Confidential 1

Risk assessment in the supply chain

Supply Chain Risk Leadership Council

Developments in Insurance

January 30 2008

Confidential – Do Not Forward Outside SCRLC

Confidential 2

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(*) Key Capability 3 2 0 1 0 0 1 0 0 0 2 0 0 2 0 0 2

TSMC 3 4 3 3 2 4 3 5 5 3 2 3 4 2 3 5 2

Boeing 2 3 5 5 4 4 5 5 5 2 2 5 4 1 4 4 2

Cisco 5 2 3 3 4 3 4 2 4 4 5 4 3 5 5

P&G 4 5 4 4 3 4 3 3 5 2 2 4 4 1 5 2 1

Jabil 3 4 4 2 4 3 3 5 5 3 3 5 4 3 4 3 3

Average 3.4 3.6 3.8 3.4 3.4 3.6 3.6 4.0 4.8 2.8 2.8 4.2 3.8 1.4 3.2 3.8 2.6

(*) Key capability = high-linkage capability counts related top 3 risks

Survey (What capability we shall focus on)

Top 3 risks (supply chain complexity, supplier capability, recovery capability) have high-linkage to 7 key capabilities, but no one has full capability score on “Supplier Business Interruption Risk Insurance”

Why might that be?

Confidential 3

Outline ~ 30 minutes

Objectives of session

Review traditional versus new perspective

New challenges – illustration from Katrina

Risk assessment process

Loss database

Cross-matching opportunities

Confidential 4

To share current thinking on SCR assessment in context of developing a new risk transfer tool (SCBI)

To consider lessons from the SCRLC Supplier Reliability track

Objectives of session

GP

Time

ICOW

Loss of ProfitsLoss of Profits Cost of TemporarySolutionCost of TemporarySolutionCost of TemporarySolution

Confidential 5

From the traditional to a new world Historical focus on protecting physical assets

BI becomes more important – Katrina ratio of BI:PD claims (70:30)

The journey from

- traditional Business Interruption (BI) insurance to

Contingent BI to

Supply Chain BI

Global risks and the ‘Over-Optimised Supply Chain’ (WEF 2008)

Confidential 6

The concept of supply chain networks*

* Derived from Cranfield University – Supply Chain Risk study

Physical flow (logistics)

LEVEL 2 Infrastructure

LEVEL 3Organisation networks

Strategic (partnerships)

Value creation (production)

LEVEL 1 Process

LEVEL 4External environment

LEVEL 0People

E.G

Employees

Regulatory,Exchange rates,Country, region issues

Confidential 7

SCBI Risk Assessment ProcessRisk factor assessment Workshop 1 (Controls).

+ input from- benchmarking- BI Surveys- BCM assessments

2

Basic data input Form

(Exposures)

1

Pricing Tool

Data/Info to define supply & customer risk

Risk modifiers that either increase or decrease rate

% rate to be applied to limits

SCBI Insurance premium pricing

6

7

EML and Profit Impact AnalysisWorkshop 2.

Agreed Loss Calculation

EMLs and limits

4

5

3

Capacity

Accumulation db

Confidential 8

Supply chain risk factors

1. Commodity Shortages / Price Fluctuations2. Supplier Reliability3. General Availability, Cost, Quality Of Labour4. Internal Supply5. Accidents / Errors6. Malicious Intervention7. Supply Chain Infrastructure8. Customer Demand9. Obsolescence Of Product / Inventory /

Technology10.Product Quality11.Incidents / Natural Disasters12.Regulatory Concerns13.War, Terrorism, Other Geopolitical14.Other External Influences

Exposures Controls

(Cross-match with SCRLC Supplier Reliability factors)

Confidential 9

Supply chain risk framework

Control Activities

Risk Assessment

PHYSICAL

PROCESS

INSTITUTIONAL

X-Tier

1st-Tier

Your company

Primary customer

Downstream customer

Commodity Shortages / Price Fluctuations

Supplier Reliability

General Availability, Cost, Quality Of Labour

Internal SupplyAccidents / ErrorsMalicious Intervention

Supply Chain Infrastructure

Customer DemandObsolescence Of

Product / Inventory / Technology

Product QualityIncidents / Natural

DisastersRegulatory ConcernsWar, Terrorism, Other

GeopoliticalOther External

Influences

Exposures

Controls?

Cross-match with SCRLC Supplier Reliability factors

Confidential 10

Supplier reliability - Controls

Supplier business continuity plan

Internal material contingency plan

Industry analysis

Sustainability / Regulatory

Capacity analysis

Inventory target setting

Strategic material planning / RCCP / Materials at Risk

Material change management process

Initiative management process

Lane risk assessment

Supply network visibility

Suppler capability assessments

Internal capability assessments

Supplier BI risk insurance

Supplier relationship / partnership

Crisis management / response

Risk analysis (data modelling, measurement, etc)

Confidential 11

Visualising revenue dependenciesSITE A - Grain distillery

SITE B

Barrel/Cask Warehousing

Blending

SITE CBarrel/Cask Warehousing

SITE DPackaging & Bottling

SITE EPackaging & Bottling

SITE FPackaging & Bottling

SITE A - Grain distillery

SITE B

Barrel/Cask Warehousing

Blending

SITE CBarrel/Cask Warehousing

SITE DPackaging & Bottling

SITE EPackaging & Bottling

SITE FPackaging & Bottling

Paper out:t

PaperPaper

Pulp int

Storage capacity:paper pulp)

Paperout

Pulp in:t

Raw material:

Finished product:

Unbleached pulp:

?? Limited to raw materials and semi-processedmaterials. Buffer storages at participating mills.

5% of sales:m

pulp

Pulp:Region 2’s cartonned

Paper out:t

Receives brokefrom 3 sites

Co-pulp

3 Ultracast suppliers$

REGION 3

REGION 2

REGION 1

Reels:

Reels:

Broke(limited)

Reels:mt

Co-pulp mt

Release paper forsale : mt

Region 1 & 2 brandedsheets and reels for sale

Pulp:mt

Pulp:

mt

Pulp:mt

Pulp:mt

Pulp:0mt

Pulp:mt

Branded sheets andreels for sale

mt

Uncoated products forsale:

Paper out:t

PaperPaper

Pulp int

Storage capacity:paper pulp)

Paperout

Pulp in:t

Raw material:

Finished product:

Unbleached pulp:

?? Limited to raw materials and semi-processedmaterials. Buffer storages at participating mills.

5% of sales:m

pulp

Pulp:Region 2’s cartonned

Paper out:t

Receives brokefrom 3 sites

Co-pulp

3 Ultracast suppliers$

REGION 3

REGION 2

REGION 1

Reels:

Reels:

Broke(limited)

Reels:mt

Co-pulp mt

Release paper forsale : mt

Region 1 & 2 brandedsheets and reels for sale

Pulp:mt

Pulp:

mt

Pulp:mt

Pulp:mt

Pulp:0mt

Pulp:mt

Branded sheets andreels for sale

mt

Uncoated products forsale:

Key sitesKey sitesKey sites

Confidential 12

Risk grading

Confidential 13

Opportunities

Building a rich source of data

Benchmarking

Best practice

Loss evaluations and risk quantification

Confidential 14

Questions?