procurence. supply chain assessment

Transcription

1 procurence. supply chain assessment SUPPLY CHAIN GOVERNANCE: RISK MANAGEMENT FOR MITTELSTAND 16/05/2013 LUDWIGSHAFEN

2 Mittelstand can be better at SCRM than large companies False stereotypes Supply Chain Risk Management is for big companies that can afford it No politics Fast decision making Less complexity Fewer suppliers

3 Corporate governance / Supply chain governance aims at reducing the selective blindness and self-centered approach of the individual departments. Aims of supply chain governance sxc.hu

4 Take the key principles, discard the management theories Components of SCRM RESOURCES PREDICTION PREVENTION REACTION how likely are disruptions to happen? how can I reduce the impact or likelihood of a potential disruption? Am I prepared to react to the disruption?

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6 SCRM is not a project: it s an ongoing work and someone needs to be able to do this on a full-time basis. Supply Chain Governance: Resources At least one person (0.5-1 FTE) Direct access to top management Mandate to redesign processes Ability to influence sourcing decisions Responsible for: Methodology, Research, Processes

7 It is hard to remotely control Asia-risks from Europe Supply Chain Governance: Resources 中国 Language barrier, mentality barrier Preferably a local representative in CN (native speaker) Factor-in the costs of on-site visits If an important supplier, invest in a personal relationship

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9 decreasing size less know-how depth The higher fewer resources of transparency upstream you go, the higher the need for risk management and the lower the likelihood that it s actually in place. increasing number! direct suppliers, 10% indirect suppliers, 90% LARGE MNC 1 st TIER (DIRECT) 2 nd TIER 3 rd TIER risk level Sophisticated Enterprise Risk Management (but focus on internal, financial & market risks) Basic monitoring mechanisms usually in place, lower risk potential. Lack of transparency and know-how. Highest cost pressure!

10 Supply chain transparency can be used to decrease risk exposure to the company Leveraging the potential of the supply chain YOUR COMPANY 1 st TIER SUPPLIERS 2 nd TIER SUPPLIERS MONITORING Supplier information Supplier rating and evaluation Supplier risk management Communication IT systems DISRUPTION BARRIERS Adequate stocks Stable supply contracts Alternative suppliers Financial stability

11 Rule #1: Know who and where your suppliers are, so that you can react quickly if something happens. Supply Chain Governance: Supply Chain Transparency Who are your suppliers? Where are they located? Who are your suppliers? Where are the production sites located? Where are the logistics centres located? Through which routes are the products shipped? Who is affected?

12 Supplier Database

13 Corporate Governance: practical approach for Mittelstand Supply Chain Governance: Supply Chain Transparency Do they meet your core standards? How well to they perform? Pre-assessment (RfX) On-going self-assessment Audits

14 The key to supplier evaluation are not the numbers, but the trends and the relative position of suppliers against their peers.

15 Some supply chain risks occur suddenly, some are long in the brewing. Thunderstrike v. Snowball risks Thunder-strike risks Snowball risks Earthquakes Hurricanes / Tornadoes Flooding Pandemics Fires (Product recalls) Insolvency Strikes Raw material shortage Capacity problems Quality problems CSR problems

16 Grouping risks by behaviour gives insight about how to approach their management. Risk response by risk type Thunder-strike risks Snowball risks RESPONSE PLANS Check for susceptibility Check response plans and their quality (your own?) Quick data access if risk occurs Estimate the VaR and e.g. switch suppliers COMMUNICATION Determine the EWIs & triggers Monitor the EWIs and act! Aggregate weak signals

17 You cannot predict when a black swan risk occurs, but you can predict that it can occur. Example: Predictable thunder strike risk Samsung Electronics SK Hynix 66% DRAM market 48% NAND flash DRAM 2.: Taiwan 21% NAND 2.: Japan - 36% Source: Image: US Procurence Department of State (2012): isuppli, May 2013

18 How to get the information I m looking for? Information sources Desk Investigation Supplier Self-Evaluation On-site Audit

19 Use public sources to determine the likelihood of an event: Earthquakes Source: Procurence

20 Depending on a country, flood risk information can be accessed at a click of a button. Environment Agency UK Environment Agency UK

21 Even China has publicly available information about floods although they re harder to obtain Source: Procurence

22 Local knowledge is a plus, but in the era of automatic translations even that barrier can be crossed. Source: & Office of State Flood Control & Drought Relief (fxkh.mwr.gov.cn)

23 Simple case study: Flood vs. Fire risk For satellite imagery and maps use Baidu.com rather than Google.com

24 Google Maps, Baidu (map.baidu.com)

25 If you don t want to do the analysis yourself, you can subscribe to services such as Maplecroft Maplecroft.com Maplecroft.com

26 Ask for facts, not opinions Evaluation questions How high is the flood risk? Are you within 2 km of any stream or watercourse? Is your factory located lower/higher/at the same level as the surrounding area? (2x2 km) Has there been any flood in your area in the last 50, 20, 10, 5 years? Is your factory located in a valley? How many metres above the ground is the shop floor raised? Do you have flood gates or other means of stopping polluted water from penetrating the ground water? How high is the fire risk? How long does it take the fire engine to arrive at your factory? Is the time affected by traffic? Is there enough space for fire trucks to fit? How many water hydrants do you have? When was the last complete fire drill simulation?

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28 Rule #1: Is the supplier prepared for the most typical risks? The further away the suppliers are the, the more crucial the preparation. Don t let risk enter your supply chain Qualify your suppliers Business continuity / contingency plans Complete Make sense Tested & drilled Source: Photo Gazeta Procurence Wyborcza

29 There are a number of frameworks that suggest standard approaches to risk mitigation/prevention. How to deal with risks High I M P A C T Share Accept Mitigate & Control Control Low PROBABILITY High Source: The Institute of Internal Auditors Source: KPMG Procurence Global Manufacturing Outlook 2013

30 Diversification of the supplier base is the key risk reduction approach. You need to convince the top management, though. Prevention through diversification DON T RELY ON SINGLE-SOURCE SUPPLIERS GEOGRAPHICAL DIVERSIFICATION STANDARDS + TESTS

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32 Quick communication is the key to reducing the impact of risks #1 Who are the contact persons? (Supplier) Emergency contact(s): Phone, Mobile, Who makes the decisions? Rules of escalation Decision-makers Analysts What is needed? Who should know in our company? What? Where? Duration? Impact? Whom to contact?

33 Companies are painfully unprepared to deal with the unexpected Time needed to assess impact of unplanned supply chain disruptions 0% 5% 10% 15% 20% 25% 30% 35% 40% In a matter of hours 9% 1-6 days 36% 1-2 weeks 24% 3 wks or longer 17% Can't systematically assess the impact 11% Don't know 3% Source: KPMG Procurence Global Manufacturing Outlook 2013

34 In case of more extreme events you are advised to place (large) orders with suppliers outside the country Supplier lock-up

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36 Supply Chain risk management takes place on a daily basis if it s just informal, bottom-up and uncoordinated, it results in extra costs for the company. Costs of not implementing a professional SCRM program Delivery interruptions Lost client goodwill and lost contracts Brand / reputation damage Supplier switching costs ONLY IF DISRUPTION MATERIALISES Bloated inventories Same inventory approach for lowand high-risk companies Incorrect multi- or single-sourcing decisions opportunity for savings through increased negotiation power and bundling Missed opportunities for LCCS Unused innovation capacities of small suppliers ONGOING & RECURRING OPERATIONAL COSTS

37 Is it worth it? Try to measure the benefits vs. the risks COST SAVINGS OF EUR vs. POTENTIAL LOSSES OF EUR MITIGATION COSTS EUR

38 Copyright Procurence Sp. z o.o. Rome wasn t built in a day building up a professional supply chain risk management organisation Stages of sustainability management MATURITY OF SUSTAINABILITY MANAGEMENT ignorance compliance pro-activeness hands-off self-reports on-site audits development active co-operation CLIENT-SUPPLIER RELATIONSHIP EXAMPLES who are your suppliers? compliance with local laws? compliance with international standards? locally pro-active, setting good example? setting new standards: social, environmental, measuring and economic managing social and environmental impact of each product: endto-end transparency

39 Suggested reading

40 Copyright Procurence Sp. z o.o. procurence. supply chain assessment If you have any questions, do not hesitate to contact me. Matt Zaleski, CEO procurence sp. z o.o. ul. Dereniowa 2/ Warsaw Poland tel fax info@procurence.com