Minimising Risk Exposure in Supply Chain

1. Supply Chain Risk Management Minimising Risk Exposure in Supply Chain Anand Subramaniam

4. Supply Chain Today… Challenges

5. Supply Chain Today..

7. Risk Exposure – SC Network Design Top Pressures Driving Supply Risk Management 82% 79% 78% 77% 73% 70% 69% 59% 58% SC Disruption within past 24 mos Longer lead times Pressure from executives Customer pressures Global sourcing Lean/JIT initiatives Supply assurance outweighs cost Supply base reduction Regulatory pressures Transportation constraints 73% 20% 12% 10% 8% Supply Chain Price Fluctuations Labor Issues IT Systems Mgt Malfeasance 8% #1 Threat Factor To Revenue Source: Managing Business Risk 2006 & Beyond, FM Global & Harris / USA Today, 2006 Survey 602 Global CFOs / Financial Executives

8. AMR Research 2008 on Risk Change in level of risk from 1 year ago

10. AMR Research 2008 - SC Risk Mitigation 44% 33% 31% 29% 27% 42% 27% 10% 4% 10% 12% 5% 14% 10% Performance-based contracts with suppliers or service providers Increase in IT investment for better visibility across the supply chain Closer collaborative relations with trading partners Utilising modeling tools (optimisation, simulation) to be proactive about risk by conducting what-if analysis Outsourcing logistics function Dual/multi sourcing strategies and using redundant suppliers Outsourcing manufacturing function Top 10 methods used to mitigate risk Most successful method used to mitigate risk

11. Supply Chain & Risk - Realities

12. SCM Components.. Ideal World !! Store In-Stock Channel Design Network Rationalisation Flow of Merchandise Distribution Operations/ Transportation Planning, Buying, Allocation Supporting Infrastructure Right goods, right place, right time, right cost The optimum combination of facilities and transportation modes that achieve service targets The cost effective Distribution Channels at the lowest cost Synchronised flow of merchandise to optimise inventories and meet customer demand The most appropriate operational linkage between client and vendors Functions and processes consistent with vendor operating strengths and needs The most appropriate information systems and support areas to plan and manage the flow of goods strategy

15. Risks – Managing Stakeholder … Supplier SC Disruption Capacity / Quality Supplier Performance Supplier Environment Financial Distress Product / Process innovation Relationship Regulatory Disaster Customer Environmental Volume / Product mix Brand / Reputation Data Sharing Product Liability Legal Liability Market Mix Disasters Quality Internal Environmental Legal / Financial Technical / Operational Staff Turnover /OH&S SC disruption history Capacity / Sourcing Quality / Delivery Spend Leverage Innovation

16. Risk Management Realities… Insurance Not Purchased Political Risk Environmental Advertiser’s Liability Professional Liability E-Commerce Liability Certain lines of Products Patent Infringement Product recall Non-Owned Terrorism Liability Insurance Not Available War / Strike Reputational Terrorism Biological Nuclear / Radiation Regulatory Fines & Penalties Poor Business Judgment Supply Chain Interruption Loss of Market Share Breach of Contract Global Pandemic Fraud

17. Internal & External Drivers

18. Exposure – External & Internal Drivers Environment Supply Demand Process Governance / Controls Risk Response / Contingency Exposure External Internal External Internal

22. Risk Exposure in Managing…..

23. Risks -Managing Shareholder Value

24. Risks - Managing Competitive Pressures Requires a change in Business Model Serving localised customer with complex supply lines Demanding customers Changing market boundaries and new channels Aggressive global competition Industry consolidation and alliances Environmental and risk issues Stakeholder pressures Speed of technology change Shortening product life cycles Pressure on margins, growth, cost Supply & Demand Co-ordination Hyper – competition & Globalisation Compliance Green SCM Catastrophic events

25. Risks - Managing End to End Networks Supply Chain Redesign New Materials Cooperative Development New Relationships New Processing Product Adaptation Integrated Solutions Key Process Improvement New Products Supply Chain Responsiveness Alternative Channels Cost to Serve New Sales Sales Leadership Strategies New Business Systems Suppliers Manufacturing Distribution Retailer Consumer Flow of information, products, services and financials Capture Buying Habits Product Development Distribution Efficiency Product Replenishment Order Fulfillment Marketing Strategy Business Development

26. Risks - Managing SCM Performance Sell Product recall, service and quality issues can impact brand image High turnover coupled with poor training can result in serious customer service issues Plan Poorly designed products can result in future recalls Product complexity can create downstream execution issues Missed or lagging trends Design flaws & cycle time Source Globalisation & sourcing from emerging markets leads to product safety, quality, supply disruptions & monitoring issues, which Can impact customer perceptions Single / sole-sourcing creates failure points Deliver Consolidation of distribution and fulfillment creates risks - product theft, labour shortages / stoppages. Less resilient local hauling lanes create significant exposures within the last few miles of the delivery process Make Realigning and consolidating facilities creates risks – product rationalisation, labor disputes, stoppages etc. Outsourcing can create vulnerabilities that extend beyond the immediate business Service Fall in service levels (after Sales ), process returns, lack of spares etc can influence future buying behaviors brand image Lack of visibility across reverse logistics can impact top & bottom line Warranty failure can impact loyalty / image. Suppliers Manufacturing Distribution Retailer Consumer

27. Risks - Managing Product / Information Flow Postponement Vendor managed inventory Cross docking Continuous replenishment Flexible automation Modularisation Mass customisation Quick response Efficient consumer response End to End Supply Chain Time-based logistics Extended warehouse Visibility Integrated business planning / Sales & Operations Planning Cloud based services: Managed Services, On-Demand, SaaS Sustainability & Green Supply Chain Closed-loop Supply Chain Execution & Supply Chain Planning Demand Driven Lean Supply Chain Transportation Management & Global Trade Management Convergence Continuous Monitoring & Control of Risks

28. Risks - Managing SC Change Initiatives Supplier Rationalisation Flexible Manufacturing Strategies Cross- docking Activity- Based Costing CPFR Salesforce Planning Production Scheduling Inventory Planning Distribution Scheduling Integrated- Micro Marketing Customer-Focused Planning Vendors Inbound Logistics Manufacturing Transportation Warehousing Delivery Retailer Consumer Quick Response Forecasting EDI Category Management, Continuous Replenishment Net Landed Cost Palletisation, Bar Coding Vendor Managed Inventory Supply Chain Systems Selection and Implementation Promotion Planning Information, Finance & Product flows

30. Risk Exposure - Managing Suppliers

33. Root Cause Analysis Supplier Supply Chain Involuntary (bankruptcy) Voluntary (exit market) Business Exit Supplier Business Continuity Sole / Single Source Environmental Control Security Natural Disaster Building Contamination Inventory Handling & Managment Warehousing Poor RM Quality RM Out of Spec Contamination Inadequate Documentation Compliance Systems Process Procurement Raw Material Supply

34. Risk Planning - Integration (People, Process & Systems)

40. Risk Framework

41. Strategic Approach – Resilient SC Resilient Supply Chain Supply Chain (Re)Engineering Supply Chain Design Supply Chain Understanding Supply Base Strategy Supply Chain Collaboration Collaborative Planning Supply Chain Intelligence SC Risk Mngt Culture Agility Visibility Velocity Supply Chain Continuity Teams Board level responsibility Risk in decision making

42. Risk Framework Strategy Execution Tactical Iterate & Improve

46. Knowledge - Iteration & Improvement Lessons Learnt Capture Communicate Collaborate Continuously Improve

48. Risk – Tools, Techniques, Checklists

49. Risk Categories Relationship Relationship Supply Chain Disruption Human Resources Performance Supply Chain Performance Financial Health Environment SC Risk Category Quality, Delivery, Capability, Service Influence, Alignment, Information, Sharing Turnover, Union issues, Pay Position Market Power, Information Visibility, Concentration, Disruption Potential Size, Asset Utilisation, Capitalisation, Profitability 1 2 3 4 5 6 Market Dynamics, Mergers, Regulatory, Disasters, Transportation

50. Questionnaire on SC Risk Issues

51. Supply Chain Risk Barriers

52. Supply Chain Description

53. Risks - Demand, Supply, Control Etc.

54. Risk - Scoring Results

55. Risk – Scoring System Consequences 1. No direct effect on operating service level 2. Minor deterioration in operating service level 3. Definite reduction in operating service level 4. Serious deterioration in operating service level 5. Operating service level approaches zero Likelihood of occurrence E. Probability of once in many years D. Probability of once in many operating months C. Probability of once in some operating weeks B. Probability of weekly occurrence A. Probability of daily occurrence Likelihood of detection A. Detectability is very high B. C onsiderable warning of failure before occurrence C. Some warning of failure before occurrence D. Little warning of failure before occurrence E. Detectability is effectively zero

57. Risk – Prioritised Consequence Likelihood 0 Tolerate Terminate Treat Transfer

58. Risk Classification

59. Cause & Effect Analysis Failure to Deliver on Time No Stock Available Lead-Time Too Short Carrier Performance Quality Problems Capacity Constraint Inflexible Systems Inadequate Communications Poor Scheduling Inadequate Supplier Management Materials Supply Problem Failure to Achieve Plan Forecasting Problems Poor Process Control

60. Risk Control Matrix Key Process Number Process Risk Number Risk Control Objective Control Number Control Description Control Owner Process Narrative Control Category Control Type Primary/ Secondary Control Frequency Design Assessment

61. Example – Contingency Risks How Long Can You Do Without? Impact of Doing Without? Vulnerabilities? Contingency in case of a disaster? Equipment (IT only) 5 days After five days no way to schedule production or track orders No UPS/generator, MD hardware, SPOF SME Use paper reports for 5 days then go manual for as many members as possible Facility 0 days No production, potential for bankruptcy, IT non-existent Metal building, flood zone, poor maintenance, no perimeter security, door lock broken Look for warehouse space, attempt to salvage equipment and restart operation, file bankruptcy Personnel 0 days Degraded operations, low service levels Too many SPOF Best effort shifting of available staff, temps Raw Materials 30 days before new deliveries None until on hand exhausted Single supplier relationship Search for alternative supplier Transportation System 30 days in 2 days out No supplies No deliveries Location, design of entrance None Utilities 0 hours/power 0 hours/water Extrusion shuts down, lines cleaned, waste collected and prepared for grinder, IT non-existent Single power feed, no generator or backup water supply None Vendors (Sourcing) 4 hours No call center Mercy of vendor Bring in-house