the economics of supply chain risk management using @risk

8/8/2019 The Economics of Supply Chain Risk Management Using @Risk

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Solutions. Beyond consulting

The Economics of Supply Chain

Risk Management using @RiskDavid Inbar & Steven Bechhofer

Minet Technologies

Palisade Risk Conference, London

April 14, 2010


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A minor problem can have a devastating effect

Philipss chip

manufacturingplant shutsdown following

a fire

Productionstopped formonths

Acute shortage

in chips forEricsson and

Nokia

March 00

Nokia

Successfullyhandles the crisis.

Market share risesfrom 27% to 30%.

Minimal loss.

Ericsson

Fails to handles thecrisis.

Market share downfrom 12% to 9%.

Total loss $400M.


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Lecture Agenda

Part 1 Supply Chain risk Management

Part 2 The Economic Mitigation @risk Models

The Supplier Number Model

The Sourcing Model

The Mitigation Prioritization Model


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Part 1Supply Chain risk Management


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The

Organization

Supply chain model

Supplier's suppliers

Suppliers

Plants

Warehouse/

Distribution center

Customers

End customers


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Possible risks


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Why is Supply Chain risk management more important today?

1. Supply chain is more important.

2. Riskier.

3. Leaner.

4. Faster.

5. Noisier.supplier



Do you have peace of mind?

Do your supply chain partners have peace of mind? Do your customers have peace of mind?

An organization with the right risk management process can assure

peace of mind to his customers and supply chain partners.

Risk management - Marketing aspect



Types of risks

Man Made

Business failures

Accidents

Force majeure



How events influence the supply chain

A

C

B



Warning signs

Event

Warning signs leading to an event

failure

Almost

failure

Almost

failure

Almost

failure



Wrong strategy

Wrong specification (wrong pricing)

Supply chain risks throughout the product life cycle



Faulty transmission function between suppliers and customers.

Purchasing in the wrong currency

Supply chain risks Supplier vs. customer



Supply chain risks throughout the product life cycle

Choosing an unsuitable supplier

Will not keep the cost targets across time. Will not keep the production schedule.

No capacity for ramp up.

Supplier with high costs base.

Supplier with a large Material Exposure Curve.

Supplier with a small R&D budget.

Supplier that uses obsolete technologies.



The risk management process

Identification

Analysis

Mitigation (and

implementation)

Lower

variability

Information

Input Output



Mitigation

Supply chain planning

Identifying constraints

Sharing//transferring risks

Improving existing

processes

Contract with the supplier

Procurement strategy

Inventory strategyModularity

Preparation

BCP

Practice

Organizational culture

Event management

BCP implementation

Attending to customers

Attending to

stakeholders

Event inquiry



Part 2 The Economic Mitigation @risk Models



A) The Supplier Number Model

Making a decision between the number of potential business partners can beextremely important for the long-term success of a company Example: Toyotas choice of gas pedal unit supplier

Potential Criteria for Scenarios which can be weighed against each other usinguncertainty:

Price variation Quality (no. of potential Defects); yield loss Securit of supply Transcation cost



The Supplier Number Model



B) The Sourcing Model

Strategic Sourcing is a key issue within Supply Chain Risk Management

Sourcing decisions should take the contractual conditions and realisticscenarios from a projected supplier relationship into account

A quantitative risk assessment which applies multiple parameters withvariable risk values gives a better picture of possible scenarios henceproviding a basis for better sourcing decisions



The Sourcing Model



C) The Mitigation Prioritization Model

Risks within the supply chain of any given project are variable anduncertain in nature

The ability to register and provide a dynamic overview of the effect ofthese risks is key to developing a strategy to risk prioritization and risk

handling

A model which documents the substance and variance of individualproject risks can provide a basis for important decisions effecting aprojects overall outcome


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Th Mi i i P i i i i M d l


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the economics of supply chain risk management using @risk

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