Assessing Your Risk Exposure Your Supplier’s Risk can become your own

Alisa Clemons, Supplier Performance - Team Lead

Gladyne Wiley Lynch, Supplier Performance – Lead

MMOG/LE Analyst

• Assess your Supplier Risk

Make the Connection…

Safeguard your corporate image and customer satisfaction

Small parts, BIG Impact

Even smaller suppliers matter. A study by the Massachusetts Institute of Technology in collaboration with Ford determined that 2 % of supplier sites comprising a relatively small amount of spend would have an ordinate amount of damage and impact the entire sales of the company in the event of a supply chain disruption. Making the case that ALL suppliers, locations, hubs, and warehouses should be included in risk monitoring.

Source: „From Superstorms to Factory Fires: Managing Unpredictable Supply-Chain Disruptions“, D. Simchi-Levi, W. Schmidt, Y. Wie; https://hbr.org/2014/01/from-superstorms-to-factory-fires-managing-unpredictable-supply-chain-disruptions

Inheriting Supplier Liability

• Tier-1 suppliers are being held accountable for the actions of their sub-tier suppliers.

• OEMs are exposed to risk of Tier 1 disruptions associated with a suppliers’ sub-suppliers.

• Suppliers must take a new approach to identify and manage sources of sub-tier supplier risk.

• MMOG/LE criterion 6.7.1

─ Requirement: • Regularly assess and monitor the

capability and performance of suppliers, subcontractors, and service providers

─ Why: • It provides the means to support the

organization’s SCM strategy, identify opportunities for improvement, and provides a valuable contribution to the achievement of high levels of customer satisfaction.

Take Chapter 6 requirements Serious

What Your Customer Expects

Comprehensive inventory (mapping) of sub-tier suppliers

OEMs now expect Tier-1s to know their sub-tier suppliers

Comprehensive catalog of sub-tier risks

Monitoring sub-tier risks to form the basis for KPIs, scorecards, audit routines, and other monitoring activities.

A risk-based segmentation

Segment suppliers by risk level. Ex. a simple system of high-, medium-, and low-risk categories can be useful.

Establish standard monitoring, measuring and escalation process

Proactively establish monitoring and scoring tools and processes to address nonconformance in real-time. Establish crisis recovery plan to quickly mitigate risks.

Automotive Supply Chain suppliers are under increased exposure to risk.

• Tier 1 suppliers exposed to risk of their sub-suppliers, vendors and service providers. – Many suppliers do not have a strategic discipline in risk management

– 51% of disruptions originate from below the first tier

• Most companies limit their risk analysis and mitigation activities to their tier-1 suppliers despite the fact that a disruption below the first tier has the same impact.

Source: Business Continuity Institute, SUPPLY CHAIN RESILIENCE REPORT, 2014

Supplier Risk Assessment & Monitoring

• Do you have a process to assess & monitor the capability of your supply chain partners?

– OEMs expectation is for suppliers to develop practices to mitigate risk during scheduled reviews.

– Develop a plan of action and establish a comprehensive overview of your SC network in a platform that is proactive and responsive to risk.

Supplier Risk Assessment & Monitoring

Process to Assess Capability

Things to consider: • Value your partnership with customers

– Protect your organization, protect your customer and avoid disruptions to maintain business relations

• Protect your organizations against disruptions and develop robust assessing capabilities

– Develop a process that gets transparency into potential risk

– Expose bottlenecks in your suppliers’ processes

• Shorten response time

– Analyze supplier locations and risk inherent within the geographical location or regional operations

– Determine what risks are unique to that location through continuous monitoring (i.e., earthquakes, political turmoil…etc.)

Regularly Measure & Review

Consider the following:

• Does your organization regularly measure & review supplier performance for SCM risk? – Is there a document process that address your process?

• Does your organization have a process that gets transparency into potential risk throughout the global supply chain? – Does your organization maintain historical records to track your sub-suppliers

performance?

• Does your organization map supplier location?

– Suppliers will be expected to analyze supplier locations and risk inherent within a region.

– Has your organization determined risk exposure and are there KPIs metrics for your suppliers (e.g. delivery performance, premium freight, transportation, and supplier disruptions)?

Bottom line: Continue to regularly review metrics for SCM trends and plan accordingly.

What Does it Take?

Expect the same from your suppliers, subcontractors, and service providers!

Leverage MMOG/LE - Basic

• The Basic Assessment is a tool for lower tier suppliers to verify that the ”basic” and most critical SCM processes are in place

• Used to establish a rapid diagnosis of critical areas (e.g. capacity planning, inventory management)

• Enables a targeted assessment (e.g. new plant launch readiness)

• Aids in aligning sub-tier suppliers’ with your organization’s objectives

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Paul Rossi, Supply Chain Risk Management

General Motors Global Purchasing and Supply Chain

Supply Chain Visibility The First Step to Understanding Your Exposure to Disruptive Events

Do You Know Where your Suppliers Are?

? ? ? ?

?

Supply Chain Visibility

Continuous monitoring of global events

with potential to disrupt supply chains

• Natural Disasters

• Supplier Disruptions

• Labor/Transportation Disruptions

• Geopolitical/Regulatory Events

• Force Majeure Declarations

• Infrastructure Disruptions

Enabler to reactive speed during a crisis & proactive risk mitigation

Earthquakes in Japan

Hurricanes and Typhoons

Industrial Explosions

Increasing supply chain visibility allows for a

better understanding of your supplier network

GM has been able to…

• Understand supplier foot print to avoid and/or prepare for risks

• React and recover quickly to disruptive events

• Improve supplier collaboration during a disruptive event

• Provide ad-hoc reporting for other functions

• Cyber security, purchasing, labor relations (union contracts expiring), etc.

• Improve Contingent Business Interruption insurance position

Lower costs / more coverage

Supply Chain Visibility

Don’t stop at your 1st tier suppliers, go deeper (please!)

Sources of sub-tier visibility Data

Supplier Surveys

- High degree of data

accuracy

- Customer specific

- Secure, internal

environment

- Understanding of

MFG/SHIP & Billing

locations

- Slow process

- Dependent on supplier

compliance

3rd Party –

Public/Web/Social

- Fast illumination of

Tier n supply base

- Easily updated

- Not dependent on

supplier compliance

- Accuracy of data?

(implied

relationships)

- Correct MFG/SHIP

locations identified?

- Not customer specific

- Third-party data

security risk

3rd Party –

Proprietary

- High degree of data

accuracy

- Fast illumination of

Tier n supply base

- Easily updated

- Correct MFG/SHIP

locations identified?

- Not customer specific

- Third-party data

security risk

April Dines, Corporate Quality

Cascade Engineering (Grand Rapids, MI)

Sub-tier Supplier Management Case Study – Cascade Engineering

Cascade Engineering Products

Plastic Injection Molding

How Does CE Mitigate Risks?

1. Manage known / controllable risks

– Review risk for launches and changes

– Communicate expectations

– Document and communicate performance

– Supplier audit, as needed

2. Plan for unknown / uncontrollable risks

– Emergency response system

– Contingency plan

Review Risks for Launches / Changes

• New supplier

• New technology

• Material change

• Poor tooling condition

• Customer directed supplier

• Current supplier with concerns

• Supplier Manual

• Inspection Requirements

• Photos

Communicate Expectations

QAD QMS Supplier Portal

*Over 300 suppliers setup in system

Document Supplier Concerns

QAD QMS

• Create corrective action

• Assign tasks to supplier

• Notification sent to supplier

Supplier Name

Communicate Concerns

QAD QMS Supplier Portal

• Supplier response

• Checklist items

• Supporting documents

• Submit CPR

Evaluate Performance

QAD Scorecards

Awarded Points:

93

Supplier Scorecard Trends

• Review for consecutive months with low performance

– Possible financial risk

Scorecard Point Classifications

Category Description Point Scale Color

Preferred New business opportunities 95 - 100

Acceptable Possible new business 80-94

Sub-standard • Possible new business hold (> 3 months) • Meeting with supplier management • Supplier Audit • Corrective Actions • Possible de-sourcing

70-79

Probationary • New business hold • Corrective Actions • Possible de-sourcing

< 70

Review of Supplier Corrective Actions and Trends

QAD QMS

• Filter concerns (by supplier, date range, site, type of concern, etc.)

Supplier Name

QAD QMS – Audits

• Complete internal audits

• Conduct supplier audits, as needed

• Document concerns and actions needed

How is CE notified of emergency situation?

• Internet

• News

• Customers

• Suppliers

Emergency Situation – Natural Disaster (Typhoon)

QAD and eRFQ Systems

Evaluate Supplier locations

*Review of supplier location versus manufacturing location

Contact Tier 1 Suppliers in Concern Location

eRFQ

Notification to determine impact on delivery

• Feedback from suppliers within a week

• Use of eRFQ saves between 4-6 hours of actual work

Follow Emergency Response System

for Identified Concerns

Damage Assessment Team

Evaluate Situation

Impact to delivery - YES

• How long will supplier be down?

• Are there other qualified suppliers available?

• Can we change the schedule with customer?

Contingency Plan for Escalated Concerns

Approximately 80 Documents

*Flash drive given to Damage Assessment team every year

Annual Review / Update of Contingency Plan

QAD QMS – Document Control

• Documents controlled in central system

• Owners of documents make relevant updates

• Annual review of documents for accuracy

Benefits of Systems / Planning

• Supplier awareness of expectations

• Ability to address all concerns in one system

– Delivery, ASN, Quality, etc.

• Visibility of concerns and actions

• Elimination NVA activities - duplicate entries

• Faster reaction time for identified concerns

*Ultimate goal is to reduce CE and customer risk

Next Steps – Continual Improvement

• Customer Specific Requirements

• ISO 9001:2015

• ISO/TS 16949:2016

• MMOG/LE

• Supplier Manual Updates