Supply Chain Risk Management

A 10-Year Compilation of SCRM Mitigation Tactics

Greg Schlegel, Founder, The SCRM Consortium @ Lehigh University
gregschlegel@thescrmconsortium.com and grs209@lehigh.edu

2020
 An Addendum to IRM Unit 4
Mitigating Supply Chain Risks
PAGES
◼ The SCRM Consortium…………………… 3-5
◼ Mitigation Techniques & Tactics…………. 6-19
◼ Companies utilizing Unit 3 & 4 Tactics….. 20-25
ADD Book Cover

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Supply Chain Risk Management

Supply Chain Risk Mitigation Tactics

The Supply Chain Risk Management Consortium
2020
The Supply Chain Risk Management Consortium

WHAT we do for Organizations

◼ Leverage the Body of Knowledge from our new SCRM book, "Supply Chain Risk Management: An
Emerging Discipline“
◼ Teach the BOK @ Lehigh & Villanova Universities, in their MBA programs, along with Executive
Education programs
◼ Facilitate over 25, 2-3-4 & 5-day workshops around the globe, per year, working with partners such as
APICS (now ASCM), Leoron, out of Dubai, The Logistics Institute of Canada, Muhakat/TRAX
Education, Jordan, IRM and others.
◼ Provide Certificates and Certifications, via our partners, in the areas of SCRM and SCR&R, including
new SCR&R Certificate from Lehigh University, emanating from a new, Online Course!
◼ Lead, Guide, Direct & Coach companies in their SCRM/SCR&R journey

How we do it……
◼ The Consortium provides SCRM education, Identifies and Assesses risks using Cloud-based Risk
Appetite & Risk Maturity Models, Probabilistic Models and Supply Chain Mapping Solutions.
◼ We Quantify risks utilizing RPN, Risk Priority Numbering, VaR, Value-at-Risk, FMEA, Failure Mode
Effect Analyses, Altman Z-Score and much more
◼ We Mitigate risks leveraging Best Practices and help Manage risks through ERM & GRC Frameworks,
Organizational Alignment engagements, BCP, Business Continuity Planning, “What-if” Modeling,
Scenario Playbooks and Risk Response Plans.

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 The SCRM Consortium
https://thescrmconsortium.com
Bowler Hunt, LLC

SherTrack

Gregory L. Schlegel CPIM, CSP, Jonah

SPMS grs209@lehigh.edu

Strategic
PM Solutions, Inc

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Supply Chain Risk Management

Supply Chain Risk Mitigation Tactics

Risk Mitigation Techniques & Tactics
2020
 Mitigating Risk…A Game Plan
Visualize and Explore all avenues of risks (suppliers, logistics,
understand environmental, etc.) affecting the company and assess
risks types and likelihood of risks occurring.

Score each risk factor and prioritize each according to

Measure and low and high likelihood of occurrence and business
prioritize impact.

Based on risk priority, develop an action plan. The

Take action mitigation strategies must be modeled and tested
using robust, flexible “what-if” analysis capabilities.

Risks priorities will change. Both the risk and

Monitor, review, mitigation strategies need to be reviewed on a regular
and maintain basis to ensure new factors are included.

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SCRM ROI…….

Source: Resource Management Systems, Inc.

◼ How do we achieve ROI?

❑ By Being PROACTIVE/Better Prepared

❑ By Being REACTIVE/More Responsive

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SCRM ROI….Alerts—Speed is Life!
◼ $70,000 Savings from a Single Notification
❑ Maker of construction materials shipped $70k worth of material to contractor. Shortly
thereafter, company’s risk management tool alerted it to the supplier’s financial
instability in time to ship material back before it was confiscated by an insolvency
administrator.

◼ Avoiding a Typhoon to Meet a Production Deadline

❑ Large manufacturer was notified that typhoon was about to hit the region where a
subcontractor it was about to use to replace a defective part. The subcontractor was
not planning to alert the manufacturer. However, the manufacturer’s risk management
solution notified it in time to pivot to another strategy and meet its’ obligations.

◼ Savings from Early-warnings of Price Increases

❑ Auto manufacturer was notified of an explosion at plant that made key chemical. The
manufacturer took advantage of early notification by its’ digital risk tool and purchased
additional units before competitors and locked in existing price. Within 72 hours, the
price of the chemical increased by 20% around the globe.

Hackett Group SCRM Report 2018

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 If You REDUCE UNCERTAINTY, COMPLEXITY
& RISK…..Profitability can be achieved!
▪ Companies that run Product Portfolio Management(PPM) & Segment
their Customers, have……..
– 15% less inventory
– 17% higher On Time & In Full delivery performance
– 35% shorter cash-to-cash cycle times (Days)
(Receivables + Inventory – Payables)
– 1/10 the stockouts of their peers
▪ A 3% increase in forecast accuracy increases profit margins by 2%
◼ A 5% increase in forecast accuracy increases delivery performance to
customer request date by 2% and customer confirmed date by 2.5%
Source: AMR Research

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Risk Methodologies

SCMWorld 2012

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 Risk Tactics

SCMWorld 2012
 Risk Mitigation Strategies
Examples of Supply Chain Risk
Failure of mode of transportation, such as a
train derailment, a power outage that closes
down pipeline pumping stations, operator
strikes, or other disruptions
Harm to goods, facilities or markets caused
by adverse weather, fore floods, vandalism,
or terrorist activities
Lead time variability, orders incorrect, or
quality problems
Loss of a key asset or supplier
Inadvertent noncompliance with regulations,
ordnances, licensing requirements, etc.
Theft of real or intellectual property
Failure of or dramatic change in patronage by
an important customer
Examples of Preventive Action Plans
Preventive maintenance of equipment and
vehicles, safety training, backup power
supplies, extra capacity at all plants, safety
sock, maintenance of good labor relations
Insurance, geographical diversity, security
systems and guards, financial diversifications,
GLS tracking or transport vehicles
Safety lead time, counting or quality control at
receiving, supplier certification
Understanding supplier’s organization and
financial solvency, contractually obligated
backup suppliers. Redundant equipment and
repair parts on hand
Compliance audits, legal review of new
regulations, supplier certifications
Security guards, item tagging, verification
Diversification of customer base, CRM
functions, rewarding customer loyalty
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 Risk Redundancy Approaches
Approach Strategies
Build low-cost, decentralized capacity for predictable demand and centralized capacity for
Increase capacity unpredictable demand

Multiple suppliers for high-volume and reduced number of suppliers for low-volume products.
Acquire redundant Centralize low-volume products in a few flexible suppliers
suppliers

Increase Select cost over responsiveness for commodity products. Select responsiveness over cost for
responsiveness short life-cycle products

Decentralize inventory of predictable, lower-value products. Centralize inventory of less

Increase inventory predictable, higher-value products

Select cost over flexibility for predictable, high-volume products. Select flexibility for low-
Increase flexibility volume, unpredictable products. Centralize flexibility in a few locations if it is expensive

Aggregate demand Aggregate customer order management and shipping as unpredictability grows

Select capability over cost for high-value, high-risk products. Select cost over capability for
Increase capability low-value commodity products. Centralize high capability in flexible source

Source: Sunil Chopra and ManMohan S. Sodhi, “Managing Risk to Avoid Supply-Chain Breakdown,” Sloan Management Review, Vol. 46, No1, Fall 2004
 Mitigation-After Assessment

This is a typical graph we develop at the end of an Assessment Engagement. Why?

It provides the client somewhat of a Roadmap in terms of Mitigating Risks that have been
identified and assessed. How? The Bubbles indicate the risks identified, are color coded with
the size indicative of the Assessed risk, using VaR. The “Y” axis on the left depicts the value of
mitigating the risk for the client and their customers, while the “X” axis at the top indicates our
opinion of the challenge to the client in terms of mitigating the risk, based on our assessment
of their Risk Appetite/Culture for change.
Tool USAGE in Risk Management, today and in 2 years
Risk Tool Usage
0.9
0.8
0.7
0.6
0.5
0.4
0.3
0.2
0.1
0

TODAY IN 2-3 YEARS

The Hackett Group 2018

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What Tools do you Utilize to Manage Supply Chain Risk

Loyola/ASCM Survey 2019

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What Types of Insurance do you Purchase Today

Loyola/ASCM Survey 2019

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Hackett Group Study…Supply Chain Risk Tactics as of 2019…….

Segmenting suppliers by Risk Rankings

Identifying potential risk events--all types

Setting up Risk Appetite Goals

Capturing relevant SC risk data

Measuring overall risk exposure level

Creating Mitigation plans for risks

Quantifying each identified risk

Monitoring the Supply Base

Continuous Improvement

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Fully Implemented Partly Implemented Piloting Nothing
Supply Chain Risk Management

Supply Chain Risk Mitigation Tactics

Use Cases from Around the Globe
2020
SCRM Exemplars…..
Using Predictive Analytics & Social Media to Mitigate Risks
◼ Apple….Utilizes digital APPS to capture Sentiment Analysis after product launch and
continuously captures VOC, Voice-of-the-Customer to drive supply chain volume/mix balancing

◼ IBM….scans the internet, all social media threads then turns that into actionable intelligence
using cognitive and pattern recognition software for brand, volume and risk mitigation

◼ ZARA…Customer data sensing, shaping using online APPS, store dialogue and more,
developing VOC demand-signals every two weeks for Style, Size, Color mix/volume

◼ Huntsman…Outside-in Scenario Planning, using software to run supply chain “What-if’s”

during each S&OP meeting..very mature S&OP process with goal of “Profitability & Risk
Management”

◼ DuPont…Also runs Outside-in Scenario Planning in mature S&OP forum…also exercises

“Delphi-Conference-Room” manual scenario planning to calculate VaR, Value-at-Risk for events that
have not yet happened, in an effort to build Risk Response Plans

◼ CAT…very mature ERM protocol…utilizes sensors inside machines out in the field to capture
engine cycles, temperature and more in an effort to plan for spare parts and warranty risk mitigation

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EMC/Dell Caselet
◼ Background
❑ Had very poor SC visibility through their 400 sites
❑ BCP processes in place, but manually
❑ Thailand flood did disrupt their operations

◼ Approach
❑ Asked Resilinc to map their 400 sites
❑ Started to receive daily risk alerts via dashboard data
❑ This was all about building a “Platform”, not a point solution and feeding
it with pertinent global SC data, regularly

◼ Benefits so far
❑ “We can very quickly identify what our impact is after a given
event. We monitor our SC 24/7. It used to take weeks to
assess/mitigate events..now we complete that in minutes”
❑ Also implemented a GRC platform to analyze, manage &
communicate supply chain risk. Global CPO

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Palo Alto Networks Caselet
◼ Background
❑ 5 year Silicon Valley startup producing next-gen security
❑ 30,000 customers, 50% growth every year
❑ Survived impacts from 2011 Japan quake/Thailand floods
❑ 250 Tier-1 suppliers worldwide, 270 Sub-tiers, 700 Tier-2 & 3, 2k parts

◼ Approach
❑ Made substantial investments in supply chain automation, extensive
supplier intelligence
❑ Harnessed SC mapping and risk alert system

◼ Benefits so far
❑ Highlights critical failure points and global hotspots
❑ Identifies suppliers, parts and products impacted by events
❑ Reduces risk event identification/assessment latency
❑ Reduced annual insurance premiums and deductable

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P&G Dumping 90 Brands… 2014
• 160 Brands (less) 90 ➔ 70 Brands left………
• Those 70 Brands represent about 90% of their $83
Billion Revenue
• Therefore, 56% of their Brands equaled ONLY about
10% of Revenue
• CEO, A. G. Lafley said this……”We’re going to create
a faster growing and more profitable company that is
far simpler to manage and operate.”
• Shares of P&G JUMPED more than 3% that day!
•JULY 2016 FISCAL RESULTS (18 months after announcement)
•Net Sales DECREASED by 8%
•Net EPS INCREASED by 51%
•Adjusted Free Cash INCREASED by 115% &
•Company gave back $7.4B to shareholders in the form of dividends!
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 Basic Risk Responses

Avoidance Exiting activities giving rise to risk

Accept the chance of a risk occurring because

Acceptance
of its low probability or benefit

Transfer or Taking action to reduce the likelihood or impact related

Share to the risk using 3rd Parties—contractors/or insurance

Taking action to reduce the likelihood or

Mitigate
impact related to the risk within the company

Redundancy Having back-up processes or resources in

case of failure