H umanitarian

Lecture 8
Supply chain Risk Management
L ogistics
Risk Analysis and Evaluation Dr. Sahar El Barky
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Steps in risk management
Identify risks to the supply chain.
 This examines the supply chain,
 defining the separate activities and their relationships, and
 systematically studying these to find areas of risk.
 The output from this first step is a list of risks facing the
supply chain.

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Risk Identification
A survey by Richmond and Associates (2007) product safety;
found that the risks most commonly identified  health and safety issues;
by European supply chain managers were:  loss of suppliers;
loss of the information system;  single sourcing;
loss of the site;  supplier reliability;
 poor forecasting;
government regulations;
 shortage of key materials;
currency fluctuations; long supply chains;;
fire;  lack of flexibility;
extreme weather;  capacity problems;
floods and other natural disasters;  traffic congestion;
industrial action;  shortage of key employees;
 equipment failure;
pressure group protest;
 political unrest or warfare;
 terrorism.

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Steps in Risk Management

Analyse the risks.

Having identified the risks, the next stage is to consider their
potential impact. The impact depends on two factors:

 the probability that a risky event will occur, and

 the severity of consequences when it does occur.
 Then, managers can prioritize risks according to the impact
and decide where to concentrate resources.

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The Aim of Risk Analysis

The aim of risk analysis is to give a prioritized list of risks.

This identifies the most significant risks that need serious
attention, and the less significant ones that can be ignored.

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Implementing strategic stock to improve humanitarian aid response
Event 7: upcoming strike among casual labors?

You hear rumors from staff that there is an upcoming strike

among casual labors handling cargo in/out of the warehouses in
the port (Port Shed 2/3 and 7/8):
What impact may that have on your operation?
Whom should you contact to be pro-active rather than re-active?
What alternatives can you assess to prevent or manage the
strike?

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Implementing strategic stock to improve humanitarian aid response
Event 4: urgent dispatch of 2,000 mt to Uganda!

You are about to start the discharge of Charlotte tomorrow when you receive
a message from the Regional Office of GFA that 2,000 mt maize is urgently
needed in Uganda! You know that there is at least 5,000 mt of maize in Port
Shed 3 and therefore you contact the responsible warehouse assistant. He
informs you that unfortunately the cargo in Port Shed 3 is infested and must
be fumigated before being dispatched.
 Carefully consider your options in this situation:
 What actions do you need to take?
 Whom do you need to contact and coordinate with?
 What is your decision and what are next steps?
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Case Study: Nike
Nike has a history of being accused of using ‘sweatshops’ in the Far
East to manufacture its products. Workers in these so called
sweatshops can often work long hours for pay far below a ‘living
wage’ and can be exposed to hazardous materials, extreme
temperatures and abuse behaviour by supervisors.
In these factories, 75% or more of the workers are female, mostly in
their teens or early twenties – and they have to work nine to 13 hours
a day, six days a week, and may be forced to work overtime several
days a week. Anti-sweatshop protest groups grew, often based around
university sports activities – famine strikes were organised.
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Case Study: Boots PLC
In October 1997 a single aerosol/spray can being stored in a distribution
centre owned by the high street chemist Boots exploded. This caused a
fire, which destroyed the distribution centre.
It is reported that insurance companies paid £15 million for the damage –
but Boots lost £30 million in sales from disrupted supplies during the
busy pre-Christmas period.
Similar fire happened 1 years ago in a USA distribution centre and . The
consequences of unexpected events can often be far wider than expected.

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Analyzing Risks
There are two approaches to analyzing risk :
 Qualitative Approach, taking the risk register and
describing the features of each entry.
 Quantitative approach, numerical measures could be added
to the list for a precise and objective description of the
seriousness of a risk and its consequences.

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Qualitative Measures
Nature of the risk – with a qualitative description of the risk;
Consequences – with a qualitative view of potential losses;
Likelihood – giving a subjective view of whether the risk will materialize;
Scope – areas affected, such as supplies, deliveries, costs, service, etc;
Responsibility – ownership of the risk and responsibility for its control;
Stakeholders – people affected by the risk and their expectations;
Subsequent changes to operations – perhaps to mitigate the effects of the
risk;
Current methods of risks management, and their levels of success;
Suggestions for improvement to risk management and new policies.
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Classification for Probabilities

Likert
Scale

1
2
3
4
5

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Approaches to find the probabilities of Risk

What are the approaches you can use to

determine the probability of risk?

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Approaches to finding the probabilities of Events

Use knowledge of a situation to calculate a theoretical

probability.
Use historical data to see how often an event actually happened
in the past, and use this to give an experimental or empirical
probability.
Ask people for their subjective views about the likelihood of an
event.

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Consequences when a risk occurs
The second part of analyzing a risk is to put a value on the consequence of a risky
event occurring.

Category 1: negligible – an insignificant effect on the working of the supply chain;

Category 2: minor – causing some inconvenience with minor disruptions, delays and
increased costs to some parts of the chain, but with most functions unaffected;

Category 3: moderate – causing some disruption to parts of the supply chain, but
with the main functions continuing to meet requirements;

Category 4: serious – major disruptions to the essential operations of the supply

chain, causing serious delays and a high cost of recovery;

Category 5: critical – failure of the whole supply chain for an extended time, with
major cost and effort needed for recovery;
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Summary of Risk Analysis

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Identifying Categories of Risk
An ABC analysis – also called a Pareto analysis or rule of 80/20 –
gives a way of describing different categories of risk, based on the
observation that 20 per cent of the risks cause 80 per cent of
concerns, while the remaining 80 per cent of risks only cause 20 per
cent of concerns. In particular, we can identify three categories of
risk:
 A risks: the most severe that need special attention;

 B risks: the medium ones that need normal attention;

 C risks: the low ones that need little attention.

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Identifying Categories of Risk
In 2006, a transport company called Lavalle-Pierceau, located in the south of France, its
manager worked with a team of consultants from the system supplier, who described the risks
from the installation using a probability–impact matrix.
The company assigned priorities based on these categories, with a very likely risk with a high
impact or level A (value 20) causing five times as much concern as an unlikely risk with a
low impact.
Risks giving values:
 below 2 were not considered worth examining,
 from 3 to 8 were given some attention,
 9 and 10 were given normal attention,
 12 to16 were given more attention, and
 most attention was focused on values above 20.
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Risk Assessment for the Previous Cases

Source of Severity
Process / Probability
Risk/ Risk Score Treatment
Location 5----1 5---1
hazard

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