brief presentation managing supply chain risks
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Supply Chain Risk Management
SCRM
summary
by Gláucio Bastos, M.B.A., Ch.E.
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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
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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)
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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.
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resumo
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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
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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
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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
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issue description
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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
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risk factors by business processChange_in_order (small, normal, large): order changing by clientTied_order (tied, untied): order consolidationOrder_type (yes, no): abnormality caused by order typeShipment_size (yes, no): abnormality by shipment sizeCust_type (yes, no): abnormality by customer typeProduct_family (yes, no): abnormality by product familyProduct_importance (yes, no): abnormality by product importanceCust_config (yes, no): abnormality by adapting the configuration required by the customerDemand_level (yes, no): abnormality by demand level
Mfg_related_errors (yes, no): errors relatves to manufacturingManuf_location (China, Mexico, unknown,USA): factory placeCust_location (yes, no): abnormality by client place
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risk factors by business processMisroute (yes, no): lost load
Carrier (yes, no): abnormality by transport characteristicsDelivery_mode (yes, no): abnormality by delivery modeHolidays (yes, no): abnormality by holidaysInsufficient_carrier_capacity (yes, no): abnormality by low transport
capacityOther_logl_causes (yes, no): abnormality by other logistics causesSevere_weather (yes, no): abnormality by bad weather
Custom_causes (yes, no): abnormality by customs causesCust_causes (yes, no): abnormality by client reasonsCustomer_fulfillment (yes, no): abnormality by customer fulfillment level
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problem approach
risk factors probability:
from historical data of SC operation, the risk factors are scored according to their probability of occurrence
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issue approach
Produ
ct_im
porta
nce
Chang
e_in_
orde
r
Cust_
conf
ig
Deman
d_lev
el
Shipm
ent_
size
Cust_
caus
es
Holida
ys
Order
_typ
e
Other
_logl_
caus
es
MFG_r
elate
d_er
rors
Tied_o
rder
Man
uf_lo
catio
n
Custo
m_c
ause
s
Custo
mer
_full
filmen
t
Carrie
r
Cust_
locat
ion
Cust_
type
Produ
ct_f
amily
Sever
e_wea
ther
Delive
ry_m
ode
Insu
fficie
nt_c
arrie
r_ca
pacit
y
Misr
oute
0%
20%
40%
60%
80%
100%
120%
Likelihood of Abnormal Risk States
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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
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issue description
Shippin
g_de
lay
Delive
ry_d
elay
Logis
tics_
delay
Cust_
conf
ig
S2D_M
et
O2D_M
et
O2S_M
et
Pick_d
elay
Carrie
r
Custo
m_c
ause
s
MFG_r
elate
d_er
rors
MFG_d
elay
Chang
e_in_
orde
r
Man
uf_lo
catio
n
Other
_logl_
caus
es
Cust_
caus
es
Tied_o
rder
Produ
ct_im
porta
nce
Deman
d_lev
el
Shipm
ent_
size
Holida
ys
Order
_typ
e
Custo
mer
_full
filmen
t
Cust_
locat
ion
Cust_
type
Produ
ct_f
amily
Sever
e_wea
ther
Delive
ry_m
ode
Insu
fficie
nt_c
arrie
r_ca
pacit
y
Misr
oute
0
100
200
300
400
500
600
700
800
Mini
Max
Impact on Total_process_valueImpact on Total_process_value
Base
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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:
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issue approach
Shipping_delayDelivery_delayLogistics_delayCust_configS2D_MetO2D_MetO2S_MetPick_delayCarrierCustom_causesMFG_related_errorsMFG_delayChange_in_orderManuf_locationOther_logl_causesCust_causesTied_orderDemand_levelShipment_sizeHolidaysOder_typeCustomer_fullfilmentCust_location
Imp
act
Likelihood
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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'
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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
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issue treatment
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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
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issue treatment
Allow_flexible_configurations Improve_contract Improve _route_scheduling560
580
600
620
640
660
680
700
720
740
760
Mit. off
Mit. on
Impact of mitigation strategy on Total_process_value
Base
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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
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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.
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issue treatment
0 100 200 300 400 500 600 700 800 900 10000%
10%
20%
30%
40%
50%
60%
Impact of Allow_flexible_configurations mitigation strategy onTotal_process_value
Mitigation 'off'
Mitigation 'on'