managemnt seminar presentation final

8/2/2019 Managemnt Seminar Presentation Final

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ANALYSIS OF GLOBAL SUPPLYCHAIN RISKS

Raman SarinSrikanth Shetty

Chiragkumar Maheshbhai Patel

Prasanna Sundaresan

Satish Kumar Tekkatte Gopal

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Institut fr Logistik und Unternehmensfhrung

Seminar Presentation


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OUTLINE

Introduction

Some theory

Strategies for risk management

Proposed model

Discussion of cases (validation)

Conclusion

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Type of risks keep changing with political, economical,

technological, social and other conditions.

Lean Production and Global Outsourcing are suitable for

Stable environments but in complex turbulent environment

it is difficult to handle intricate supply chains of 21st century.

Global sourcing and suppliers consolidation carry hidden cost

(increased exposure to the risk of supply-chain disruption)

Disruptions in important areas evaluate the vulnerability ofglobal supply chains.

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SUPPLY CHAIN DISRUPTIONS


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FACTS

BP oil spill caused closure of gulf fishery and supply of sea-food. Lossof around 40 billion US dollar was estimated as per BPs estimation.

Pandemic Disease in past (like H1N1, SARS) had paralyzed business of

multinational companies.

Unrest in middle east has caused oil price rise and companies can not

rely on single source of oil supply and single mode of energy in future.

Hurricane-Katrina in US made companies to reconsider depending on

single port in high risk area and look for options in supply chain.

Due to volcanic ash eruption in Iceland, air-traffic halted in North

Europe. The airlines estimated $200 million loss per day. Two important sectors that felt the hardest global hits by Japan disaster

are electronics/semiconductor and automobile supply chains.

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IMPORTANCE OF RISK MANAGEMENT IN

GLOBAL SUPPLY CHAIN

As per International Monetary Fund (2008), the growth of

ratio of goods and services trade to GDP is from 42 to 62

percent (between 1980 and 2007).

(In 2008, CFO Research Services conducted a survey among seniorfinance executives in North America to examine their views on increaseor decrease of their companys global sourcing activities over the next

three years.)

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COMPANYS PERFORMANCE DURING

DISRUPTION

1. Preparation

2. The Disruptive Event

3. First Response

4. Initial Impact

5. Full Impact

6. Recovery Preparation

7. Recovery

8. Long-Term Impact

In 2005, Yossi Sheffi and James B.Rice Jr. highlights eight

different phases that give a view of impact of disruptive event

on a companys performance and also the companys response. 7


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STRATEGIES

o Globalization as a solution

o Resilience (Redundancy and flexibility)

o Controlling supply chain disruption risks

o Mitigate damage

o Risk assessment and Scenario planning

o Use of various company specific tools

o Communication systems8


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OPTIMIZATION MODEL

Risk recognition

Frame work to detect

recognized risk

Scenario generation for

different risk

Strategy under different risk

scenario

Implementation

responsibility

Update

Assessment- Documentation

Identification of risk

Recognition of stakeholders

Activate intensive

communication

Risk assessment

Strategy development

Quick implementation

Frequent feedback

Documentation of incidents

and under taken steps

Prepare to mitigate React to recover

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SELECTION OF MIX

a preparation coefficient of

relative importance

b reaction coefficient of

relative importance

S selection mixP, R preparation and reaction respectively

Impact of disruption It is the extra cost that a company has to spend in order to deal with a disruptive event forwhich they are not prepared in order to sustain its performance to a level that would havebeen achieved if no disruption would have occurred.

Cost of preparation It is the sum of all the cost that a company has to spend in order to mitigate the risk if itoccurs in a period of time divided by frequency of a certain disruptive event estimated overthe same period of time.

Cost of prepared recovery It is defined as cost of preparation plus extra costs that are incurred in order to sustain its

performance to a level that would have been achieved if no disruption would have occurred.

It is equivalent of impact of disruption with no preparations.

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CASES FOR DISCUSSION

S i Hi h F L I


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Model

Cost

Lead Time

Product with minordamage

Supply chainDisruption

Key pointsDamaged part is replaced /repaired atcustomer location.The cost impact is absorbed by theinsurance cover.Time impact is absorbed by the bufferin delivery lead time shown in yellow

Risk management strategy for thisscenarioInsurance cover for transport. Covers

damage, and replacing cost. Does notcover time impact.There is a planned buffer in thedelivery lead time.

Case

Model Interpretation:Factor a is higher compared to thefactor b.The strategy opted is the Prepare toMitigate.

Due to the high frequency ofoccurrence and the low impact afterdisruption the cost of prepared recoveryis lower compared to the impact ofdisruption.

Comparison of case with the model:The strategy opted by the company indiscussion is as per the model results.That is prepare to Mitigate..The strategy falls under the idealpreparation case of our model

resulting in minimum or no impact asshown in the graph .

Scenario 1: High Frequency ,Low Impact

Delivery Time Buffer in lead time

Logistics cost Insurance cover

*Ref Interview 1 and 2 in Appendix section of report * Image source: Google images


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Model


Model Interpretation:Factor b is higher compared to thefactor a.The strategy opted is the React toRecover.

Due to the high frequency ofoccurrence and the High impact afterdisruption the cost of prepared recoveryis very high compared to the impact ofdisruption.

Key pointsThe custom made product has highvalue hence a spare is not maintained.The product is repaired or replacedwith a considerable time and costimpact.The time impact absorbed by the

buffer lead time is negligible.

Risk management strategy for thisscenarioAction plan is put into place to replacethe severely damaged product andmeet the customer demand at theearliest.The Time impact is not covered by theinsurance

Case

Comparison of case with the model:The strategy opted by the company indiscussion is as per the model results.That is react to recover.The strategy falls under the Normalpreparation case of our model

resulting in a noticeable impact asshown in the graph .

Scenario 2: High Frequency ,High Impact

Damaged product

Lead Time

Cost

Logistics cost damage covered by insurance Cost impact

Delivery Time Buffer time Time impact



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Model Model Interpretation:Factor b is higher compared to thefactor a.The strategy opted is the React toRecover.Due to the low frequency of

occurrence and the High impact afterdisruption the cost of prepared recoveryis very high compared to the impact ofdisruption.

Key pointsA new supplier is identified. The process lines are installed and

qualified.And finally the production for thecritical part is resumed. With asignificant time and cost impact.

Risk management strategy for thisscenarioSince the occurrence is very low insuch disruptions react to recover

strategy is opted.In this scenario the company goesahead to develop a new supplier .The company owns the design , plan ,the intellectual property rights and otherdocuments which reduces the time andcost impact in such scenarios.

Case

Comparison of case with the model:The strategy opted by the company indiscussion is as per the model results.That is react to recover.The strategy falls under the Nopreparation case of our model

resulting in a significant impact asshown in the graph .

Scenario 3: Low Frequency ,High Impact

Logistics cost Impact covered by owning the planand IP rights for new supplier

development

Significant Cost impact

Delivery Time Safety stock Time impact

Lead Time

Cost

New supplierdevelopment



S i L F L I


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Model

Key points

The part is shipped through a differentmode of transport or route. There is a very small impact of timeand money.

Risk management strategy for thisscenarioSince the occurrence is very low insuch disruptions react to recover

strategy is opted.In this scenario the company decidesfor a alternative route or mode oftransport which is not impacted by thedisruption like in this case the searoute.These strategies are purely reactiveand the success is based on the riskmanagement team expertise andexperience.

Case

Model Interpretation:Factor b is higher compared to thefactor a.The strategy opted is the React toRecover.Due to the low frequency ofoccurrence the cost of preparedrecovery is high compared to theimpact of disruption.

Comparison of case with the model:The strategy opted by the company indiscussion is as per the model results.That is react to recover.The strategy falls under the TotalReaction case of our model resulting

in a minimal impact as shown in thegraph .

Scenario 4: Low Frequency ,Low Impact

Logistics cost Re-routing cost

Delivery Time Safety stock Time impact

Lead Time

Cost




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CONCLUSION

Global supply chain risks always exists and a risk or a part of it can be addressed by

preparation or reaction.

Strategies for risk management changes from company to company with respect to thepolicies and priorities .

Risk Mitigation plans changes according to competition, cost factors and frequency

of probable disruptive event.

The proposed Model does not ascertain any specific strategy that should be followed

but only helps to obtain a blend of preparation and reaction strategies . React to recover strategy should be opted in case of unrecognised risks

Companies usually follow React to recover strategy rather than Prepare to

Mitigate strategy in case of Disruptive events that are difficult to predict and also

involve high investment on preparation .

React to recover strategy is directly influenced by time frame and impact ofdisruption , expertise and communication system.

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