Assessing Your Risk Exposure Your Supplier s Risk can become your own

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1 Assessing Your Risk Exposure Your Supplier s Risk can become your own Alisa Clemons, Supplier Performance - Team Lead Gladyne Wiley Lynch, Supplier Performance Lead MMOG/LE Analyst

2 Make the Connection Assess your Supplier Risk Safeguard your corporate image and customer satisfaction

3 Small parts, BIG Impact Even smaller suppliers matter. A study by the Massachusetts Institute of Technology in collaboration with Ford determined that 2 % of supplier sites comprising a relatively small amount of spend would have an ordinate amount of damage and impact the entire sales of the company in the event of a supply chain disruption. Making the case that ALL suppliers, locations, hubs, and warehouses should be included in risk monitoring. Source: From Superstorms to Factory Fires: Managing Unpredictable Supply-Chain Disruptions, D. Simchi-Levi, W. Schmidt, Y. Wie;

4 Inheriting Supplier Liability Tier-1 suppliers are being held accountable for the actions of their sub-tier suppliers. OEMs are exposed to risk of Tier 1 disruptions associated with a suppliers sub-suppliers. Suppliers must take a new approach to identify and manage sources of sub-tier supplier risk.

5 Take Chapter 6 requirements Serious MMOG/LE criterion Requirement: Regularly assess and monitor the capability and performance of suppliers, subcontractors, and service providers Why: It provides the means to support the organization s SCM strategy, identify opportunities for improvement, and provides a valuable contribution to the achievement of high levels of customer satisfaction.

6 What Your Customer Expects Comprehensive inventory (mapping) of sub-tier suppliers OEMs now expect Tier-1s to know their sub-tier suppliers Comprehensive catalog of sub-tier risks Monitoring sub-tier risks to form the basis for KPIs, scorecards, audit routines, and other monitoring activities. A risk-based segmentation Segment suppliers by risk level. Ex. a simple system of high-, medium-, and low-risk categories can be useful. Establish standard monitoring, measuring and escalation process Proactively establish monitoring and scoring tools and processes to address nonconformance in real-time. Establish crisis recovery plan to quickly mitigate risks.

7 Supplier Risk Assessment & Monitoring Automotive Supply Chain suppliers are under increased exposure to risk. Tier 1 suppliers exposed to risk of their sub-suppliers, vendors and service providers. Many suppliers do not have a strategic discipline in risk management 51% of disruptions originate from below the first tier Most companies limit their risk analysis and mitigation activities to their tier-1 suppliers despite the fact that a disruption below the first tier has the same impact. Source: Business Continuity Institute, SUPPLY CHAIN RESILIENCE REPORT, 2014

8 Supplier Risk Assessment & Monitoring Do you have a process to assess & monitor the capability of your supply chain partners? OEMs expectation is for suppliers to develop practices to mitigate risk during scheduled reviews. Develop a plan of action and establish a comprehensive overview of your SC network in a platform that is proactive and responsive to risk.

9 Process to Assess Capability Things to consider: Value your partnership with customers Protect your organization, protect your customer and avoid disruptions to maintain business relations Protect your organizations against disruptions and develop robust assessing capabilities Develop a process that gets transparency into potential risk Expose bottlenecks in your suppliers processes Shorten response time Analyze supplier locations and risk inherent within the geographical location or regional operations Determine what risks are unique to that location through continuous monitoring (i.e., earthquakes, political turmoil etc.)

10 Regularly Measure & Review Consider the following: Does your organization regularly measure & review supplier performance for SCM risk? Is there a document process that address your process? Does your organization have a process that gets transparency into potential risk throughout the global supply chain? Does your organization maintain historical records to track your sub-suppliers performance? Does your organization map supplier location? Suppliers will be expected to analyze supplier locations and risk inherent within a region. Has your organization determined risk exposure and are there KPIs metrics for your suppliers (e.g. delivery performance, premium freight, transportation, and supplier disruptions)? Bottom line: Continue to regularly review metrics for SCM trends and plan accordingly.

11 What Does it Take? Expect the same from your suppliers, subcontractors, and service providers!

12 Leverage MMOG/LE - Basic The Basic Assessment is a tool for lower tier suppliers to verify that the basic and most critical SCM processes are in place Used to establish a rapid diagnosis of critical areas (e.g. capacity planning, inventory management) Enables a targeted assessment (e.g. new plant launch readiness) Aids in aligning sub-tier suppliers with your organization s objectives 12

13 Supply Chain Visibility The First Step to Understanding Your Exposure to Disruptive Events Paul Rossi, Supply Chain Risk Management General Motors Global Purchasing and Supply Chain

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15 Do You Know Where your Suppliers Are??????

16 Supply Chain Visibility Enabler to reactive speed during a crisis & proactive risk mitigation Continuous monitoring of global events with potential to disrupt supply chains Natural Disasters Supplier Disruptions Labor/Transportation Disruptions Geopolitical/Regulatory Events Force Majeure Declarations Infrastructure Disruptions Earthquakes in Japan Hurricanes and Typhoons Industrial Explosions

17 Increasing supply chain visibility allows for a better understanding of your supplier network GM has been able to Understand supplier foot print to avoid and/or prepare for risks React and recover quickly to disruptive events Improve supplier collaboration during a disruptive event Provide ad-hoc reporting for other functions Cyber security, purchasing, labor relations (union contracts expiring), etc. Improve Contingent Business Interruption insurance position Lower costs / more coverage

18 Supply Chain Visibility Don t stop at your 1st tier suppliers, go deeper (please!)

19 Sources of sub-tier visibility Data Supplier Surveys - High degree of data accuracy - Customer specific - Secure, internal environment - Understanding of MFG/SHIP & Billing locations - Slow process - Dependent on supplier compliance 3 rd Party Public/Web/Social - Fast illumination of Tier n supply base - Easily updated - Not dependent on supplier compliance - Accuracy of data? (implied relationships) - Correct MFG/SHIP locations identified? - Not customer specific - Third-party data security risk 3 rd Party Proprietary - High degree of data accuracy - Fast illumination of Tier n supply base - Easily updated - Correct MFG/SHIP locations identified? - Not customer specific - Third-party data security risk

20 Sub-tier Supplier Management Case Study Cascade Engineering April Dines, Corporate Quality Cascade Engineering (Grand Rapids, MI)

21 Cascade Engineering Products Plastic Injection Molding

22 How Does CE Mitigate Risks? 1. Manage known / controllable risks Review risk for launches and changes Communicate expectations Document and communicate performance Supplier audit, as needed 2. Plan for unknown / uncontrollable risks Emergency response system Contingency plan

23 Review Risks for Launches / Changes New supplier New technology Material change Poor tooling condition Customer directed supplier Current supplier with concerns

24 Communicate Expectations QAD QMS Supplier Portal Supplier Manual Inspection Requirements Photos *Over 300 suppliers setup in system

25 Document Supplier Concerns QAD QMS Supplier Name Create corrective action Assign tasks to supplier Notification sent to supplier

26 Communicate Concerns QAD QMS Supplier Portal Supplier response Checklist items Supporting documents Submit CPR

27 Evaluate Performance QAD Scorecards Awarded Points: 93

28 Supplier Scorecard Trends Review for consecutive months with low performance Possible financial risk

29 Scorecard Point Classifications Category Description Point Scale Color Preferred New business opportunities Acceptable Possible new business Sub-standard Possible new business hold (> 3 months) Meeting with supplier management Supplier Audit Corrective Actions Possible de-sourcing Probationary New business hold Corrective Actions Possible de-sourcing < 70

30 Review of Supplier Corrective Actions and Trends QAD QMS Filter concerns (by supplier, date range, site, type of concern, etc.) Supplier Name

31 QAD QMS Audits Complete internal audits Conduct supplier audits, as needed Document concerns and actions needed

32 How is CE notified of emergency situation? Internet News Customers Suppliers

33 Emergency Situation Natural Disaster (Typhoon) QAD and erfq Systems Evaluate Supplier locations *Review of supplier location versus manufacturing location

34 Contact Tier 1 Suppliers in Concern Location erfq Notification to determine impact on delivery Feedback from suppliers within a week Use of erfq saves between 4-6 hours of actual work

35 Follow Emergency Response System for Identified Concerns

36 Damage Assessment Team Evaluate Situation Impact to delivery - YES How long will supplier be down? Are there other qualified suppliers available? Can we change the schedule with customer?

37 Contingency Plan for Escalated Concerns Approximately 80 Documents *Flash drive given to Damage Assessment team every year

38 Annual Review / Update of Contingency Plan QAD QMS Document Control Documents controlled in central system Owners of documents make relevant updates Annual review of documents for accuracy

39 Benefits of Systems / Planning Supplier awareness of expectations Ability to address all concerns in one system Delivery, ASN, Quality, etc. Visibility of concerns and actions Elimination NVA activities - duplicate entries Faster reaction time for identified concerns *Ultimate goal is to reduce CE and customer risk

40 Next Steps Continual Improvement Customer Specific Requirements ISO 9001:2015 ISO/TS 16949:2016 MMOG/LE Supplier Manual Updates