Managing Risk in Your Organization
with the SCOR® Methodology
Dave Morrow, Taylor Wilkerson
& Melinda Davey
On Behalf of
Supply Chain Risk Management Team,
Supply Chain Council, Inc.
February 20, 2009
Abstract
SCC members have reported that less than half of enterprises have
established metrics and procedures for assessing and managing supply risks
and organizations lack sufficient market intelligence, process, and
information systems to effectively predict and mitigate supply chain risks.
From this need arose the Risk Management Project Team approved by the
SCC to enhance the SCOR model. The objective is to help organizations
avoid/minimize costs, mitigate supply chain disruptions by managing risk
proactively and thus, offering a competitive edge.
The session presents the outcome of a global multi-industry team that has
worked passionately to integrate risk management into the SCOR model.
Global Risk Project Team
Team Composition :
Risk Management through SCOR Model
Name
Organization Represented
•
•
•
•
•
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•
•
Dave Morrow
Dr. Kevin McCormack
Taylor Wilkerson
Deanna Yee
Melinda Spring
Mitul Shah
Melinda Davey
Ray VanderBok
•
•
•
•
•
•
•
•
IBM
DRK Research
LMI
Satellite Logistics Group
Supply-Chain Council
Infosys Technologies, Ltd.
TechTeam Government Solutions, Inc.
TechTeam Government Solutions, Inc.
•
•
•
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•
•
•
•
•
•
•
•
John A. Deasy
Roberto Pinto
Avi Roseznberg
John M. Barineau
Maurice Uiterweerd
George Borowsky
Gregory Grehawick
Hitesh Attri
Mark Hillman
Nishanth Vallabhu
Andre Rego Macieira
Arne Ziegenbein
Daniel Vital Chiarini
Koh Juay Meng
Marc Finkelstein
Jade Rodysill
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
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Transitions Group LLC
University of Bergamo
AROI
E.I. DuPont de Nemours & Co., Inc
Groenewout
Lockheed Martin Aeronautics
Booz Allen
eKNOWtion
AMR Research, Inc.
Cognizant
Grupo de ProducaoIntegrada Coppe/UFRJ
Bosch
Grupo de Produção Integrada
Supply-Chain Council (South East Asia)
Capgemini
Accenture
Team Role
Chair
Team Lead
Team Lead
Coordinator
Project Manager
Key Member
Key Member
Key Member
Member
Member
Member
Member
Member
Member
Member
Member
Member
Member
Member
Member
Member
Member
Member
Member
Supply-Chain Council
• The SCC is an independent, not-for-profit, global
corporation with membership open to all companies and
organizations interested in applying and advancing stateof-the-art supply chain management systems and
practices.
–
–
–
–
Founded in 1996
Over 800 Company Members
Cross-industry representation
Chapters in Australia/New Zealand, Brazil, Europe, Japan, North America, South East Asia,
South Africa and China with petitions for additional chapters pending.
• The Supply-Chain Council (SCC) has developed and
endorsed the Supply Chain Operations Reference model
(SCOR) as the cross-industry standard for supply chain
management.
4
Supply-Chain
Product Design
DCOR™
Sales & Support
CCOR™
Customer processes
Supplier processes
Product Management
Supply Chain SCOR ®
5
The SCOR Framework
SCOR defines supply chain as the integrated processes of Plan, Source, Make,
Deliver and Return, spanning your suppliers’ supplier to your customers’ customer,
aligned with Operational Strategy, Material, Work & Information Flows.
Plan
Plan
Deliver
Suppliers’
Supplier
Plan
Source
Make
Plan
Deliver
Source
Make
Deliver
Source
Make
Plan
Deliver
Supplier
YOUR COMPANY
Customer
Internal or External
Return
Internal or External
Supply Chain Operations Reference Model
Source
Customer’s
Customer
SCOR Hierarchy
Level 1
Level 2
Level 3
Level 4
Level 5
Scope
Configuration
Activity
Workflow
Transactions
Supply-Chain
Source
S1
Source
Stocked Product
S1.2
Receive Product
EDI
XML
Differentiates
Business
Differentiates
Complexity
Names Tasks
Defines Scope
Differentiates
Capabilities
Links, Metrics, Tasks Job Details
and Practices
Details of
Automation
Framework
Language
Framework
Language
Framework
Language
Technology Specific
Language
Standard SCOR definitions
Sequences Steps
Industry or
Company Specific
Language
Links Transactions
Company/Industry definitions
Maps to Organizations
Level 1
Level 2
Level 3
Level 4
Level 5
Scope
Configuration
Activity
Workflow
Transactions
Supply-Chain
Source
S1
Source
Stocked Product
S1.2
Receive Product
EDI
XML
CxO
EvP, SVP
SVP
VP
VP, Director
Line Manager
Manager
Team Lead
Team Lead
Individuals
Strategic DecisionMaking
Line of Business
Management
Activities
Management
Job Management
Transaction
Management
Enterprise
Supply-Chain
Requirements
Operations
Strategy
Fine-Tuning
Operations
Adjusting
Process
Performance
Tuning
Technology
Performance
Standard SCOR program
Company/Industry implementation
The SCOR Model and Risk
What is Supply Chain Risk Management?
What is Risk Management?
Business Continuity Management (BCM), defined by the Business Continuity
Institute as “a 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).
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).
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, what’s not included, etc.).
Supply Chain
Disruptions
• Any event that negatively impacts the intended functioning of the
supply chain.
Discrete Events
• 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.)
(yes/no)
Continuous Events
(a matter of degree)
• Internal (performance metrics variability, warranty trends)
• External (supply / demand shifts, economic factors)
• Sometimes group into buckets
Supply Chain Risk Perspectives
Global Environment
Organization’s Environment
Suppliers’
Environment
Supplier
(And outsource Facing
Suppliers
Customers’
Environment
Organization
Customer
Facing
Customers
Manufacturing)
Internal Facing
Relationship Risk
Supplier Performance Risk
Human Resource Risk
Supply chain disruption risk
Supplier Environment Risk
Market Dynamics Risk
Disaster Risk
Political / Country Risk
Supplier Financial Risk
Regulatory Risk
Operational Risk
Technical Risk
Financial Risk
Legal / Regulatory Risk
Environmental Risk
HR / Health and
Safety Risk
Political/ Country Risk
Financial Risk
Distribution Risk
Relationship Risk
Market Risk
Brand / Reputation Risk
Product Liability Risk
Environmental Risk
Political/ Country Risk
Supply Chain Risk Management 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.
14
The SCOR Model and Risk
Why is Supply Chain Risk Management Important?
Supply Chain disruptions are a reality
• Mattel had massive recall due to lead content
in paint.
• United States experienced significant
disruptions from Long Beach longshoreman
strike.
• United States experienced significant
disruptions when borders and air
transportation shut down after 9/11.
• Fuel distribution in the United Stated was
disrupted after hurricane Katrina damaged
pipelines.
• Nokia production shut down due to supplier
plant fire.
• Kobe earthquake resulted in computer
memory shortage, impacting multiple
companies
• UPS strike severely impacted ability to ship
small packages in the U.S.
• Others…
GM Halts Work at More
Plants
Due to Strike at Parts
Supplier
Chrysler Shuts Down
Four Plants
Baxter Pulls Remaining
Heparin from the Market
Large Reputation Impacts
Source: The View of the Supply Chain From Wall Street – J. Stuart Francis - Lehman Brothers, February 2003
Mattel Toys to Be Pulled Amid Lead Fears
18.5%
Decline
On a $10 Bil
Market Cap
Or 1.9 Bil loss
Verbal
Report
To CPSC
"We heard in early July that we had a possible issue," said Mr. Walter, who added the company stopped production in the Chinese factory
around July 7. After further investigation, Mattel approached the Consumer Product Safety Commission with a verbal report July 20. A written
report was filed July 26. The product is being recalled under the "fast-track" recall program whereby Mattel has admitted to the contamination
and the CPSC hasn't done additional testing.
Supply Disruption Profiles
Detection
and
response
Recovery - minimized
Sustaining
Impact = 0
Initial Impact
Performance
Full Impact – Avoided!
Sustaining
Impact >0
Initial Impact
Preparation
Detection
and
Response
Full Impact
Recovery
Disruption
Event
Time
Strategies & Risk Tolerance
• Strategies that focus on customer service (e.g., reliable
delivery) or where the cost of late or lost deliveries are high
will have low tolerance for risk.
• Strategies that focus on cost reduction or where the cost of
late deliveries is low will have a higher tolerance for risk.
• Ultimately, the tolerance for risk will determine how much
the enterprise will invest in mitigation measures vs. reactive
efforts.
What is the business impact of a broken supply chain?
How much are you willing to risk?
The SCOR Model and Risk
How does Supply Chain Risk Management fit in the
SCOR Model?
SCOR model as the foundation of SCRM
• Supply chain risk management (SCRM) is a means for
ensuring uninterrupted customer service.
• The SCOR Model is a framework for modeling and managing
supply chain processes, practices and performance.
– SCOR 9.0 will include Risk Management processes, practices, and
performance indicators.
• Using SCOR as a Risk Management foundation will provide a
better SCRM program.
–
–
–
–
Faster implementation
More comprehensive identification of potential risks
Better application of SCRM best practices
Better SCRM coordination with customers, suppliers, and
stakeholders.
Where does SCRM fit within SCOR?
SCOR Enable Processes
Plan
Source
Make
Deliver
Return
Manage Business Rules
EP.1
ES.1
EM.1
ED.1
ER.1
Manage Performance of Process
EP.2
ES.2
EM.2
ED.2
ER.2
Manage Process Data Collection
EP.3
ES.3
EM.3
ED.3
ER.3
Manage Process SC Inventory
EP.4
ES.4
EM.4
ED.4
ER.4
Manage SC Capital Assets
EP.5
ES.5
EM.5
ED.5
ER.5
Manage Integrated SC Transportation
EP.6
ES.6
EM.6
ED.6
ER.6
Manage Process Configuration
EP.7
ES.7
EM.7
ED.7
ER.7
Manage Process Regulatory Compliance
EP.8
ES.8
EM.8
ED.8
ER.8
Manage Supply Chain Risk
EP.9
ES.9
EM.9
ED.9
ER.9
Manage Financial Plan Alignment
EP.10
Manage Supplier Agreements
ES.10
Risk Management utilizing the SCOR model
Process
Area
Set up
“rules” and
strategies
Assign
“perspectives”,
roles and
responsibilities
PLAN
X
X
Assess,
analyze,
organize,
communicate
and mitigate
(S,M,D,R
Enablers)
X
(PLAN only)
Coordinate,
align
X
Monitor
and act
X
(PLAN only)
SOURCE
X
X
MAKE
X
X
DELIVER
X
X
RETURN
X
X
Typical Enabler High Level Flow
Overall Business
Risk Management
Program
Overall Supply
Chain Risk
Plan/Results
(Rules, strategies,
tools, etc. (Bus
Strategy)
Internal Information
EP.9
Manage
Supply Chain
Plan Risk
Suppliers
Monitoring
EP
Risk Management
Program for Process
Area
EP.1- Manage Business Rules
EP.2- Manage SC Performance
EP.3- Manage Plan Data Collection
EP.4- Manage Integrated SC Inventory
EP.5- Manage Integrated SC Capital Assets
EP.6- Manage Integrated SC Transportation
EP.7- Manage Planning Configuration
EP.8- Manage Plan Reg. Compliance
EP.10- Align SC Unit Plan with Financial Plan
Internal Adjustments
Internal
Customer
& Product
Customer
& Supplier
Rules
Resources
External
Information
External
Monitoring
External
Adjustments
Plan /
Results
Internal
Information
ES.9
Manage
Supply Chain
Source Risk
Risk Management
Program for Process
Area -External
Monitoring
ES
Internal
Adjustments
Risk Management
Program for Process
Area - Internal
ES1- Manage Sourcing Business Rules
ES.2- Assess Supplier Performance
ES.3- Manage Source Data
ES.4- Manage Product Inventory
ES.5- Manage Source Capital Assets
ES.6- Manage Incoming Product
ES.7- Manage Supplier Network
ES.8- Manage Import/Export Requirements
ES.10- Manage Supplier Agreements
SCRM Best Practices
10 Best Practices under the following categories:
• RM Programs’ Coordination with Partners
• Supply Chain Risk Identification
• Supply Chain Risk Monitoring
• Sourcing Risk Mitigation Strategies
Configure to Reduce Risk :
• Crisis Communication Planning
• Supply Chain Business Rules
• Supply Chain Risk Assessment
• Supply Chain Information
• Supply Chain
Risk Management
Formal Risk
Management
Coordinated
Risk
Management
Visibility and
Quantification
of Risk
Best Practices
Supply Chain Risk Management
• Supply Chain Network
Supply Chain
Designed for
Risk
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 network’s 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 chain’s 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 chain’s 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 Program’s 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
Risk Management Implementation using the
SCOR Model five phase approach.
Phase
Name
Initial
BUILD
• Organizational Support
• Risk Management Program
Who is the sponsor?
DISCOVER
• Supply-Chain Definition
• Supply-Chain Risk Priorities
• Project Charter/Risk Program definition
What will the program
cover?
ANALYZE
•
•
•
•
What is the risk
tolerance of your supply
chain?
ASSESS
• Geo Map
• Thread Diagram
• Risk assessment
Initial Analysis – where
and how big are the
risks?
MITIGATE
• Mitigation plans
• Level 3, Level 4 Processes
• Best Practices Analysis
Final Analysis – how will
risk be eliminated or
mitigated?
IMPLEMENT
•
•
•
•
How to deploy
mitigations?
I
II
III
IV
V
Deliverable
Scorecard
Benchmark
Competitive Requirements
Customer service requirements
Opportunity Analysis
Mitigation Definition
Deployment Organization
Monitoring and response programs
Resolves
Value-At-Risk Metric
1
2
3
4
Value-at-risk (VaR) is a category of risk metrics that describe probabilistically the
market risk of a trading portfolio.
Value-at-risk is widely used by banks, securities firms, commodity merchants,
energy merchants, and other trading organizations.
Such firms could track their portfolios' market risk by using historical volatility as
a risk metric. They might do so by calculating the historical volatility of their
portfolio's market value over a rolling 100 trading days.
The historical volatility would illustrate how risky the portfolio had been over
the previous 100 days.
Source: www.riskglossary.com
Risk Measures Hierarchy
Total Supply Chain
Costs ($)
Level 1
Supply Chain
Value at Risk
(Gross VaR)
Level 2
Level 3
Supply Chain
Residual Risk ($, %)
Supply Chain
Value at Risk (VaR $)
Supply Chain
Event Risk (EVAR $)
Supply Chain
Value at Risk (VAR $)
By PSMDR
Supply Chain
Event Risk (EVAR $)
By PSMDR
Value at Risk (VAR $)
By PSMDR &
individual
performance metric
Risk by Event
(EVAR $)
By PSMDR
& individual
event category
Internal Enabler
Process and
Data Quality
measures
Supply Chain
Mitigated Risk ($, %)
By PSMDR
Supply Chain
Mitigation Costs ($)
Supply Chain
Mitigation Cost($)
By PSMDR
Mitigated Risk
by Category ($)
By PSMDR
& individual
performance metric
& event category
Mitigation
Cost($)
By PSMDR
and event
Value-at-Risk (VaR)
(i.e. 10 out of 100 total occurrences)
P – Probability
Quantifies the value of potential disruptions in terms of both
Probability (likelihood) and impact on the supply chain.
Target
I1
Impact 1
P1
I2
Impact 2
P2
T
Event
1
Value at Risk (VAR) = (P1 x I1) + (P2 x I2)
P = percentage of total negative events
I = impact of event
Event
2
Which supplier (AA or NW) has the highest risk
(likelihood of being late)?
Ave % Late by Airline
Risk Event – Late Arrival
Percent Late
6
5
4
Count
3
2
by Airline
1
Std. Dev = 7.61
Mean = 25.3
N = 21.00
0
7.5
12.5
10.0
% LATE
17.5
15.0
22.5
20.0
27.5
25.0
32.5
30.0
37.5
35.0
Airline
% Late
Hawaiian Airlines Inc.: HA
6.95
Aloha Airlines Inc.: AQ
8.01
Southwest Airlines Co.: WN
18.26
Delta Air Lines Inc.: DL
19.66
AirTran Airways Corporation: FL
20.52
Frontier Airlines Inc.: F9
21.35
Pinnacle Airlines Inc.: 9E
22.45
Alaska Airlines Inc.: AS
25.53
Skywest Airlines Inc.: OO
25.85
All Rows (including those not displayed)
26.42
Continental Air Lines Inc.: CO
26.47
Expressjet Airlines Inc.: XE
27.84
United Air Lines Inc.: UA
28.15
Mesa Airlines Inc.: YV
28.20
Atlantic Southeast Airlines: EV
30.36
American Eagle Airlines Inc.: MQ
30.39
Northwest Airlines Inc.: NW
30.87
American Airlines Inc.: AA
31.00
JetBlue Airways: B6
33.35
Comair Inc.: OH
33.45
US Airways Inc.: US
36.30
NW
AA
VaR - Illustration
Distributions
Historical Data
NW
Historical Data
0.15
13.7
13.2
11.0
10.7
Late Events
0.10
Probability
Late Events
8.0
7.5
6.0
0.05
4.8
4.0
3.4
2.8
2.1
1.9
1.7
1.4
1.1
0.8
0.0 0.1
-40
0.3
-30
-20
-10
0
10
20
30
40
0.8 0.7
0.6 0.5 0.4
0.3 0.3 0.2 0.2 0.2 0.2
0.2 0.1 0.1 0.1
50
60
Min Late
70
80
90
100
110
120
Min
Note: there is a broader range of values than for NW
Normal(9.95833,39.1969)
Normal(9.95833,39.1969)
Quantiles
100.0% maximum
99.5%
97.5%
90.0%
75.0%
quartile
50.0%
median
25.0%
quartile
10.0%
2.5%
0.5%
0.0%
minimum
1426
169
84
38
17
3
-7
-14
-23
-31
-63
VaR Table
AA
Min
5
10
15
20
25
30
35
40
45
Assume 1 Min Late = 1 USD
Moments
Mean
Std Dev
Std Err Mean
upper 95% Mean
lower 95% Mean
N
9.9583321
39.196899
0.2089706
10.367921
9.5487431
35183
Percent
10.00%
7.70%
5.40%
3.80%
3.30%
2.40%
2.10%
1.90%
1.60%
195
200
205
210
215
220
225
250
275
VaR
0.50
0.77
0.81
0.76
0.83
0.72
0.74
0.76
0.72
0.10%
0.10%
0.10%
0.10%
0.10%
0.10%
0.10%
0.10%
0.10%
VaR
Fitted Normal
Parameter Estimates
Type
Parameter
Location µ
Dispersion s
Value at Risk for NW
Estimate Lower 95% Upper 95%
9.9583321 9.5487431 10.367921
39.196899 38.909422 39.488686
Fitted Normal
Parameter Estimates
Type
Location
Parameter
µ
Estimate Lower 95% Upper 95%
9.9583321 9.5487431 10.367921
Value at Risk for AA
0.20
0.20
0.21
0.21
0.22
0.22
0.23
0.25
0.28
19.60
AA and NW Comparison
Which supplier (AA or NW) has the most impact to the business?
Supplier
Ave % Late
VaR
NW
30.87%
14.24
AA
31.00%
19.60
Which supplier (AA or NW) has the most risk?
Case Study – Bio World
Meter and Core Kit
Plastic Injection
Molding Mfg.
Electronic
Circuit Mfg.
Assembly, Test
Pack
Care Kit
Instrument
Contractor
Strips in Bottle
Plastic Roll
Suppliers
(circuit)
Bottle and Lid
Supplier
(w/ desiccant)
Test
Meter
Customers
Bio World
Care
Kit
Plastic Roll
Suppliers
(plain)
Strips
Channel
Adhesive
Suppliers
12 pack of
Strips in
Bottles
Channel
Chemical
Suppliers
A,B,C
Case Study
Risk Identification
ID
1
Process
Area
Source
Risk Identification
Event
Plastic Strip supplier
shut down by labor
strike
Description
The main plastic strip supplier has been in talks with their worker's union.
The talks have broken down and the union has gone on strike, shutting
down all operations and shipments for 30 days
The actual sales and distribution of kits is 50% higher than the forecast for
the north eastern US. Distributors are out of stock leading to lost orders
and emergency shipments from other regions. The Bio World plant is on
over time and it will take 30 days to catch up.
2
Plan
out of stock incidents
with the distributors
3
Make
Packing Equipment
Failure
Product cannot be packaged automatically. Increase labor costs due to
additional overtime to package the products manually.
4
Deliver
Increased delivery
costs due to high
price of fuel
Higher delivery costs from Bio World to distributor resulting in higher costs
per unit. Loss of competitive advantage as the low cost diabetes
meter/strips.
Risk Assessment
ID
Process
Area
Risk Identification
Event
Plastic Strip supplier shut
down by labor strike
Risk Assessment
Risk Zone
(H,M,L)
Annual
Probability
(%)
Impact
VaR
10.0%
$5,000
$500
H
1
Source
2
Plan
out of stock incidents with
the distributors
25.0%
$1,000
$250
M
3
Make
Packing Equipment
Failure
25.0%
$300
$75
L
4
Deliver
Increased delivery costs
due to high price of fuel
65.5%
$400
$262
M
Total Risk Magnitude (VAR) =
$1087
Note: All costs are in ‘000 $
Risk Mitigation
ID
Risk
Mitigation Strategy
1
Plastic Strip
supplier shut
down by labor
strike
Identify suppliers that are unionized and
assess their relationship with their union. Need
to certify back-up supplier and pay them an
annual fee for stand by production capability.
$50
10.0%
2
out of stock
incidents with
the distributors
Maintain a central inventory at the Bio World
plant equal to 2 weeks of 50% of demand for a
region. Include the distributors in S&OP
meetings.
$100
3
Packing
Equipment
Failure
Follow a schedule of equipment retirement &
replacement with new equipment.
4
Increased
delivery costs
due to high
price of fuel
Purchase oil futures to hedge against an
increase in fuel costs.
Total Mitigation Costs =
New VAR
L*I
Original
VAR
ROI
$1500
$150
$500
$300
5.0%
$500
$25
$250
$125
$20
15.0%
$10
$1.5
$75
$53.5
$10
100%
$1
$1
$262
$251
$178
$1087
$730
Implement
Cost
$180
New Prob
(L)
New
Impact (I)
Note: All costs are in ‘000 $
Risk Mitigation – Action Plan
ID
Mitigation Action
Person
Responsible
Status
1
Identify suppliers that are unionized and
assess their relationship with their union.
Need to certify back-up supplier and pay
them an annual fee for stand by
production capability.
Supplier
Liaison
Manager
Suppliers identified.
Annual fee to be
negotiated.
2
Maintain a central inventory at the Bio
World plant equal to 2 weeks of 50% of
demand for a region. Include the
distributors in S&OP meetings.
Demand
Planner
3
Frequent maintenance of equipment.
Follow a schedule of equipment
retirement & replacement with new
equipment.
4
Purchase oil futures to hedge against an
increase in fuel costs.
Due Date
Risk(s)
Addressed
End of
Q2’08
Plastic Strip
supplier shut
down by labor
strike
New inventory level
defined for the product.
Done
out of stock
incidents with
the
distributors
Floor
Manager
In Progress
Immediately
Packaging
equipment
failure
TBD
Risk Management Team
working with Finance
Dept to obtain person
responsible for mitigation
action
End of
Q3’08
Increased
delivery costs
dues to high
price of fuel
SCOR model as the foundation of SCRM
• Supply chain risk management (SCRM) is IMPORTANT
• The SCOR Model is a framework for modeling and managing
supply chain processes, practices and performance.
• Using SCOR as a Risk Management foundation will provide a
better SCRM program.
• SCRM provides ROI, competitive advantage and
improvement opportunities.
The SCOR Model and Risk
When & where can I start to:
“Manage Supply Chain Risk in Our Organization with
the SCOR® Methodology”?
SCRM with the SCOR® Methodology - Resources
• Access to the SCOR model version 9.0
– SCC members can access the full model online which contains the
recent additions for supply chain risk management processes, best
practices, & metrics
• Risk Project – Phase 2
– Volunteer for the next phase of the Risk Project involving:
• Risk in DCOR
• Research
• Additional enhancements to SCOR & DCOR
• SCRM using SCOR training
– Next class offered on March 19, 2009 in Houston, Texas, USA)
One Day SCOR SCRM Workshop
• Supply Chain Risk Management (SCRM) Fundamentals
– Introduction to each SCRM component and how each can support the firm's supply
chain management
– Discussion of SCRM process and all components
– Presentation of several example projects and discussion of component use for each
specific project
• The SCOR Model and Risk management
– Background, components, strategies and implementation
• Participants who complete this works will be able to
– Understand the purpose and goals of SCRM within the context of their firm and supply
network
– Develop a basic SCRM strategy and plan for their organization
– Understand and articulate the business value of a SCRM program
• Prerequisite - Attendees must be conversant in the basic SCOR model in
order to attend this workshop. The SCOR Framework training includes the
required basics
Q&A