Resilience in Supply Chains

Transcription

1 Resilience in Supply Chains The Webinar will begin shortly March 15, DRI International. All rights reserved.

2 Resilience in Supply Chains March 15, DRI International. All rights reserved.

3 Today s Speaker: Don Klock Business Director, Rutgers Center for Supply Chain Management March 15, DRI International. All rights reserved.

4 Today s Topic Moving beyond firm boundaries: Is resilience enhanced by supply chain continuity programs? 4

5 Risk Management: A Picture Tells a Thousand Words 5

6 This is how we want our approaches to risk management to turn out 6

7 But all too often, risk management tends up catching us off-guard (and it s not a pretty sight when it does) 7

8 Or worse! 8

9 The Moral: Be Prepared to Grab Risk Management by the Horns (Before it Grabs You First) 9

10 Today s Agenda What are the Risks? Risk Management Strategies to Mitigate Risks Questions/ Discussions 10

11 What are some Supply/Procurement Risks that have occurred or potentially will occur in the future? 11

12 We need to Think More Broadly about Risk Management Katrina Japan Earthquake Currency Port Strike Single Sources Financial Oil Prices Global Sourcing Supplier Quality Environmental Child Labor Ethical Issues JIT/Lean Manufacturing Intellectual Property Data Security 12

13 Are Companies Prepared? Almost 80% of executives have not defined what constitutes a crisis. Over 70% do not have a crisis management team in place. Almost 70% say they do not know what to do in the event of a crisis! 13

14 Why Have Risks Increased? More Outsourcing-Both Product and Services Increased In Global Sourcing/More Off-Shoring JIT Inventory And Our Environment of 24/7 News Coverage Highlights the Problems Quicker and More Often 14

15 Today s Agenda What are the Risks? Risk Management Strategies to Mitigate Risks Questions/ Discussions 15

16 Is resilience enhanced by supply chain continuity programs? Two Approaches: Proactive Reactive 16

17 Is resilience enhanced by supply chain continuity programs? Two Approaches* Proactive Reactive * Note: These approaches are not mutually exclusive 17

18 Robust Supplier Certification Process 18

19 Procurement Responsibilities Nominate audit team members Lead the Multi-functional Site Visit Team Provide the list of suppliers and input the Must Dos Provide pre-work to Supplier; CDA, introduce Colgate tools Schedule audit with Suppliers and ensure supplier readiness Provide follow-up action plan (FAP) sheet to supplier, request quarterly update. Collect FAPs and send to Quality Maintain pool of trained Procurement Auditors 19

20 Quality Responsibilities Lead the quality portion of the audit Maintain list of trained cross-functional auditors Train Auditor pool Assess the audits Post all audits on GP website/e-team room With Procurement coordinate follow-up activities Establish list of suppliers for annual audit program Communicate plan and progress to Steering Committee 20

21 Supplier Audit Tool 21

22 Audit Tool - An Example 22

23 Audit Tool - Risk Rating 23

24 Quality Agreement Aligned with Global Quality, Global Procurement and Legal Scope: Supplier shall: Produce product/material that meet CP specifications Produce under GMP conditions Provide quality control records Allow quality audits of facility Posted to GP website Use on all contracts 24

25 Follow-up Process Quality Prepare follow-up action spreadsheet for supplier/cm Enter supplier/cm actions into Quality audit database Supplier action plans into e-team room Review status of follow up actions quarterly Review SAP Performance data Non-conformances Material Inspection Discuss supplier/cm data and issues with GP Procurement Send supplier/cm action plan quarterly to update Initiate meetings with suppliers to discuss action plans, non-conformances, etc. 25

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27 Focusing on the Supplier is Not Enough Frequent and Timely Communication of Issues and Problems Monthly/Quarterly Supplier Risk Management Review Build Risk Management Strategies into Category Management Process Contingency Plans in Place for Key Supplier and Commodities Continuous Improvement Plan-both with your Suppliers and your Process Comprehensive and Dependable Intelligence Capability are a Must 27

28 Invest In Redundancy 28

29 Invest in Redundancy Respond to unforeseen events Careful analysis of supply chain trade-offs Example: CPG company with 40 facilities over the world Initial analysis for reduction of cost by $40M a year shut down 17 of its existing manufacturing facilities leave 23 plants operating satisfy market demand all over the world. 29

30 Decision Was Risky New design left no plant in North America or Europe Long and variable supply lead times Higher inventory levels. Remaining manufacturing facilities in Asia and Latin America fully utilized Any disruption of supply from these countries, due to epidemics or geopolitical problems, would make it impossible to satisfy many market areas. How can one design the supply chain taking into account epidemics or geopolitical problems that are difficult to quantify? Analyze the cost trade-offs 30

31 Trade-Offs 31

32 Analysis of the Trade-Offs Closing 17 plants and leaving 23 open will minimize supply chain costs. Total cost function is quite flat around the optimal strategy. Increasing the number of open plants from 23 to 30 facilities increases total cost by less than $2.5M increases redundancy significantly. 32

33 Is resilience enhanced by supply chain continuity programs? Two Approaches* Proactive Reactive * Note: These approaches are not mutually exclusive 33

34 Sensing and Responding Strategy 34

35 Sensing and Responding Strategy Speed in sensing and responding can help the firm overcome unexpected supply problems Failure to sense could lead to: Failure to respond to changes in the supply chain Can force a company to exit a specific market 35

36 Sensing and Responding: Nokia & Ericsson Different responses of Nokia and Ericsson on a fire at one of the supplier s facility Supplier was Philips Semiconductors in Albuquerque, NM Nokia: Changed product design to source components from alternate suppliers For parts that could not be sourced from elsewhere, worked with Philips to source it from their plants in China and Netherlands All done in about five days 36

37 Sensing and Responding: Nokia & Ericsson Ericsson s experience was quite different Took 4 weeks for the news to reach upper management Realized five weeks after the fire regarding the severity of the situation. By that time, the alternative supply of chips was already taken by Nokia. Devastating impact on Ericsson $400M in potential sales was lost Part of the loss was covered by insurance. Led to component shortages Wrong product mix and marketing problems caused: $1.68B loss to Ericsson Cell Phone Division in 2000 Forced the company to exit the cell phone market 37

38 Adaptability Strategy 38

39 Adaptability The most difficult risk management method to implement effectively. Requires all supply chain elements to share the same culture, work towards the same objectives and benefit from financial gains. Need a community of supply chain partners that morph and reorganize to better react to sudden crisis 39

40 Adaptability: Toyota Aisin Seiki the sole supplier of 98% of brake fluid proportioning valves (P-valves) used by Toyota Inexpensive part (about $7 each) but important in the assembly of any car. Fire stopped Aisin s main factory in the industrial area of Kariya, Two weeks to restart the production Six months for complete recovery Toyota producing close to 15,500 vehicles per day. JIT meant only 2-3 days of inventory supply 40

41 Recovery Effort by Toyota Blueprints of valves were distributed among all Toyota s suppliers Engineers from Aisin and Toyota relocated to supplier s facilities Other manufacturers like Brother were also brought in Existing machinery adapted to build the valves according to original specifications New machinery acquired in the spot market Within days, firms with little experience with P-valves were manufacturing and delivering parts to Aisin Aisin assembled and inspected valves before shipment to Toyota About 200 of Toyota s suppliers were involved 41

42 Vehicle Production & P-Valves Inventory : Vehicle production and P-valve inventory levels 42

43 Accident initially cost: 7.8B Yen ($65M) to Aisin 160B Yen (or $1.3B) to Toyota Supply Chain Resilience Outcome Damage reduced to 30B Yen ($250M) with extra shifts and overtime Toyota issued a $100M token of appreciation to their providers as a gift for their collaboration 43

44 Single Sourcing and Adaptability Single sourcing is risky Achieves economies of scale High quality parts at a low cost JIT mode of operation builds a culture of: Working with low inventories Ability to identify and fix problem quickly Entire supply chain was stopped once the fire occurred Prompted every company in the chain to react to the challenge 44

45 The Role of Big Data/Business Intelligence Important for both Proactive and Reactive Strategies Many Software Providers/Third-Party Companies Ready to Assist Can Be Used For Upstream Suppliers-Tier 2, Tier 3, Etc. But Be Careful Data Does Not Guarantee Risk Free In Environment Timely and Accurate Data User Friendly (e.g. Display Screens) Actionable 45

46 Proactive Supply Chain Resilience Resilience in Supply Chains: The Key Processes & Strategies Robust Supplier Certification Process Invest In Redundancy Reactive Sensing and Responding Strategy Adaptability Strategy Leveraging Big Data/Business Intelligence 46

47 A Few Other Risk Management Thoughts Clearly Determine Who Is Responsible for Supplier Risk-don t assume that someone else is doing it. Focusing on the Supplier is Not Enough Communication and Awareness Continuous Improvement Plan Leverage Big Data/Business Intelligence To Facilitate The Process Not Be The Ends All-Means All Solution Managing Complex Risks Requires a Strategic/Holistic Approach Be Proactive First, not Reactive But..when it happens Time is of the Essence 47

48 Last Thought Remember That the Objective of these Strategies/Processes is Not to Eliminate Risks Without Risks There Is No Progress Instead It Is To Ensure One Can Manage and Mitigate Risks 48

49 Back To The Question That We Started With Moving beyond firm boundaries: Is resilience enhanced by supply chain continuity programs? 49

50 YES..And Remember 50

51 Grab Risk Management by the Horns (Before it Grabs You First) 51

52 Is this you? 52

53 About Our Sponsor 53

54 Questions and Answers 54

55 For More Information (866)

56 Webinar: Resilience in Supply Chains DRI INTERNATIONAL ALL RIGHTS RESERVED.