Supplier Reliability Track
January 29-30, 2008
Review with the Supply Chain Risk Leadership Council
1
Recent Survey Conducted by AMR
http://www.scdigest.com/assets/newsviews/07-12-13-2.php?cid=1385
2
Agenda
 Business interruption insurance (Tim Astley)
 Quick review
 Discussion….company insights
 Where do we go from here
3
Contributors
Tony Aloise
Procter & Gamble
Global Material Supplier Mgr
Purchases BCP Coordinator
SS Fu
TSMC
Deputy Director, Procu-2, Material
Management Div
Glen Peng
TSMC
Material, Facility, Commodities
Procurement Dept
Paul (BC) Chen
TSMC
Senior Manager of Corporate Risk
Management Division
Eddy Liu
TSMC
Manager, Risk Management
Department
Hau Lee
Stanford
Thoma Professor of Operations, Info
and Technology, Co-director, Stanford
Global SC Mgt Forum
Erik Stewart
Cisco
SC Risk Management
Eric Prause
Jabil
Director of Supplier Development
4
Track Deliverables
 Risk matrix as framework
 Identify best-in-class work for key work process gaps
 Develop the next level key element assessment for
the identified capabilities (with scoring capability)
5
Track Scope
 Supplier-related risk…inbound materials and
services to our company
Enterprise-Level
Social Responsibility (Brand Risk), Hedging Strategies (Cost Risk), Revenue Management
(Demand Risk), Intellectual Property Management (IP Risk)
Supply Chain-Level and Category
Supply Network Design (supplier concentration, extent of cross-border
sourcing, extent of port use), Inventory pressure, Sales and Operations
Planning (initiative strategy)
Mfg Plant 1
Mfg Plant 2
External Business
Partners
External Business
Partners
External Business
Partners
Inbound Raw,
Packing Materials
& Services
Support for
Manufacturing
Supporting
Finished Product
and Customer
Service
Material Suppliers,
Distributors, Customs,
Carriers
Contract Management
(Compliance Risk),
Supplier Capability
(Capacity Risk)
Contractors, Facility
Services
Others
Mfg Plant 3
Internal
Business
Partners
Carriers
6
Risk Matrix- Analysis Structure
 As framework, team developed a risk matrix…
Capabilities
Score of Capabilities
Score of Importance
Fit with Framework
Example
Risk Areas
Cause
5 = demonstrated good results,
experienced
4 = system is ready/tested,
people are trained
3 = plan in place
2 = initial consideration given
1 = not in place0
Enter Risk Importance in the aquashaded cells (scale = 3, 2, 1) i.e.
which risk are you most concerned
about?
Score of Linkage
between Risk Areas and Capabilities
Enter a 0 (low linkage), 1 (medium
linkage) or 2 (high linkage) for each
of the empty white cells..
7
0.5
1.4
2.0
1.2
1.6
1.2
2.2
2.0
1.6
0.4
0.5
0.5
0.6
1.6
0.5
1.8
0.3
1.8
1.4
0.5
2.4
0.6
Supplier policies
Supplier capacity
Supplier financials
Intentional
Regulatory
Material sourcing policies
Outsourcing/contracting
Institutional
Process
Process
Institutional
Institutional
Institutional
Institutional
Transportation capacity
Cross-border logistics
Process
Process
Internal Policies
Institutional
Network connectivity, data network
Custom equipment requirements
Recovery capability
Physical
Physical
Institutional
0.5
0.3
0.3
0.6
0.3
0.3
3.4
3.4
3.6
3.6
4.0
4.8
2.8
2.8
4.2
3.8
0.3
0.3
0.3
0.3
0.3
0.3
0.3
0.4
0.4
0.7
0.6
0.4
0.3
0.3
0.7
0.6
0.5
0.4
0.5
0.4
0.5
0.3
0.5
0.5
0.4
0.4
0.3
0.3
0.3
0.5
0.3
0.5
0.5
0.3
0.3
0.5
0.3
0.3
0.5
0.4
0.3
0.5
0.5
0.8
0.8
0.3
0.4
0.3
0.3
0.4
0.3
0.6
0.3
0.5
0.4
0.3
0.4
0.5
0.3
0.3
0.3
0.5
0.3
0.4
Risk analysis (data, modeling, measurement, etc)
2.4
Crisis Management/Response
0.5
0.5
Supplier Relationship/Partnership
0.6
0.6
Internal Capability Assessment
2.0
2.0
0.4
Supplier Capability Assessment
Physical
Physical
Institutional
0.3
0.3
0.3
Supply network visibility (alerts, GPS)
0.3
0.6
0.4
0.5
0.3
2.6
Lane Risk Assessment
0.3
0.3
0.5
0.4
3.8
Initiative Mgt Process
0.3
0.3
2.4
1.4
1.4
1.0
4.0
Mat'l Change Mgt Process
0.3
Physical
Physical
Process
Institutional
1.8
Strategic Material Planning/RCCP/
Materials at Risk
3.8
Inventory Target Setting
3.6
Capacity Analysis (C:D tgt setting)
Industry Analysis
3.4
Sustainability/Regulatory
Internal Material Contingency Plan
Supply Chain-Level
Complexity
Concentration
Dynamic demand
Merger/acquisition
Supplier-Level
Natural disasters
Accidents
Supplier capability
Fit with
Framework
Supplier Business Continuity Plan
Risk Area
(causes not symptoms)
<< Importance
(3 =High, 2 = Medium, 1 = Low)
Work Processes/Capabilities
Supplier Business Interruption Risk Insurance
Risk Matrix
0.4
0.4
0.3
0.4
0.4
0.4
0.3
0.3
0.7
0.4
0.4
0.4
0.3
0.5
0.5
0.7
0.3
0.4
0.4
0.3
0.3
0.6
0.3
0.3
0.5
0.6
0.3
0.3
0.3
0.4
0.5
0.4
0.3
0.3
0.3
linkage score at 2
linkage score below 2 and above 1.2 (total score 2)
0.5
0.3
0.5
0.5
0.5
0.6
0.3
0.3
0.5
0.5
0.3
0.3
0.4
0.4
0.5
0.3
0.4
0.5
0.4
0.4
0.4
0.3
0.4
0.3
0.4
0.3
8
Survey Summary
 12 out of 17 capabilities have high capability score from at
least one company
 Top 3 risks
 Supply chain complexity, supplier capability, recovery capability
 7 key capabilities have strong linkage to top 3 risk
 Supplier business contingency plan, Internal material contingency plan,
Sustainability/regulatory, Strategic material planning/RCCP/material at risk , Supply
network capability, Supplier Business Interruption Risk Insurance, Risk analysis
 No one has high capability score on one item
 “Supplier Business Interruption Risk Insurance”
9
Guidance on Use of Risk Matrix
 SCRLC-level
-create common framework to facilitate alignment
-identify benchmarks/best-in-class
-prioritize capability development
 Company level
-use risk matrix as an assessment tool
-identify areas for improvement from the risk matrix
10
Proposed Next Steps
 Individual companies do a supplier risk assessment
 Assess “energy” to work on quantification model
 Anything else?
11
Early Thinking on Risk Quantification
Material Supply
Supplier 1
Supplier 2
Supplier 3
Supplier 4
Risk Score
Supplier 1
Supplier 3
Supplier 4
Supplier 5
Risk Score
Supplier 1
Supplier 3
Supplier 6
Supplier 7
Risk Score
Manufacturing
Distribution
Customers
Warehouse 1
Customer 1
Risk Score
Risk Score
Plant 1
Risk Score
Overall Supply Chain Risk
Score
Plant 2
Risk Score
Plant 3
Warehouse 2
Customer 2
Risk Score
Risk Score
Risk Score
12
Early Thinking on Risk Quantification
1. Critical Material Identification
Criteria
High Risk Circumstance
3. Impact or Intensity
Business Impact
Overall Risk Score
Metric
Number of sources qualified
Only one qualified source
Uniqueness of the product or material
Specialized or customized product or material made uniquely for P&G or for very limited customer base, including existence of proprietary production process or mate
Difficulty of qualifying new or alternate
Qualification
sources
is known or expected to take longer than the time covered by safety stock
Exclusive supply
Contract requires exclusive use of a supplier,Importance
without standard
to P&Gforce
revenue
majeure provisions
$ FP NOS associated with a material
Supply Chain Design
Long lead time and/or complex, multi-step supply chain, or one that has proven to be unreliable. Look at both the suppliers' supply chain and that of the suppliers' ma
Industry circumstance
Existence of general risk to an entire industry, such as single supply of a chemical that has any of the risk factors listed here
Industry Capacity
P&G's needs relative to the plant, supplier, or industry are a high percentage of the total capacity
Molds, dies, cylinders, plates, etc. Long lead time (ie: longer than coverage of safety stock) for these items, and no spares on hand
P&G Inventory
Policies, financial constraints or physical storage constraints that restrict the level of safety stock that can be carried
Supplier's capability, capacity, and/or
Supplier
reliability
has difficulty meeting P&G's needs reliably due to issues in this area
Supplier's financial condition
Supplier is in danger of bankruptcy or suffering limitations on ability to operate for financial reasons
2. Risk Identification
4. Risk Assessment
Risk Classification
Risk Type
Risk Indicators
Natural
Hurricane
Tornado
Tsunami
Earthquake
Flood
Personnel safety
Equipment damage
Meteorological or Oceanographic data
Accidents
Intentional
Regulatory
Explosion
Terrorism
Sabotage
Strike
Compliance
Nationalization
Risk Probability x
Impact =
Overall Risk Level (Score)
Safety assessment
Organizational health assessment
Preventative maintenance capability
Use of hazardous materials
Relationship to US government
Organizational health assessment
Sustainability
Probability
H/M/L
H/M/L
H/M/L
H/M/L
H/M/L
H/M/L
H/M/L
H/M/L
H/M/L
H/M/L
H/M/L
H/M/L
H/M/L
13