1

Disclaimer: The credit of the content also goes to different authors and sources from
which data has been procured
2 Agenda

 What is (supply chain) risk?

 What are typical supply chain risks?
 How to manage supply chain risks?
3 What is Supply Chain Risk
Management
Risk = probability of occurrence x consequences

Supply chain risk management (SCRM) is

"the implementation of strategies to manage
both everyday and exceptional risks along the
supply chain based on continuous risk
assessment with the objective of reducing
vulnerability and ensuring continuity".

Source: Cranfield University, School of

Management
 Risk Exposure
4
 Why are today’s supply chains
5
so DYNAMIC AND COMPLEX?

 Faster (Growth, Innovation)

 Stronger (Competition)
 Cheaper (Lean, economies of scale, efficient)
 Quicker (JIT, agile)
 Shorter (Lead times)
 Wider (Globalization)
 Lesser inventory (VMI)
 Changing (Demands, Technology)
 Heavier (Requirements, Workload)
6 Why is supply chain risk
important?
 Even a relatively small supply chain
disruption caused by a localized event may
have consequences across the global economic
system
 No control over causes to events in supply
chain
 Only control over consequences of events
in supply chain
7 Location of risk in the
supply chain

SUPPL PROCESS DEMAND

Y RISK RISK
RISK

NETWORK/
CONTROL
RISK

Environmental
Risk
8 Supply Risk

 Dependency only on key suppliers

 Quality and management issues arising
from outsourcing
 Variability in lead-times
 Poor quality of RM supplied
 Delays in transportation
9 Process Risk
 Manufacturing yield variability
 Lengthy set-up times and inflexible
processes
 Equipment reliability
 Capacity shortage/bottlenecks
 Outsourcing key business processes
 Power failure
 Breakdown of machines
 Absenteeism during festive season,
 Problems in IT systems
 Warehouse problems
10 Demand Risk

 Loss of major customers

 Volatility of demand

 Concentration of customer base

 Short life cycles

 Innovative competitors

 Inaccurate forecasts
11 Network/Control Risk

 Inefficient communication
 Poor visibility along the pipeline
 Inappropriate rules that distort demand
 Lack of collaborative planning and
forecasts
 Bullwhip effects due to multiple reasons
 Security Risks - theft, data
loss, counterfeiting, terrorism, piracy
12 Environmental Risk
 Macro Risks
Economic shifts, recession, exchange
rates, custom, natural disasters, labor unrest
 Policy Risks
Actions and sanctions of governments, shifts in
legislation
 Competition Risks
Uncertainty about competitors’ moves and
actions
 Resource Risks
Lack of human resources, capital or technology
13 Supply Chain Risk?
14 Managing Supply Chain
Risk
 Map the supply chain
 Identify the critical paths
 Utilise cause and effect analysis (TQM tools)
 Implement supply chain event management
 Adopt agile practices
 Formalise supply chain risk management
 Using global sourcing to minimize the risk
 Risk mapping - example (Reference: Anil S Sathe
15 presentation, Oct 21st, 2013)
Inherent Risk Analysis & Evaluation (Step II) Existing Controls/Treatment Plans
(Step III)

Risk Description Risk Type Internal / Risk Impact Risk Likelihood Existing Control
(Event/Scenario) External Information Category Description
Variables
(People, Assets/
Revenue
/Production Loss,
Environment,
Reputation &
Compliance)

Product Failure - Operation Internal Defect Critical Not Likely (Less than Quality Control and
technical al percentage 10%) Assurance Process
identified
Risk of significant Operation Internal Reported Critical Not Likely (Less than Preventive Maintenance
breakdowns of al Breakdowns 10%) process
Plant and
Machinery

Inadequate future Strategic Internal Demand vs High Not Likely (<10%) Appropriate
capacity creation Supply Gap planning/forecast

Delayed Operation Internal Reported Critical Not Likely (less than 10%)Project Planning and
availability or un- al and unavailabilities Management
availability of External
Supplies
16 Identify Critical Paths

Critical paths are characterised by:-

 Long lead-times
 No short-term alternative source of
supply
 Bottlenecks
 High levels of identifiable risk (i.e.
supply, demand, process, control
and environmental risk)
22 Agility holds the key

Agile supply chains are designed to respond rapidly to

unpredictable change. They are based upon a number
of principles:-

 Very close connection to final marketplace

 Visibility of real demand
 High levels of synchronicity upstream and
downstream
 Organisational focus on processes rather than
functions
 Advanced level of collaborative planning with supply chain
partners
 Continuous search for time compression opportunities
23 Globalization

Globalization allows us:

 To site facilities in safer locations
 Tap into educated overseas workforces and set up
production centers closer to sources of raw
material
 By opening the door to using vendors and
suppliers from around the world
 The number of vendors and suppliers
that
companies can tap to fill gaps in their
supply chain.
24 Robust Or Resilient
 A robust process can be defined as “a process able to
deal with reasonable variability”

 A resilient supply chain can be defined as “a supply

chain with the ability to recover quickly from
unexpected events impacting supply chain
performance”
 Characteristics of Robust and
25 Resilient supply chains (Reference: Cranfield
University, School of Management)
Robust Resilient

‘Lean thinking’ central to Risk mitigation central to supply chain

supply chain management management

Lean Agile
Strong Elastic
Internal quality control Internal and external risk
management

Responsive to reasonable Capable of responding to sudden and

variation in input significant variation in input

Low inventory levels Built in spare capacity and buffers

throughout at critical nodes
Supply chain Velocity Supply chain Velocity &
Acceleration

A culture of quality A culture of risk and quality

awareness (i.e. Six awareness
Sigma)

Processes are stable and under control

Non-value adding activities and processes removed
 Creating a Resilient Supply Chain:
26 Strategic Approaches (Reference: Cranfield
University, School of Management)

Supply Chain
Understanding
Supply Chain Supply Base
Design Strategy

1. Supply Chain
(re)engineering Collaborative
Visibility Planning

The Resilient 2. Supply Chain

4.
Supply Chain Collaboration
Agility

Supply Chain
Velocity 3. Supply Chain Intelligence
Risk Management
Supply Chain
Culture Consider risk in
Continuity decision making
Teams Board level
responsibility
& leadership
27

“A fire at a key Philips semiconductor factory in 2000

caused a worldwide shortage of the radio frequency chips
used by both Nokia and Ericsson. Nokia immediately
lined up another source and redesigned other chips so they
could be produced elsewhere. However, Ericsson
responded more slowly and lost an estimated $400 million
in mobile phone handsets.”

MIT Sloan Management Review

Summer 2006
28 Supply Chain risks
examples
29

“The entire Japanese vehicle industry ground to a halt

following an earthquake that stopped production
of piston rings for engines provided by Riken, the
industry leader in the domestic market.

Toyota, in particular, was forced to stop operations at

all 12 of its domestic plants.”

Financial Times, 24 July 2007

30

“Yesterday it emerged that ice-cream supplies may run

short because Unilever’s only UKfactory,
based
Gloucester,
in has been flood-stricken
closed for the past ten days.
The company usually manufacturers five million ice-creams
and lollipops a day at the plant. It has stocks in freezers but it
could be days before normal production resumes. Industry
insiders predict that there will now be an ice-cream war
as rival brands attempt to exploit Unilever’s predicament
and gain market share.”
The Times, 31 July 2007