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Institute for Supply Management

Supply Chain Risk Management Plans: Current Practice and Application An Examination of Risk Management Plans as Implemented and Plan Performance During the Natural Experiment of October 2013

January 2014

QUESTIONS? Paul Shik Lee, Jr.

Director Research


Sixty percent of respondents work at a firm with a supply chain risk management plan in place •  Most manufacturing firms and firms with larger spend have plans •  At the time of the survey, an additional 11 percent were developing a plan

Tier 1 and Tier 2 are commonly well covered supplier tiers •  Tier 3 is much less covered than the tiers above it, even less at Tier 4 The five plan components most likely to be included in a risk management plan are: •  Find alternate suppliers •  Talks with critical suppliers •  Qualifying more suppliers •  Buying extra supplies •  Talks with major suppliers

Typical Risk Management Plans include five plan components •  Less “sophisticated” plans (i.e., plans with five or fewer components) were

more likely to adopt an “inward facing” perspective on risk management Few firms are motivated to create or update a risk management plan by the end of first quarter, 2014. •  More than 80 percent of respondents stated that their firm is adopting a “wait

and see” position

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The government shutdown of October 2013 was an opportunity for a few firms to test their supply chain risk management plan •  However, 85 percent of respondent’s firms did not activate their plans •  Only 16 percent of respondent’s firms were impacted (for better or worse)

Of firms that were negatively impacted, 53 percent were only affected by two or three specific issues The three issues that were reported most often were: •  Decreased sales •  Inability to access government data •  Inability to access government reports

Of those that activated their plans, 85 percent report that they performed well •  A plurality (45%) report that their plan performed well without reservation •  A large minority (40%) reported that their plan “Performed well/missed minor

risks.” Non-manufacturing and smaller firms returned to normal operations most quickly •  Sixty-nine percent of non-manufacturing firms recovered within two weeks •  Sixty-nine percent of firms with $250 million or less in annual spend

recovered within one or two weeks

Table of Contents Executive Summary Objectives and Background •  Background 5 •  Note on Charts 7 •  Respondents 10

Supply Chain Risk Management Plans •  Coverage 14 •  Plan Characteristics 17 •  Plan Review 28

The US Government Shutdown of October, 2013 •  Background 30 •  Event 32 •  Plan Activation 38 •  Dénouement 43 •  Plan Review 44

Objectives and Background •  This study is meant to provide a snapshot of the prevalence and use of

supply chain risk management plans •  Additionally, we seek to describe the breadth (within tier) and depth

(between tiers) of supplier coverage •  Further, from a standard plate of risk management strategies, firms were

asked to indicate which components they included in their plans •  This study was fielded folding the federal government shutdown of

October 2013. This event tested the risk management plans of a number of firms

•  Respondents were asked about their firm’s response to the shutdown

and how their risk management plan performed, if applicable •  We characterize the firm’s reactions and post-event actions

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Methodology •  Data collection for the survey began on November 4, 2013, and

concluded on November 19

•  The sample included a net 15,015 randomly drawn manager-level and above customers of ISM

•  The final result for data collection was 505 usable responses, for an overall response rate of 3.36 percent

•  Differences and comparisons that are termed “significant” have p < 0.05,

with α = 0.05 •  With few exceptions, data labels for proportions 4% or smaller are not

shown

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The 3-D Chart Facilitates Comparisons Between Segments

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8%

7%

9%

23%

7%

9%

23%

36%

5%

14%

25%

25%

27%

30%

31%

13%

53%

40%

12%

Total (n=125)

Total (n=144)

Total (n=180)

Total (n=219)First Tier

Second Tier

Third Tier

Fourth Tier and beyond

11%

11%

14%

39%

8%

12%

35%

61%

7%

20%

30%

36%

35%

19%

38%

22%

T1: All Majors/All (n=72)




In our risk management plan, we address, by tier ...(by Breadth of Tier 1 Coverage)

All suppliers All major suppliers

Critical suppliers and selected others Only critical suppliers

No suppliers

6%

5%

7%

5%

19%

59%

15%

22%

47%

32%

74%

66%

27%

9%

T1: Critical + or less (n=53)




All suppliers 39% 14% 11% 11%All major suppliers 61% 35% 12% 8%Critical suppliers and selected others 0% 30% 20% 7%Only critical suppliers 0% 19% 35% 36%No suppliers 0% 2% 22% 38%



Total Total (n=219)

Total (n=180)

Total (n=144)

Total (n=125)

T1: All Majors/AllT1: All

Majors/All (n=128)

T1: All Majors/All

(n=105)

T1: All Majors/All

(n=85)

T1: All Majors/All

(n=72)

T1: Critical + or lessT1: Critical

+ or less (n=91)




“Considering firms that cover very large por6ons of their Tier 1 suppliers compared to firms that cover smaller por6ons of Tier 1, what does the pa=ern of coverage for those segments look like across the other 6ers?”

Blue: Comparison of propor1ons of “cri1cal/other suppliers” on Tier 2. Purple: Comparison of propor1ons of “no suppliers” on Tier 3.

The Bar Chart Facilitates Comparisons Between 2-D Segments Risk Management Plan Components(by Industry Type)

Non-‐manufacturing

(n=114) Total (n=224)Manufacturing

(n=110)

Find alternate suppliers 55% 67% 78%Talks with critical suppliers 49% 56% 63%Qualifying more suppliers 38% 47% 57%Buying extra supplies 39% 45% 52%Talks with major suppliers 37% 42% 47%Assist critical suppliers 25% 29% 33%Notices to critical suppliers 25% 27% 29%Talks with critical clients 20% 23% 26%Notices to major suppliers 20% 21% 23%Assist major suppliers 18% 20% 21%Ramping up production 16% 20% 24%Talks with major clients 15% 19% 24%Notices to critical clients 18% 16% 15%Notices to major clients 18% 16% 13%Assist all clients 17% 13% 8%Assist critical clients 9% 13% 16%Assist major clients 9% 12% 15%Talks with all suppliers 13% 12% 10%Notices to all suppliers 10% 12% 14%Reserving extra cash 9% 10% 12%Notices to all clients 14% 10% 6%Talks with all clients 8% 8% 9%Assist all suppliers 6% 8% 9%

0% 20% 40% 60%

Assist all suppliersTalks with all clientsReserving extra cashNotices to all clientsAssist major clients

Talks with all suppliersNotices to all suppliers

Assist all clientsAssist critical clients

Notices to major clientsNotices to critical clientsTalks with major clientsAssist major suppliers

Ramping up productionNotices to major suppliersTalks with critical clients

Notices to critical suppliersAssist critical suppliers

Talks with major suppliersBuying extra supplies

Qualifying more suppliersTalks with critical suppliers

Find alternate suppliers

Relative Utilization of Risk Management Plan Components(by Industry Type)

(Ordered by Descending "Total")

Manufacturing (n=110) Total (n=224) Non-‐manufacturing (n=114)

“Considering manufacturing firms compared to non-‐manufacturing firms, how oBen was [BLANK] a plan component?”

Blue: Comparison of propor1ons of “Find Alternate Suppliers.” Purple: Comparison of propor1ons of “Assist cri1cal suppliers.”

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Color-coded Ranked Listings Show Differences in Choice Patterns. Subhead, Arial 17 Bold • Bullet, Times 17 • Bullet • Bullet

Strategy Componentsby Percent Chosen

Total (n=224)


Manu-‐facturing (n=110)


Non-‐manu-‐facturing (n=114)

Identifying alternate suppliers 67% Identifying alternate suppliers 78% Identifying alternate suppliers 55%Proactive talks with critical suppliers 56% Proactive talks with critical suppliers 63% Proactive talks with critical suppliers 49%Qualifying/partially qualifying more suppliers 47% Qualifying/partially qualifying more suppliers 57% Buying extra supplies 39%Buying extra supplies 45% Buying extra supplies 52% Qualifying/partially qualifying more suppliers 38%Proactive talks with major suppliers 42% Proactive talks with major suppliers 47% Proactive talks with major suppliers 37%Assisting critical suppliers 29% Assisting critical suppliers 33% Assisting critical suppliers 25%Sending notices to critical suppliers 27% Sending notices to critical suppliers 29% Sending notices to critical suppliers 25%Proactive talks with critical customers 23% Proactive talks with critical customers 26% Proactive talks with critical customers 20%Sending notices to major suppliers 21% Ramping up production 24% Sending notices to major suppliers 20%Assisting major suppliers 20% Proactive talks with major customers 24% Assisting major suppliers 18%Ramping up production 20% Sending notices to major suppliers 23% Sending notices to major customers 18%Proactive talks with major customers 19% Assisting major suppliers 21% Sending notices to critical customers 18%Sending notices to critical customers 16% Assisting critical customers 16% Assisting all customers 17%Sending notices to major customers 16% Sending notices to critical customers 15% Ramping up production 16%Assisting critical customers 13% Assisting major customers 15% Proactive talks with major customers 15%Assisting all customers 13% Sending notices to all suppliers 14% Sending notices to all customers 14%Proactive talks with all suppliers 12% Sending notices to major customers 13% Proactive talks with all suppliers 13%Assisting major customers 12% Reserving extra cash 12% Sending notices to all suppliers 10%Sending notices to all suppliers 12% Proactive talks with all suppliers 10% Assisting critical customers 9%Sending notices to all customers 10% Proactive talks with all customers 9% Assisting major customers 9%Reserving extra cash 10% Assisting all suppliers 9% Reserving extra cash 9%Proactive talks with all customers 8% Assisting all customers 8% Proactive talks with all customers 8%Assisting all suppliers 8% Sending notices to all customers 6% Assisting all suppliers 6%

Which strategy components are included in your risk management plan?

Manufacturing (n=110) Total (n=224) Non-‐manufacturing (n=114)Find alternate suppliers Find alternate suppliers Find alternate suppliersTalks with critical suppliers Talks with critical suppliers Talks with critical suppliersQualifying more suppliers Qualifying more suppliers Buying extra suppliesBuying extra supplies Buying extra supplies Qualifying more suppliersTalks with major suppliers Talks with major suppliers Talks with major suppliersAssist critical suppliers Assist critical suppliers Assist critical suppliersNotices to critical suppliers Notices to critical suppliers Notices to critical suppliersTalks with critical clients Talks with critical clients Talks with critical clientsRamping up production Notices to major suppliers Notices to major suppliersTalks with major clients Assist major suppliers Assist major suppliersNotices to major suppliers Ramping up production Notices to major clientsAssist major suppliers Talks with major clients Notices to critical clientsAssist critical clients Notices to critical clients Assist all clientsNotices to critical clients Notices to major clients Ramping up productionAssist major clients Assist critical clients Talks with major clientsNotices to all suppliers Assist all clients Notices to all clientsNotices to major clients Talks with all suppliers Talks with all suppliersReserving extra cash Assist major clients Notices to all suppliersTalks with all suppliers Notices to all suppliers Assist critical clientsTalks with all clients Notices to all clients Assist major clientsAssist all suppliers Reserving extra cash Reserving extra cashAssist all clients Talks with all clients Talks with all clientsNotices to all clients Assist all suppliers Assist all suppliers

Most Frequently Utilized Risk Management Plan Components(by Industry Type)

(Ordered by Most Frequently Uti l i zed at Top for Each Segment)

Q: “Comparing manufacturing firms with non-‐manufacturing firms, how does [BLANK] rank on their lists of plan components?” A: “While the ranks of the top eight components don’t change, compared to non-‐manufacturers, manufacturing firms included “Ramping up produc1on” more oQen. In fact, non-‐manufacturers included five other components more oQen than “Ramping up produc1on.”

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Respondent Characteristics •  The sample comprises data from both manufacturing and non-

manufacturing firms •  The firms employing respondents are larger than would be found in a

representative sampling of United States companies •  However, for the purposes of this study, the bias towards larger

firms is appropriate •  A strong majority of respondents are employed in a procurement or

supply chain function •  A majority of respondents report that their employer has a supply chain

risk management plan in place

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Respondents From a Rich Variety of Industries Participated •  About one-half (53%) of respondents operated in non-

manufacturing industries and 47 percent were in manufacturing •  Energy was the most represented non-manufacturing sector (6%) •  Industrial and commercial machinery comprised 8 percent of the

sample Participant Industries

(n=416)

Energy -‐ Oil & Gas Healthcare (including health plans) EducationConstruction Telecommunications UtilitiesProfessional Services Other Business Services Financial Services (not including Insurance)Public Sector -‐ Central Government Transportation RetailWholesale Public Sector -‐ Local Government Technical ServicesInsurance (not including health plans) Media IT Service ProvidersAgriculture Mining Public Sector -‐ OtherScientific Services Software Publishers or Developers OtherMachinery (Industrial & Commercial) Aerospace & Defense AutomotiveChemicals, Plastics & Rubber Consumables-‐Foods, Beverages or Tobacco Medical Equipment & SuppliesComputer & Electronic Products Pharmaceuticals & Medicine Primary MetalsSemiconductors Petroleum & Coal Pulp & Paper

Non-‐Manufacturing53%

Manufacturing47%

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The Respondents’ Employers Are Larger Than Typical •  For a study of supply chain risk management plans, it is appropriate to

interview representatives larger firms •  Eighty-eight percent of respondents were employed in a supply chain

management department

33.66%

33.91%

13.12%

13.86%

5.45%

50.16%

41.45%

3.47%

4.33%

0.58%

Less than$50MM

$50 -‐ $500million

$500MM-‐$999M

$1000 -‐ $10000million

$10B or more

AnnualDirect and Indirect Spend

(n=404)

Survey Sample Annual Direct Spend (n=404)

Hoovers Database Company Annual Revenues (>$25MM) (n=72,778)

47%

16%

15%

10%

4%

1%

1%

1%

0%

4%

Corporate Procurement (orprocurement shared services)

Corporate Supply Chain

Business Unit Procurement

Business Unit Supply Chain

General/Business Management

Finance

Consulting

IT

Continuous Improvement / CoE

Other

Respondent'sDepartment

(n=417)

Res

pond

ents

Supply Chain Risk Management Plans

A Majority of Respondent Firms Have Made Developing a Plan a Priority •  Sixty percent of firms had a risk management plan in place as of

October 1, 2013 •  Eleven percent of firms were actively developing their plan

60%

11%

29%

Yes

In development

No

Does Your Organization Have a Risk Management Plan?

(n=417)

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66%

34%

71%

29%

78%

22%

Have orDeveloping

Plan

Don't HavePlan

by Annual Spend

Less than $250 Million (n=232)Total (n=402)$250 Million or More (n=170)

Manufacturing and Larger Firms are More Likely to Have a Plan in Place •  Not surprisingly, firms with larger annual spend are significantly more

likely to have a risk management plan in place •  Manufacturers are slightly more likely to have a plan

73%

27%

71%

29%

69%

31%

Have orDeveloping

Plan

Don't HavePlan

by Industry Type

Manufacturing (n=188)Total (n=414)Non-‐manufacturing (n=226)

Does your organization have a risk management plan?

Cov

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5%

9%

10%

18%

49%

5%

8%

13%

10%

24%

33%

6%

10%

15%

9%

27%

27%

$10B or more

$5.00B-‐9.99B

$3.00B-‐4.99B

$1.00B-‐2.99B

$500MM-‐$999M

$250 MM-‐499MM

$50 MM-‐$249MM

Less than $50MM

by Annual Spend

Have or Developing Plan (n=286)Total (n=402)Don't Have Plan (n=116)

Characteristics of Supply Chain Risk Management Plans •  Coverage of first and second supplier tiers is fairly substantial

•  Ninety-seven percent of firms cover at least their critical first tier suppliers

•  Eighty-eight percent of firms cover at least their critical second tier suppliers

•  The “Big Five” plan components most likely to be included in a risk

management plan are: •  Find alternate suppliers •  Talks with critical suppliers •  Qualifying more suppliers •  Buying extra supplies •  Talks with major suppliers

•  While non-manufacturers have broader coverage of their suppliers at

each tier, manufacturers are more aggressive in including a wider array of plan components

•  Segmenting firms by count of plan components (a proxy for

“sophistication”) reveals stark differences in coverage and approach

Plan

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Not Surprisingly, Firms Are Focused on First and Second Tier Suppliers •  More than one-half (59%) of firms address all suppliers or all major

suppliers in their plan •  It is encouraging to see that firms see value in depth of coverage as well

as breadth: 47 percent of respondents with fourth tier visibility include at least critical suppliers from that level in their plan

8%

7%

9%

23%

7%

9%

23%

36%

5%

14%

25%

25%

27%

30%

31%

13%

53%

40%

12%

Fourth tier and beyond (n=125)

Third tier suppliers (n=145)

Second tier suppliers (n=181)

First tier suppliers (n=219)

In our risk management plan, we address, by tier ...



No suppliers

Plan

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Compared to Manufacturers, Non-manufacturing Firms Have: •  Broader coverage of supplier firms at the first through fourth tiers of their

supply chains •  Notably greater breadth of coverage at the fourth supplier tier and

deeper

5%

7%

20%

7%

8%

25%

38%

6%

14%

24%

25%

28%

33%

31%

13%

56%

41%

13%

Manufacturing (n=72)




In our risk management plan, we address, by tier ...(by Industry Type)



No suppliers

13%

9%

11%

26%

8%

11%

21%

34%

14%

26%

24%

26%

27%

31%

13%

49%

39%

11%

Non-‐manufacturing (n=53)



Non-‐manufacturing (n=107)First Tier

Second Tier

Third Tier


Plan

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Indu

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Manufacturers Are More Likely to Utilize “Big Five” Strategies •  Finding and qualifying alternate suppliers, engaging with critical

suppliers, and stocking up on supplies are strategies commonly employed by manufacturers

•  Manufacturers are more likely to ramp up production to control risk

0% 20% 40% 60%




Notices to major clientsNotices to critical clientsTalks with major clientsAssist major suppliers

Ramping up productionNotices to major suppliersTalks with critical clients





Relative Utilization of Risk Management Plan Components(by Industry Type)


Manufacturing (n=110) Total (n=224) Non-‐manufacturing (n=114)

Manufacturing (n=110) Total (n=224) Non-‐manufacturing (n=114)Find alternate suppliers Find alternate suppliers Find alternate suppliersTalks with critical suppliers Talks with critical suppliers Talks with critical suppliersQualifying more suppliers Qualifying more suppliers Buying extra suppliesBuying extra supplies Buying extra supplies Qualifying more suppliersTalks with major suppliers Talks with major suppliers Talks with major suppliersAssist critical suppliers Assist critical suppliers Assist critical suppliersNotices to critical suppliers Notices to critical suppliers Notices to critical suppliersTalks with critical clients Talks with critical clients Talks with critical clientsRamping up production Notices to major suppliers Notices to major suppliersTalks with major clients Assist major suppliers Assist major suppliersNotices to major suppliers Ramping up production Notices to major clientsAssist major suppliers Talks with major clients Notices to critical clientsAssist critical clients Notices to critical clients Assist all clientsNotices to critical clients Notices to major clients Ramping up productionAssist major clients Assist critical clients Talks with major clientsNotices to all suppliers Assist all clients Notices to all clientsNotices to major clients Talks with all suppliers Talks with all suppliersReserving extra cash Assist major clients Notices to all suppliersTalks with all suppliers Notices to all suppliers Assist critical clientsTalks with all clients Notices to all clients Assist major clientsAssist all suppliers Reserving extra cash Reserving extra cashAssist all clients Talks with all clients Talks with all clientsNotices to all clients Assist all suppliers Assist all suppliers

Most Frequently Utilized Risk Management Plan Components(by Industry Type)


*Significant Difference

Plan

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Indu

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Firms With Larger Spend Are Able to More Broadly Cover Their Suppliers •  In particular, firms with larger spend were able to cover a significantly

larger proportion of firms at the second tier •  Firms with larger spend cover a greater proportion of all suppliers and all

major suppliers on Tier 1 (65% as compared to 52%)

10%

7%

10%

27%

6%

7%

25%

38%

8%

16%

31%

21%

26%

34%

28%

11%

50%

36%

6%

$250 Million or More (n=50)



$250 Million or More (n=99)First Tier

Second Tier

Third Tier


7%

7%

8%

19%

8%

11%

22%

33%

12%

20%

27%

28%

27%

33%

15%

55%

43%

17%

5%

< $250 Million (n=75)

< $250 Million (n=84)

< $250 Million (n=100)

< $250 Million (n=118)

In our risk management plan, we address, by tier ...(by Annual Spend)



No suppliers

Plan

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Indu

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Larger Firms and Smaller Firms Used Different Secondary Strategies •  Larger firms prioritized alerting their critical and major suppliers and

increasing production as risk mitigation strategies •  Smaller firms prioritized interacting with critical suppliers—either

discussing the situation with them or actually offering them assistance

0% 20% 40% 60%




Notices to major clientsNotices to critical clientsTalks with major clientsRamping up productionAssist major suppliers

Notices to major suppliersTalks with critical clients





Relative Utilization of Risk Management Plan Components(by Annual Spend)


< $250 Million (n=121) Total (n=222) $250 Million or More (n=101)

< $250 Million (n=121) Total (n=222) $250 Million or More (n=101)Find alternate suppliers Find alternate suppliers Find alternate suppliersTalks with critical suppliers Talks with critical suppliers Talks with critical suppliersQualifying more suppliers Qualifying more suppliers Qualifying more suppliersBuying extra supplies Buying extra supplies Buying extra suppliesTalks with major suppliers Talks with major suppliers Talks with major suppliersAssist critical suppliers Assist critical suppliers Notices to critical suppliersTalks with critical clients Notices to critical suppliers Assist critical suppliersNotices to critical suppliers Talks with critical clients Notices to major suppliersAssist major suppliers Notices to major suppliers Ramping up productionNotices to major suppliers Assist major suppliers Talks with critical clientsTalks with major clients Ramping up production Assist major suppliersRamping up production Talks with major clients Notices to critical clientsAssist critical clients Notices to critical clients Talks with major clientsNotices to major clients Notices to major clients Notices to major clientsNotices to critical clients Assist all clients Notices to all suppliersAssist all clients Assist critical clients Assist all clientsTalks with all suppliers Assist major clients Talks with all suppliersAssist major clients Talks with all suppliers Assist major clientsNotices to all clients Notices to all suppliers Reserving extra cashReserving extra cash Reserving extra cash Assist critical clientsTalks with all clients Notices to all clients Notices to all clientsNotices to all suppliers Talks with all clients Talks with all clientsAssist all suppliers Assist all suppliers Assist all suppliers

Most Frequently Utilized Risk Management Plan Components(by Annual Spend)


Plan

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Strong Coverage of Tier 1 is Associated With: •  Significantly greater coverage of any suppliers at all lower tiers

•  Tier 2: 98 percent versus 73 percent of suppliers •  Tier 3: 78 percent versus 34 percent of suppliers •  Tier 4: 62 percent versus 26 percent of suppliers

*Significant Difference

8%

7%

9%

23%

7%

9%

23%

36%

5%

14%

25%

25%

27%

30%

31%

13%

53%

40%

12%

Total (n=125)

Total (n=144)

Total (n=180)


Second Tier

Third Tier


11%

11%

14%

39%

8%

12%

35%

61%

7%

20%

30%

36%

35%

19%

38%

22%








No suppliers

6%

5%

7%

5%

19%

59%

15%

22%

47%

32%

74%

66%

27%

9%





Plan

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Tie

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Firms That Covered Tier 1 Well Were Significantly More Likely to Plan to: •  Assist critical suppliers (37% versus 18%) and major suppliers (30%

versus 7%) •  Send notices to major suppliers (29% versus 13%) and all suppliers

(16% versus 5%)

0% 20% 40% 60%

Assist all suppliersTalks with all ClientsNotices to all ClientsReserving extra cashAssist major Clients

Assist all ClientsNotices to all suppliersTalks with all suppliersAssist critical Clients

Notices to major ClientsNotices to critical ClientsTalks with major ClientsRamping up productionAssist major suppliers

Talks with critical ClientsNotices to major suppliersNotices to critical suppliers

Assist critical suppliersTalks with major suppliers

Buying extra suppliesQualifying more suppliersTalks with critical suppliers


Relative Utilization of Risk Management Plan Components

(by Breadth of Tier 1 Coverage)(Ordered by Descending "Total")

T1: All Majors/All (n=123) Total (n=207) T1: Critical + or less (n=84)

T1: All Majors/All (n=123) Total (n=207) T1: Critical + or less (n=84)Find alternate suppliers Find alternate suppliers Find alternate suppliersTalks with critical suppliers Talks with critical suppliers Talks with critical suppliersTalks with major suppliers Qualifying more suppliers Buying extra suppliesQualifying more suppliers Buying extra supplies Qualifying more suppliersBuying extra supplies Talks with major suppliers Talks with major suppliersAssist critical suppliers Assist critical suppliers Notices to critical suppliersAssist major suppliers Notices to critical suppliers Ramping up productionNotices to critical suppliers Notices to major suppliers Talks with critical ClientsNotices to major suppliers Talks with critical Clients Assist critical suppliersTalks with critical Clients Assist major suppliers Notices to critical ClientsTalks with major Clients Talks with major Clients Talks with major ClientsNotices to major Clients Ramping up production Notices to major suppliersNotices to critical Clients Notices to critical Clients Notices to major ClientsRamping up production Notices to major Clients Assist major ClientsNotices to all suppliers Assist critical Clients Assist critical ClientsTalks with all suppliers Talks with all suppliers Assist all ClientsAssist critical Clients Assist major Clients Reserving extra cashAssist all Clients Assist all Clients Talks with all suppliersReserving extra cash Notices to all suppliers Assist major suppliersAssist major Clients Reserving extra cash Notices to all ClientsAssist all suppliers Notices to all Clients Talks with all ClientsNotices to all Clients Talks with all Clients Notices to all suppliersTalks with all Clients Assist all suppliers Assist all suppliers

Most Frequently Utilized Risk Management Plan Components(by Breadth of Tier 1 Coverage)


Plan

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Tie

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Strong Coverage of Tier 2 is Associated With: •  Strong coverage of Tier 1 suppliers; but even firms that cover fewer Tier

2 suppliers cover Tier 1 suppliers fairly well •  Significantly stronger coverage of Tier 3 suppliers (all levels) and Tier 4

suppliers (proportions covering all suppliers and covering any suppliers) as compared to firms with less coverage of Tier 2 suppliers

11% 33%

5%

37%

36%

24%

37%

46%

15%

71%

56%

18%

6%





8%

7%

9%

24%

7%

9%

23%

34%

5%

14%

25%

26%

27%

30%

31%

12%

53%

40%

12%

Total (n=125)

Total (n=144)

Total (n=181)


Second Tier

Third Tier


19%

19%

28%

53%

21%

26%

72%

36%

9%

32%

33%

15%

5%

19%

9%








No suppliers

Plan

Cha

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Cov

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Tie

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Firms That Covered Tier 2 Well Were Significantly More Likely to Plan to: •  Send notices to major suppliers (32% versus 18%) and all suppliers

(21% versus 9%), speak with all suppliers (23% versus 8%) •  Significant and notable is that these firms were also more likely to make

allowances to assist all suppliers (12% versus 3%)

0% 20% 40% 60%

Assist all suppliersTalks with all ClientsNotices to all ClientsReserving extra cash

Assist all ClientsTalks with all suppliersNotices to all suppliers

Assist major ClientsAssist critical Clients

Notices to major ClientsNotices to critical ClientsRamping up productionTalks with major ClientsAssist major suppliers

Notices to major suppliersTalks with critical Clients






(by Breadth of Tier 2 Coverage)(Ordered by Descending "Total")

T2: All Majors/All (n=57) Total (n=172) T2: Critical + or less (n=115)

T2: All Majors/All (n=57) Total (n=172) T2: Critical + or less (n=115)Find alternate suppliers Find alternate suppliers Find alternate suppliersQualifying more suppliers Talks with critical suppliers Talks with critical suppliersTalks with critical suppliers Qualifying more suppliers Qualifying more suppliersTalks with major suppliers Buying extra supplies Buying extra suppliesBuying extra supplies Talks with major suppliers Talks with major suppliersAssist critical suppliers Assist critical suppliers Assist critical suppliersNotices to critical suppliers Notices to critical suppliers Talks with critical ClientsNotices to major suppliers Talks with critical Clients Notices to critical suppliersAssist major suppliers Assist major suppliers Ramping up productionTalks with all suppliers Notices to major suppliers Talks with major ClientsTalks with major Clients Talks with major Clients Assist major suppliersNotices to major Clients Ramping up production Notices to major suppliersTalks with critical Clients Notices to critical Clients Notices to critical ClientsAssist critical Clients Notices to major Clients Notices to major ClientsNotices to all suppliers Assist critical Clients Assist critical ClientsNotices to critical Clients Assist major Clients Assist major ClientsNotices to all Clients Talks with all suppliers Reserving extra cashAssist all Clients Notices to all suppliers Notices to all suppliersRamping up production Assist all Clients Talks with all suppliersAssist major Clients Reserving extra cash Assist all ClientsAssist all suppliers Notices to all Clients Notices to all ClientsTalks with all Clients Talks with all Clients Talks with all ClientsReserving extra cash Assist all suppliers Assist all suppliers

Most Frequently Utilized Risk Management Plan Components(by Breadth of Tier 2 Coverage)


Plan

Cha

ract

eris

tics

Cov

erag

e by

Tie

r

Typical Plans Included Five Common Risk Mitigation Strategies •  Interestingly, at Tier 1, the observed differences in breadth of firms

covered was not statistically significant •  At Tiers 2, 3, 4 and beyond, firms with less sophisticated plans were

significantly more likely to not cover any suppliers in those deeper tiers

5%

5%

7%

18%

5%

8%

18%

36%

6%

13%

22%

29%

23%

27%

39%

15%

62%

47%

13%

Five or fewer (n=65)



Five or fewer (n=125)First Tier

Second Tier

Third Tier


14%

10%

12%

29%

12%

12%

32%

38%

4%

15%

29%

20%

31%

36%

23%

12%

39%

27%

Six or more (n=51)

Six or more (n=59)

Six or more (n=73)

Six or more (n=82)

In our risk management plan, we address, by tier ...(by Number of Selected Components, Median = 5)



No suppliers

Plan

Cha

ract

eris

tics

Plan

Com

plex

ity

Comparing Plans By “Sophistication” Reveals a Large Gap •  Less sophisticated firms were more likely to focus inward by buying

more supplies, talking with critical clients, and ramping up production •  More sophisticated firms looked outward by qualifying more suppliers,

communicating with major suppliers, and assisting critical suppliers

0% 20% 40% 60%


Talks with all suppliersAssist major Clients

Notices to all suppliersAssist critical Clients

Assist all ClientsNotices to major ClientsNotices to critical ClientsTalks with major ClientsAssist major suppliers

Ramping up productionNotices to major suppliersTalks with critical Clients






(by Number of Selected Components, Median = 5)(Ordered by Descending "Total")

Six or more (n=89) Total (n=224) Five or fewer (n=135)

Six or more (n=89) Total (n=224) Five or fewer (n=135)Find alternate suppliers Find alternate suppliers Find alternate suppliersTalks with critical suppliers Talks with critical suppliers Talks with critical suppliersQualifying more suppliers Qualifying more suppliers Buying extra suppliesTalks with major suppliers Buying extra supplies Qualifying more suppliersBuying extra supplies Talks with major suppliers Talks with major suppliersAssist critical suppliers Assist critical suppliers Notices to critical suppliersNotices to critical suppliers Notices to critical suppliers Talks with critical ClientsNotices to major suppliers Talks with critical Clients Ramping up productionTalks with critical Clients Notices to major suppliers Assist critical suppliersTalks with major Clients Assist major suppliers Assist major suppliersAssist major suppliers Ramping up production Talks with major ClientsNotices to critical Clients Talks with major Clients Assist all ClientsNotices to major Clients Notices to critical Clients Talks with all suppliersRamping up production Notices to major Clients Notices to major suppliersAssist critical Clients Assist critical Clients Reserving extra cashNotices to all suppliers Assist all Clients Assist all suppliersNotices to all Clients Talks with all suppliers Notices to critical ClientsAssist major Clients Assist major Clients Notices to major ClientsAssist all Clients Notices to all suppliers Assist major ClientsTalks with all suppliers Notices to all Clients Talks with all ClientsReserving extra cash Reserving extra cash Assist critical ClientsTalks with all Clients Talks with all Clients Notices to all suppliersAssist all suppliers Assist all suppliers Notices to all Clients

Most Frequently Utilized Risk Management Plan Components(by Number of Selected Components, Median = 5)


Plan

Cha

ract

eris

tics

Plan

Com

plex

ity

Most Firms Are Taking An “Update As Needed” Position Going Forward •  Most likely to NOT revisit the idea of a plan or update their plan until “when/if

deemed necessary” were firms that don’t have a plan and those that weren’t impacted by the natural experiment.

•  Firms that were negatively impacted were much more likely to review their plans within six months

Plan

Rev

iew

We will be creating/updating our risk management plan...

16%

80%

11%

83%

6%

7%

85%

Immediately.

Before the endof the year.

Within sixmonths.

When/ifdeemednecessary.

by Industry Type


14%

80%

11%

83%

5%

89%

Immediately.


Within sixmonths.


by Plan in Place

Have/Developing Plan (n=205)Total (n=300)Don't Have Plan (n=95)

8%

88%

11%

83%

13%

30%

55%

Immediately.


Within sixmonths.


by Impact

Not impacted (n=253)Total (n=298)Negatively impacted (n=40)

The US Government Shutdown of October, 2013

A Natural Experiment

Event Background •  The fiscal year of the federal government begins on October 1 of each

calendar year •  The budget for fiscal year 2010 was the last budget signed into law prior

to the government shutdown of October, 2013 •  Since 2010, the government has been funded by a series of

stopgap measures called continuing resolutions •  Since August, 2013, the lack of a budget or continuing resolution to fund

full operation of the US federal government was an important story •  Without a budget or another continuing resolution, non-essential

federal government services would be suspended on October 1, 2013

•  Many so-called “non-essential” services are important or critical for many US businesses

•  As of midnight, October 1, 2013, no federal budget or continuing

resolution was in place, so the federal government suspended all non-essential services

Bac

kgro

und

Only One in Eight Plans Addressed the Possibility of a Government Shutdown •  Two weeks before October 1, 56 percent of respondent’s firms had a

plan in place and another 11 percent were putting a plan together •  By October 1, 71 percent of firms had a plan or were working on a plan

with 4 percent rushing to implement a plan over the intervening two weeks

Our plan DIRECTLY ADDRESSED THE POSSIBILITY of an

interruption in government services.12%

Our plan DID NOT directly address the possibility of an interruption in

government services.44%

We were ACTIVELY DEVELOPING our risk management plan.

11%We did NOT have a risk

management plan.29%

We had a risk management plan.

4%

We did not have a plan33%

The State of Supply Chain Risk Managment Plans:September 15, 2013 and October 1, 2013

(n=417)Before September 15, did you have a plan in place and did that plan address a governmentshutdown? Did you have a plan in place on October 1?

Bac

kgro

und

Eighty-four Percent of Respondents’ Firms Were Not Impacted •  A small number of firms (15%) were negatively impacted and a very

small number of firms (1%) were positively impacted •  Because so few firms benefited from the shutdown, only firms that were

not impacted or negatively impacted are a part of the following analyses

1%

84%

15%

Yes, mostlypositivelyimpacted

No, notimpacted at all

Yes, mostlynegativelyimpacted

Were your supply chain operations impacted by the government shutdown?

(n=363)

Even

t

6% 7% 6% 9% 9%20%6% 9% 9%

38%

11% 20% 25% 13% 6%

9% 18%

13%

6%

20%24%

20%50%

38%18%

18%40%

56%33% 25%

29% 27%

50%31% 36% 18%

20%25%

44% 50%60%

50%35% 33%

19% 18% 27% 20% 25%

1.56 1.78 2.00 2.002.35 2.47 2.50 2.56

2.82 2.91 3.00 3.13

0

1

2

3

4

0%

20%

40%

60%

80%

100%

Impactfulness of Negative Effects of the Shutdown(1 is ranked highest / 12 is ranked lowest)

(Ordered by mean ranking)(Total n=40)

7 6 5 4 3 2 1 Mean

Firms Negatively Impacted Reported Focused, Not Broad-based Impacts •  Inability to clear customs wasn’t the most often cited impact, but when it

occurred, it was ranked “1” more than one-half the time (56%) •  The most widely experienced impacts were decreased sales, inability to

access government data and/or reports, and lack of government inspections--only decreased sales was frequently and strongly impactful

Even

t

Small but negative impact.50%Less than

"20%"/"noticeable."31%

"20%" to "40%"/"quite

visible."19%

Taken together, these impacts on your supply chain function

were/will be...(n=48)10%

35%

28%

13%

5%

5%

5%

1 impact

2 impacts

3 impacts

4 impacts

5 impacts

6 impacts

7 impacts

Count of Negative Impacts Reported

(n=40)

Most Negatively Impacted Firms Reported Only Two or Three Issues •  One-half of negatively impacted firms reported that the cumulative effect

on their supply chain operations “small but negative” •  However, 31 percent reported that the cumulative impact would be

“noticeable” and 19 percent reported that the impact would be “quite visible

Even

t

No impact.27%

Somewhat impaired.

52%

Impaired.17%

Strongly impaired.

4%

Because of these impacts, our company's performance

was/will be...(n=48)

Small, but negative, impact.

<"20%"/"noticeable."

20% -‐ "40%"/"quite visible."

No impact. 23% 4% -‐

Somewhat impaired. 25% 21% 6%

Impaired. 2% 6% 8%

Strongly impaired. -‐ -‐ 4%

Because of th

ese im

pacts, our co

mpany's

performance was/w

ill be...

Taken together, these impacts on your supply chain function were/will be...

Effect of Supply Chain Impact on Firm Performance(n=48)

Supply Chain Impacts Filter Through to Company Performance •  Fifty-two percent of respondents report that their firm’s performance will

be somewhat impaired by the effects of the shutdown •  Company performance can be sensitive to supply chain shocks

•  Nearly one-half of these firms (25 percent overall) project that impairment will be the result of a “small” supply chain impact

Even

t

Being Negatively Impacted Could be Related to Coverage of Lower Tiers •  At the first tier, breadth of supplier coverage is similar between impacted

and not impacted firms •  It appears that impacted firms may pay reasonable attention to their

second tier suppliers •  For third and lower tiers, impacted firms exhibit thinner coverage

5%

4%

16%

20%

10%

4%

19%

27%

0%

9%

19%

34%

20%

30%

38%

17%

65%

52%

9%

2%

Negatively impacted (n=20)



Negatively impacted (n=41)First Tier

Second Tier

Third Tier


8%

7%

7%

22%

7%

10%

24%

39%

6%

15%

26%

23%

29%

30%

30%

13%

50%

38%

13%

4%

Not impacted (n=102)




In our risk management plan, we address, by tier ...(by Impact of Government Shutdown)



No suppliers

Even

t

Negatively Impacted Firms Are Less Likely to Include Alternate Suppliers •  Only 49 percent of impacted firms include the strategy of finding alternate

suppliers, significantly less than the 71 percent of non-impacted firms that do •  Talking with critical suppliers is the most frequently utilized strategy of impacted

firms only because finding alternate suppliers is less frequently utilized

Not impacted (n=174) Total (n=223) Negatively impacted (n=45)Find alternate suppliers Find alternate suppliers Talks with critical suppliersTalks with critical suppliers Talks with critical suppliers Find alternate suppliersQualifying more suppliers Qualifying more suppliers Qualifying more suppliersBuying extra supplies Buying extra supplies Buying extra suppliesTalks with major suppliers Talks with major suppliers Talks with major suppliersAssist critical suppliers Assist critical suppliers Assist critical suppliersNotices to critical suppliers Notices to critical suppliers Ramping up productionTalks with critical Clients Talks with critical Clients Talks with major ClientsAssist major suppliers Notices to major suppliers Notices to critical suppliersNotices to major suppliers Assist major suppliers Talks with critical ClientsTalks with major Clients Ramping up production Assist all ClientsRamping up production Talks with major Clients Notices to major suppliersNotices to critical Clients Notices to critical Clients Talks with all suppliersNotices to major Clients Notices to major Clients Notices to all ClientsAssist critical Clients Assist critical Clients Reserving extra cashAssist major Clients Assist all Clients Assist major suppliersNotices to all suppliers Assist major Clients Notices to major ClientsTalks with all suppliers Notices to all suppliers Talks with all ClientsAssist all Clients Talks with all suppliers Assist critical ClientsAssist all suppliers Reserving extra cash Notices to all suppliersReserving extra cash Notices to all Clients Notices to critical ClientsNotices to all Clients Talks with all Clients Assist major ClientsTalks with all Clients Assist all suppliers Assist all suppliers

Most Frequently Utilized Risk Management Plan Components(by Impact of Government Shutdown)


0% 20% 40% 60%


Talks with all suppliersAssist major Clients

Notices to all suppliersAssist all Clients

Assist critical ClientsNotices to major ClientsNotices to critical ClientsTalks with major ClientsAssist major suppliers

Ramping up productionNotices to major suppliersTalks with critical Clients






(by Impact of Government Shutdown)(Ordered by Descending "Total")

Not impacted (n=174) Total (n=223) Negatively impacted (n=45)

Even

t

Industry and Size Did Not Significantly Influence Plan Activation •  It was observed that a few manufacturing respondents activated before

the shutdown •  Also observed was that a slightly larger proportion of smaller firms were

concerned while a slightly larger proportion of larger firms were not

Did the shutdown on activate your risk management plan?

5%

9%

39%

46%

11%

40%

45%

13%

40%

45%

Active BeforeShutdown

Major PortionsActivated

SpecificPortionsActivated

Ready toActivate

Not Activated

by Industry Type


11%

43%

42%

11%

40%

45%

11%

37%

49%

Active BeforeShutdown

Major PortionsActivated

SpecificPortionsActivated

Ready toActivate

Not Activated

by Annual Spend


Plan

Act

ivat

ion

Firms Whose Plan Was Activated by the Shutdown Were Well Covered •  It appears that activators anticipated challenges and beefed up coverage •  At each supplier tier, firms whose plans were activated were more likely to

have covered at least some suppliers at each tier •  At the first and second tiers in particular, plan activators were more likely to

have covered all suppliers

Plan

Act

ivat

ion

8%

7%

20%

5%

9%

23%

40%

13%

28%

24%

26%

31%

29%

12%

55%

41%

14%

Didn't Activate Plan (n=102)




In our risk management plan, we address, by tier ...(by Government Shutdown Activated Plan)



No suppliers

5%

4%

14%

33%

19%

12%

24%

15%

0%

19%

10%

30%

29%

27%

45%

18%

48%

38%

7%

Activated Plan (n=21)



Activated Plan (n=33)First Tier

Second Tier

Third Tier


The Mix of Plan Components of Activators Differed from Non-activators •  Activators were significantly more likely to not include finding alternate

suppliers (47% versus 71%) and qualifying more suppliers (31% versus 50%) •  Activators were significantly more likely to include sending notices to critical

suppliers (44% versus 24%) and talking to major customers (33% versus 17%)

0% 20% 40% 60%

Assist all suppliersTalks with all ClientsReserving extra cashNotices to all Clients


Assist major ClientsAssist all Clients

Assist critical ClientsNotices to major ClientsNotices to critical ClientsTalks with major ClientsRamping up productionAssist major suppliers

Notices to major suppliersTalks with critical Clients






(by Government Shutdown Activated Plan)(Ordered by Descending "Total")

Didn't Activate Plan Total Activated Plan

Didn't Activate Plan (n=183) Total (n=219) Activated Plan (n=36)Find alternate suppliers Find alternate suppliers Talks with critical suppliersTalks with critical suppliers Talks with critical suppliers Find alternate suppliersQualifying more suppliers Qualifying more suppliers Notices to critical suppliersBuying extra supplies Buying extra supplies Talks with major suppliersTalks with major suppliers Talks with major suppliers Assist critical suppliersAssist critical suppliers Assist critical suppliers Notices to major suppliersNotices to critical suppliers Notices to critical suppliers Talks with major ClientsTalks with critical Clients Talks with critical Clients Qualifying more suppliersRamping up production Notices to major suppliers Buying extra suppliesAssist major suppliers Assist major suppliers Talks with critical ClientsNotices to major suppliers Ramping up production Assist major suppliersTalks with major Clients Talks with major Clients Ramping up productionNotices to critical Clients Notices to critical Clients Assist critical ClientsNotices to major Clients Notices to major Clients Notices to critical ClientsNotices to all suppliers Assist all Clients Notices to major ClientsAssist all Clients Assist critical Clients Assist all ClientsAssist major Clients Assist major Clients Assist major ClientsAssist critical Clients Notices to all suppliers Talks with all suppliersTalks with all suppliers Talks with all suppliers Notices to all ClientsReserving extra cash Notices to all Clients Talks with all ClientsNotices to all Clients Reserving extra cash Reserving extra cashAssist all suppliers Talks with all Clients Notices to all suppliersTalks with all Clients Assist all suppliers Assist all suppliers

Most Frequently Utilized Risk Management Plan Components(by Government Shutdown Activated Plan)


Plan

Act

ivat

ion

Non-manufacturing firms and smaller firms normalized more quickly •  Seven out of 10 (70%) of impacted non-manufacturing firms believed

they would be past the effects of the shutdown in two weeks or less. •  Nearly seven out of 10 (69%) of smaller impacted firms believed they

would be past the effects of the shutdown in two weeks or less After the October 16 agreement, we should return to normal...

35%

23%

23%

12%

8%

42%

22%

18%

13%

5%

48%

21%

14%

14%

Within oneweek

Within twoweeks

Within onemonth

Within twomonths

In more thantwo months

by Industry Type


46%

23%

17%

6%

9%

43%

22%

19%

11%

6%

37%

21%

21%

21%

Within oneweek

Within twoweeks

Within onemonth

Within twomonths

In more thantwo months

by Annual Spend


Dén

ouem

ent

Virtually All Firms That Activated Their Plan Report That It Performed Well •  More than one-half of Non-manufacturing (57%), larger (65%), and firms

not impacted (65%) report that their plans performed well •  About one-half of Manufacturing (47%), smaller (50%), and firms

negatively impacted (65%) report that their plans missed minor risks

Based on this experience, our risk management plan ...

12%

24%

65%

13%

40%

45%

5%

14%

55%

27%

Didn't performwell/missedmajor risks.

Didn't performwell/missedminor risks.

Performedwell/missedmajor risks.

Performedwell/missedminor risks.

Performedwell.

by Impact

Not Impacted (n=17)TotalNegatively Impacted (n=22)

6%

18%

47%

29%

13%

40%

45%

9%

35%

57%





Performedwell.

by Industry Type


5%

14%

50%

32%

13%

38%

46%

12%

24%

65%





Performedwell.

by Annual Spend


Plan

Rev

iew

Breadth of Coverage of Supplier Tiers Trends with Plan Performance •  Tiers 1, 3, and 4 show that plans that performed well were more likely to

cover a larger slice of suppliers at that tier •  The unexpected results for Tier 2 are likely due to the small number of

observations overall

9%

4%

18%

32%

18%

15%

21%

16%

19%

15%

30%

27%

26%

39%

19%

45%

37%

6%

Total (n=22)

Total (n=27)

Total (n=33)


Second Tier

Third Tier


8%

12%

20%

23%

19%

29%

20%

19%

12%

35%

23%

25%

47%

20%

46%

38%

5%

Performed well/missed risks (n=13)




11%

9%

20%

50%

11%

9%

13%

13%

0%

18%

20%

19%

33%

27%

33%

19%

44%

36%

13%

Performed well (n=9)




In our risk management plan, we address, by tier ...(by Plan Performance)



No suppliers

Plan

Rev

iew

Most Firms Are Assessing 2014’s Risk Environment •  Manufacturers (67%) are significantly more likely than non-

manufacturers (54%) to take an assess only posture regarding 2014 •  One-sixth (17%) of those that have a plan are significantly more likely to

take some action in conjunction with or following assessments

Plan

Rev

iew

What action will you take to prepare for possible 2014 disruptions?

25%

60%

14%

26%

60%

14%

27%

60%

14%

None

Assess Only

Take SomeAction

by Annual Spend


23%

60%

17%

26%

60%

14%

34%

59%

7%

None

Assess Only

Take SomeAction

by Plan in Place

Have/Developing Plan (n=227)Total (n=330)Don't Have Plan (n=103)

23%

67%

10%

26%

60%

14%

29%

54%

17%

None

Assess Only

Take SomeAction

by Industry Type



Supply Chain Risk Management Plans: Current Practice and Application

QUESTIONS? Paul Shik Lee, Jr. Director Research Institute for Supply Management

ism's supply chain risk management plans: current practice … · supply chain risk management...

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