Neethu Dilver MBA TT 2nd sem Roll No: 18

WHAT IS SCM :

WHAT IS SCM Supply-chain management is a total system approach to managing the entire flow of information, materials, and services from rawmaterial suppliers through factories and warehouses to the end customer The term Supply chain comes from a picture of how organization are linked together as viewed from a particular company.
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Supply Chain Uncertainty

One goal in SCM:

respond to uncertainty in

Factors that contribute to uncertainty

customer demand without creating costly excess inventory

Negative effects of uncertainty

lateness incomplete orders

inaccurate demand forecasting long variable lead times late deliveries incomplete shipments product changes batch ordering price fluctuations and discounts inflated orders

Inventory
insurance against supply

chain uncertainty

Uncertainty In Supply Chain

Uncertainty In Supply Chain : Wrong forecasts Late deliveries Poor quality Machine breakdowns Canceled orders Erroneous information

Uncertainty
Matching supply and demand is a major challenge: Forecasting does not solve the problem. The first principle of all forecasts: Forecasts are always wrong. Demand is not the only source of uncertainty. Delivery lead times Manufacturing yields Transportation times Component availability have significant SC impact;

Uncertainty

Process uncertainty Supply uncertainty Demand uncertainty

Control uncertainty

Types of supply chain uncertainty

Uncertainty rules the supply chain. Sales deviate from forecast. Supply chain uncertainty can be classified into four general types: process, supply, demand, and control. _Process uncertainty. Process uncertainty affects an organizations internal ability to meet a production delivery target. The amount of process uncertainty can be established by understanding each work processs yield ratios and leadtime estimates for operations. Also, if the particular product delivery process is competing against other value streams for resources, then the interaction between these must be studied and codified. _ Supply uncertainty. Supply uncertainty results from poorly performing suppliers not meeting an organizations requirements and thereby handicapping value-added processes. It can be evaluated by looking at supplier delivery performance, time series of orders placed or call-offs and deliveries from customers, actual leadtimes, supplier quality reports, and raw material stock time series.
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Types of supply chain uncertainty

_ Demand uncertainty. Demand uncertainty can be thought of as the difference between the actual end-marketplace demand and the orders placed with an organization by its customers. Demand uncertainty can also be quantified by measuring how well companies meet customer demand. _ Control uncertainty. Control uncertainty is associated with information flow and the way an organization transforms customer orders into production targets and supplier raw material requests.

Stages of Supply Chain Maturity and Uncertainty

Level One (Baseline)

Companies engage in reactive short-term planning and fire fighting. They have large pools of inventory and are vulnerable to market changes. Level Two (Functional Integration)

The emphasis is still on cost, not performance. Companies focus inward on goods and are reactive toward their customers. There are some internal trade-offs.
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Stages of Supply Chain Maturity and Uncertainty

Level Three (Internal Integration) All work processes are integrated and the planning process reaches from the customer back to the supplier. Electronic data interchange is widely used. The organization is still reacting to the customer. Level Four (External Integration) The supply chain forms an extended enterprise. The organization has achieved integration with all suppliers and synchronized material flows. The focus is on the customer.

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Understanding the Customer and Supply Chain Uncertainty

Understanding customer (demand) uncertainty

Demand varies along certain attributes Quantity in each lot, response time, variety of products needed, service, price, innovation, etc

Implied demand uncertainty Demand uncertainty due to the portion of demand that the supply chain is targeting, not the entire demand
Customer need Customer need Range of quantity increases Range of quantity increases Response time decreases Response time decreases products increases Variety of products increases Number of channels through which Number of channels through which product may be aquired increases product may be aquired increases of innovation increases Rate of innovation increases Required service level increases Required service level increases implied Causes implied demand uncertainty to uncertainty Increase Increase Increase Increase Increase Increase

Understanding the Customer and Supply Chain Uncertainty

Understanding supply uncertainty

Supply uncertainty is strongly affected by the life-cycle position of the

product. New products being introduced have higher supply uncertainty than mature products

Supply source capability Frequent breakdowns Unpredictable and low yields Poor quality Limited suppy capacity Infexible supply capacity Evolving production process

Causes supply uncertainty to Increase Increase Increase Increase Increase Increase

Understanding the Customer and Supply Chain Uncertainty

Demand Uncertainty Low (Functional Product) Low (Stable Process)
Basic Goods, Most Commodities

High (Innovative Product)

Fashion, Computers, Pop Music, Toys

Demand Uncertainty Low High (Functional (Innovative Product) Product)

Low (Stable Process)

Efficiency, Information Integration, AutoReplenishment, VMI (Efficient SC) Buffer Inventory, Shared Resources, MultiSourcing, Info Sharing (Risk-Hedging SC)

Make-to-Order, Flexible Mfg, Accurate Response, Postponement (Flexible SC) Supply Network, Postponement, Design Collaboration (Agile SC)

Supply Uncertainty

High (Evolving Process)

Some Power, Some Food Produce, Precious Metals

Telecom, Highend Servers, Semiconductor

High (Evolving Process)

Risk Defined
The International Organization for Standardization (ISO, 2002) defines two of the essential components of risk:
1. losses (along with related amounts) and

2. uncertainty of their occurrence.

In the financial industry, operational risk is defined as the risk of loss resulting from inadequate or failed internal processes, people and systems or from external events (New Basel Capital Accord, 2006).

Risk & Supply Chain

Risk in general can be defined as a collection of pairs of likelihood (L) and outcomes / impact (O) of events. The combination of all the (likelihood; outcome) pairs is called a risk profile. Definitions of risk must also have a time dimension or a specific time horizon (day, month, year, etc.) and a specific perspective or view that defines the scope (boundaries, whats not included, etc.).

Supply Chain Disruptions

Any event that negatively impacts the intended functioning of the supply chain. Can be a rare event or frequent event that happens at a specific instance in time Internal (machine break down, fire, strike, product failure) External (weather related, earthquake, etc.)

Discrete Events
(yes/no)

Continuous Events
(a matter of degree)

Internal (performance metrics variability, warranty trends) External (supply / demand shifts, economic factors) Sometimes group into buckets

SCRM Best Practices

10 Best Practices under the following categories:
RM Programs Coordination with Partners Supply Chain Risk Identification Supply Chain Risk Monitoring Supply Chain Risk Assessment Sourcing Risk Mitigation Strategies Crisis Communication Planning

Configure to Reduce Risk :

Supply Chain Business Rules Supply Chain Information

Supply Chain Risk Management

Visibility and Quantification of Risk

Coordinated Risk Management

Supply Chain Network

Formal Risk Management

Best Practices

Supply Chain Designed for Risk

Supply Chain Risk Management

Best Practices - Formal Risk Management

Supply Chain Risk Management (SCRM)
Systematic identifying, assessing, and resolving of potential disruptions in supply chain networks with the objective to reduce their negative impact on the networks performance

Best Practices - Visibility & Quantification of Risk

Supply Chain Risk Identification
Creating of a list potential events that could disrupt or harm any aspect of the supply chains performance (more details included in exercises)

Supply Chain Risk Monitoring

Creating of a list potential events that could disrupt or harm any aspect of the supply chains performance (more details included in exercises)

Supply Chain Risk Assessment

Quantifying risk to understanding of where the greatest risks may exist in order to prioritize resources for risk mitigation and management Measures include Likelihood and Impact (more details included in exercises)

Best Practices - Coordinated Risk Management

Risk Management Programs Coordination with Partners
Coordinating risk management with your supply chain partners by emphasizing cooperation among departments within a single company and among different companies of a supply chain to effectively manage the full range of risks as a whole Establishing a Risk Management Coordination Committee

Sourcing Risk Mitigation Strategies

Includes strategies to address source risks, for example multiple sources of supply, strategic agreements with suppliers, and supplier partnerships (more details included in exercises)

Crisis Communication Planning

Creating a plan for managing a crisis when it occurs (more details included in exercises)

Best Practices - Supply Chain Designed for Risk

Several things can be configured to reduce risk:
Supply Chain Business Rules
Establishing business rules (e.g., customer priority, supplier priority, production routing, transportation routing, etc.) based on minimizing the risk to the supply chain

Supply Chain Information

Managing supply chain information networks to minimize the risk to the supply chain. This includes information sharing with partners as well as internal locations. This helps all parties to be quickly informed of a real or potential disruption and respond quickly and appropriately to minimize the disruption impact.

Supply Chain Network

Designing node locations, transportation routes, capacity size and location, number of suppliers, number of production locations, etc. in a fashion that mitigates potential disruptions to the ability to deliver product and service to the end customer

What is Supply Chain Risk Management?

Business Continuity Management (BCM), defined by the Business Continuity Institute as an holistic management process that identifies potential impacts that threaten an organization and provides a framework for building resilience and the capability for an effective response that safeguards the interests of its key stakeholders, reputation, brand and value creating activities (BCI, 2005). Business Vulnerability, defined as an exposure to serious disturbances, arising from risks within the supply chain as well as risks external to the supply chain (Christopher, 2003). Vulnerability is a result of any weakness within a complex system that can seriously jeopardize its activities (Ayyub, 2003).
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What is Supply Chain Risk Management?

Enterprise Risk Management (ERM) as a set of coordinated actions about protecting and enhancing share value to satisfy the primary business objective of shareholder wealth maximization (Chapman, 2006).
Resilient enterprise meaning the ability of the company to recover quickly from a disruption (Sheffi, 2005). Deloitte and Touche (2004) and Tang (2006) define supply chain risk (SCR) as the uncertainty of the occurrence of an event that could affect one (or more) partner or link within the supply chain and that could influence (generally in a negative sense) the achievement of companys business objectives. They define supply chain risk management (SCRM) as having the objective to control, monitor and evaluate supply chain risk, optimizing actions in order to prevent disruptions (that is, the occurrence of an event that causes a business interruption) or to quickly recover from them.
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SCRM Defined
Supply chain risk management is the systematic identification, assessment, and quantification of potential supply chain disruptions with the objective to control exposure to risk or reduce its negative impact on supply chain performance. Potential disruptions can either occur within the supply chain (e.g. insufficient quality, unreliable suppliers, machine break-down, uncertain demand, etc.) or outside the supply chain (e.g. flooding, terrorism, labor strikes, natural disasters, large variability in demand, etc.). . Management of risk includes the development of continuous strategies designed to control, mitigate, reduce, or eliminate risk

Models and Methods for Supply Chain Risk Management

1. Deterministic analytical models, which include mathematical programming models (e.g. linear, nonlinear, integer, dynamic programming). Applications to supply chain include scheduling production, distribution planning, raw material sourcing, facility location, inventory level setting, replenishment timing and order quantity specification, and resource balancing. 2. Stochastic analytical models, where at least one of the variables involves uncertainty, and is assumed to follow a particular probability distribution. Examples of supply chain applications include inventory and production management problems, where demand and yield are represented as random variables respectively. 3. Economic models, which tend to be focused on buyer-supplier relationships. These models have a traditional base in determining the financial risks to either sellers or buyers, given various assumptions.

Models and Methods for Supply Chain Risk Management

4. Simulation models, which are (usually) data driven representations facilitated by sampling from specified probability distributions. All of the above modeling approaches may be useful for supply chain risk management. Typical analysis is performed by observing the impact of changes to input patterns on model output. Changes, in this case, could reflect what if scenarios characterizing the occurrence of a risky event. Note that the analyses are limited to the impact on the decisions for which the original model is designed to support. Of the four, simulation is the most versatile for general modeling and analysis for supply chain risk management. However, note that simulation models are usually complex to build and maintain. Note also that, to be useful in risk management, deterministic models must be embedded into a framework that simulates uncertain events.

There are five general steps in formulating a risk strategy and implementation plan:
1. Understand the Risk Environment: Review the management model and understand the current business strategy. Review related documentation (operations, contracts). Review compliance documentation (OSHA, HIPAA,ISO, etc.). Review risk-related metrics (accidents, auditor reports, insurance claims, contract claims, disasters, demand spikes).

2. Identify and Assess Current Risk: Evaluate current process, and external factors, highlighting specific threats and assess risk maturity. Evaluate current processes. Validate and improve existing metrics. Identify opportunities for risk management improvement. Identify specific external influences on the process (identify trigger, resolution, and point of contact). Identify key drivers of current risk maturity.

Supply Chain Risk Management: Getting Started

3. Quantify and Prioritize Risk: Measure the likelihood or impact and ease of detection. Weight risk according to risk factors and financial implications. Estimate costs and investments. 4. Develop Risk Mitigation Strategy and Business Case: Develop

improvement recommendations and risk mitigation plans for the enterprise

and extended supply chain. Develop cost/benefit analysis.

5. Develop Implementation Roadmap: Select a course of action. Develop

tentative list of implementation partners. Generate initial timeline.

We should strive to identify vulnerabilities by asking questions such as:

What has disrupted operations in the past? What known weaknesses do we have?

What near misses have we experienced?

What would be the effect of a shortage of a key material? What would be the effect of the loss of our distribution

site? What would be the effect of the loss of a key supplier or customer?
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Vulnerability factors

The trend towards just in time and lean practices >>> efficiency rather than effectiveness The trend towards reducing costs >>> globalization, more complex and longer supply chains The trend towards economies of scale >>> centralized distribution and manufacturing >>> lower costs, but also less flexibility The trend towards outsourcing of non-core business activities >>> loss of control when it is most needed The trend towards consolidation of suppliers >>> increased potential for wider impacts of disruptions

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As key supply chain management practices that breed vulnerability by creating :

an increase in the number of exposure points an increase in distance and time a decrease in flexibility a decrease in redundancy

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THANK YOU

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