufacturing cycle since it was found in
‘manufacturing delay’ evidence that there is significant
increasing in probability when a delay occurs, that the
product has coming from this plant among the others

issue treatment
 mitigation strategy results
 by simulating a wide range of SC total values it is clear
for the scenario with application of proposed mitigation
measures that the probability of SC highest total value
achievement increases 20% compared to the same
probability for the scenario with no application of
mitigation measures.

issue treatment
0%
10%
20%
30%
40%
50%
60%
0 100 200 300 400 500 600 700 800 900 1000
Impact of Allow_flexible_configurations mitigation strategy on
Total_process_value
Mitigation 'off'
Mitigation 'on'

Brief presentation managing supply chain risks

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