Supply Chain Risk Management
5th September 2013
Victoria Bales
Strategic Risk Practice
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Supply chain: what is it?
Supply chain risks
What does good look like?
Tips and tools
Summary and questions
Supply chain exercise
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What does
supply chain mean to you?
Different things to different
businesses?
What constitutes a
supply chain failure?
Where are you
in the chain?
Is it all one-way?
Are customers/
service users included?
How far down the
chain should we look?
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Context
• Pressures on businesses and service providers
– Save money, add value, be green, be ethical……
– Dual sourcing; Asset sharing; Outsourcing; Rapid manufacture
• Supply chain becoming more complex
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Fewer and larger key suppliers
More sub-tier suppliers
More single points of failure
Changing risk environment
• Lack of research into how companies respond to supply chain risk
incidents: no easy fix
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What does this mean for you?
Key suppliers becoming fewer and larger
Fewer options
More dependence
Less visibility
VS
Broader skill base
More resources
Key suppliers have more influence
More or less resilience?
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What are the risks?
Research has revealed that three in four
firms recorded at least one supply chain
disruption in 2012, with service failures
by outsourcers one of the top
three causes after
IT telecoms failure and adverse weather *
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Also…
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IT/telecoms outages
Adverse weather and natural disasters
Loss of people (illness) (and key skills)
Transport disruption
Financial stability/currency volatility
School/childcare closures
Information
Ethics
Social media: scrutiny, commentary, disinformation etc.
Corporate Social Responsibility
• Your key suppliers may be facing the same risks you are!
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Emerging Global Risks
• Space Junk
• Synergy of Threats
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What are the consequences?
• Complex supply chain = more impact of disruption
• Fewer/larger key suppliers = more impact of disruption
• Increased reliance on extended supply chain: loss of visibility and
accountability
Service disruption
Loss of footfall
Competitive edge
Recruitment….
Financial: recovery costs;
litigation; share value,
compensation
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What does an efficient supply chain
look like?
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Adds most value
Incurs least cost
Spreads risk
Provides solutions
Offers resilience
A warm comfy feeling inside… (assurance!)
• Who does it well?
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Case study: what went well
Project X
• 43,000 contracts placed through the whole supply chain
• Engagement with industry and key stakeholders formally and informally at the
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earliest opportunity
Over £640 million of supplier risk was either removed or mitigated from the
programme.
Forty-three supplier insolvencies were avoided with zero impact
Though 11 insolvencies were realised, their impact was minimised and
managed through decisive early actions
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What went less well…
Project Y
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£284 million contract
Two weeks before delivery date, a major staffing shortfall was admitted
3,500 contingency staff drafted in
“a humiliating shambles”
Two directors resigned
• Who was to blame?
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Response is everything
Brand X
Brand Y
• Full range of ready meals
• One product withdrawn from
withdrawn as a precaution
• This is unacceptable
• Apology, reassurance and
information
shelves
• This is a labelling issue
• Your health isn’t at risk
• “We will buy more British beef”
• Product still featured on front
page of website
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Case Studies
• What do the following have in common?
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Baroness Scotland
Suffolk Nailbar
Primark
The Home Office
China Diner Lowestoft
• So what?
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Ethical Supply Chains
• How important is Corporate Social Responsibility to you?
• Does your company have a CSR policy or statement?
– If so, does it cover supply chain?
• How important is it to your key suppliers?
• What could go wrong?
• Every point of contact has some impact or influence on someone
– How serious would it be?
• What is universally ethical? Cultural differences and expectations
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Information Governance
• What constitutes an “incident”?
• Large gaming network: 77 million accounts hacked: 12 million had
unencrypted credit card details
• What are the penalties – and who for?
– Who is handling information on behalf of you and your customers?
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Risk mitigation
• Risk assessment
• Crisis management: not every risk can be eliminated
• Stronger relationships with suppliers
• Robust procurement processes
• Assurance checks
• Horizon scanning – long view required
• Early warning systems
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Supply Chain Analysis/Risk Map
• Not in isolation: do in conjunction with your key partners
• Take a reasonably long view of risk
• What are your assurances and how are they monitored?
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• Rbus
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Contractual delivery
Procurement through frameworks
Alternative providers
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Customer
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Early Warning Signals
• Supplier grouping: common characteristics who might show similar
“symptoms”
– Category; industry; geography; size; etc
• Brainstorm a list of distress signals
• Lessons learnt: failure or near miss incident. What signals were
exhibited? Were they recognised? Acted upon? Future changes
• Build a timeline: what was displayed before failure/near miss
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Supplier Failure/
Near Miss Incident
Indicator/Signal Review
Indicator
Change of CEO
Negative
publicity
Change of CEO
Negative
publicity
Negative
publicity
Audit report
Timeline
One month
before
Two months
before
Three months
before
Four months
before
Five months
before
Signal
exhibited?
Yes
Yes
No
No
No
Signal on our
list?
No
Yes
Yes
No
No
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Summary
1. Establish what supply chain means to you:
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Who, what, how, when, why, where
2. Establish criticality:
– How big? How much? How often?
– What are the tolerances for disruption?
3. Analyse, assess and map:
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Risk assessment and mitigations
Assurances
4. Early warning signs:
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And lessons learnt
5. Incident management:
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If/when it goes wrong
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More information
• The Business Continuity Institute Supply Chain Resilience
http://www.thebci.org/index.php/supply-chain-resilience-survey-2012
• Zurich Supply Chain Risk Insights
http://www.supplychainriskinsights.com
• World Economic Forum Global Risks
http://reports.weforum.org/global-risks-2013/
• Chartered Management Institute 2013 Business Continuity Management Survey
http://www.managers.org.uk/bcm2013
• BSI Standards PD25222:2011 Guidance on Supply Chain Continuity
www.bsigroup.co.uk
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Thank You
Any Questions?
Victoria.bales@uk.zurich.com
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Supply Chain Exercise
Objectives:
To identify key suppliers and dependencies
Assess impact and interest
Risk assess where necessary
Identify mitigating actions
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Supply Chain Map
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Stakeholder Analysis
Key player
Least important
Show consideration
Influence
Meet their needs
Impact
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High
Business Impact
Low
Low
Supply/market complexity (risk)
High
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Risk Identification
• Now take one example of a supplier with high interest and/or impact on
your matrix
• What do they provide/deliver and how?
• What are the risks to this? Strategic/Operational
– A risk = a barrier to achieving objectives
E.G:
• Failure to deliver: causes and impacts
• Financial failure
• Risk to your reputation
• Breach of regulations (H&S etc)
• Exposure to litigation
• Ask them for their risks….?!
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Risk Identification
Geographical
Financial/
Economic
Regulatory
Political
Technological
Competitive
Climate/
Transport
Environmental
Managerial/
Professional
Financial
Legal
Partnership/
Contractual
Physical
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Risk Assessment and Prioritisation
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Likelihood
Likelihood
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Risks Identified
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Impact
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Impact 4
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Mitigating Actions
• What actions are possible/necessary to mitigate?
• Who is responsible?
• How will you check?
• What assurances do you have?
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Supplier
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