JUST IN CASE
NOT
JUST IN TIME
Greg Hutchins PE
Quality Plus Engineering
800.COMPETE or 503.233.1012
GregH@QualityPlusEngineering.com
Who is Greg Hutchins?
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Principal with Quality Plus Engineering (Q+E), Portland Oregon
based supply and project management company.
Q+E is US Department of Homeland Security
Certified/Designated for Critical Infrastructure Protection:
Forensics, Assurance, Analytics™
Addresses:
– www.QualityPlusEngineering.com
– www.ValueAddedAuditing.com
– Gregh@europa.com or GregH@QualityPlusEngineering.com
– 800.COMPETE
Author of ISO 9000 (Wiley, translated into 8 languages),
Standard Manual of Quality Auditing (Prentice Hall/ASQ), and
Value Added Auditing (WIT)
ASQ/IEEE/PMI Columnist
My Mission Critical Objective
Today:
1.
2.
3.
4.
Global sourcing
Changing sourcing rules
Supply risk management
Future of supply management
1. Global Sourcing
Today’s Business Model
Aerospace and auto companies business
model:
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Design Product
Outsource (up to 85% of manufacturing $)
Assemble
Test
Manage their brand
Today’s Business Model
Impacts Supply Risk
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Sara Lee Corporation plans to sell its noncore factories. It will focus on its core
strengths, specifically developing new
products, managing its brands, and
increasing market share.
Sara Lee will outsource commodity
manufacturing and other non-core activities
and only retain its ‘highly proprietary’
processes. In other words, it plans to focus
on ‘what it does best.’
Recent Supply Chain Articles
“Quake Disrupts Key Supply Chains”
 “Stress Test for the Global Supply
Chain”
 “Long Pause for Japanese Industry
Raises Concerns About Supply Chain”
 “Japan Quake Likely to Affect Business
Globally”

2. Changing Sourcing Rules
From Just in Time to Just in Case
Discussion

Just in Time
– Lean supply chain
– No buffer inventories

Just in Case
– What if
– Risk analysis
– Buffer inventories
From Single Source to
Multiple Sources
Discussion
Single sourcing makes a lot of sense
and offers value
 However, single source can result in
supply risks
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– Earthquake in China
All eggs in one basket
 No diversification of risk
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From Single Source to
Multiple Sources
Discussion
Single sourcing makes a lot of sense
and offers value
 However, single source can result in
supply risks

– Earthquake in China
All eggs in one basket
 No diversification of risk

From Price to Risk Based
Decision Making
Discussion
Price or cost has been traditional
method of selecting suppliers
 Now, risk is becoming critical
component of selecting suppliers

From Looking Backward to Looking
Forward
Discussion

Quality has compliance flavor
– Historical focus
– Past performance

Risk management
– Future focus
– ‘What if’ analyses
From Supplier Trust to Supply
Verification
Discussion

Supplier trust is based on:
– Long term, mutually beneficial relationship
– Good products supplied

Supplier verification
– More audits
– Trust but verify
From Quality Audits to Risk
Audits
Discussion
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Quality Audits
– ISO 9000
– Compliance based (still)

Risk Audits
– ‘What if’ audits
– White space gaps and risks in supply chain
3. Supplier Risk Management
That’s Nice, What Do I Do Now?
This Is How You Start!
1.
2.
3.
4.
5.
6.
7.
8.
Determine management’s appetite for risk.
Identify supply chain risk events.
Analyze risk events and assign risk vectors for
likelihood and severity.
Quantify: determine risk products and prioritize.
Begin working with highest risk products (RP).
Determine appropriate controls.
Implement and monitor risk controls.
Manage risks by monitoring and repeating the
process.
This is Supply Chain Risk Management!
Two Risk Definitions
Risk – The possibility that an event will
occur and adversely affect the achievement of objectives.
COSO, Enterprise Risk Management Framework, web, 2003.
Risk – A situation or circumstance,
which creates uncertainties about
achieving program objectives.
FAA Programmatic Risk Management, 2002, p. 6.
Risk Appetite:
Are You a Risk Taker?
Risk Identification Process
1.
2.
3.
4.
5.
Flowchart the overall supply chain and sub
processes.
Identify critical supply chain system, process,
and production activities.
Determine likelihood of unwanted variation
(risk events).
Identify which sources of variation represent
higher severity.
Determine risk product profile.
Supply Chain Risk Events
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Early/late shipments or delivery to wrong
location
Non-conforming/wrong product or quantity
Supplier processes
Sole source supplier
Undesirable events (storm, flood, earthquake, etc.)
Contract, legal and regulatory non-conformance.
Information system failure and compromises
Supplier country political stability
Risk Continuum
High
Likelihood
Low
Low
Severity
High
Sample Risk Profile
for Late or Non-Delivery
High
Likelihood
Specialized
Electronic Chips in
Household
Appliances
Off Shore Supplier
Low
Likelihood
Maintenance,
Repair and
Operational (MRO)
Supplies
Domestic supplier
Low Severity
Specialized
Electronic Chips in
Regulated Products
Off Shore Supplier
Fasteners in
Regulated
Products
Domestic Supplier
High Severity
Likelihood of Occurrence
Descriptor
Highly
Probable
Probability
>75%
Rank
High
Value
5
Probable
>50%<75% Medium High
4
Occasional
>25%<50% Medium
3
Remote
>10%<25% Medium Low
2
Improbable
<10%
Low
1
Consequence or
Severity of Impact
Descriptor
Rank
Value
Catastrophic
High
5
Critical
Medium High
4
Serious
Medium
3
Marginal
Medium Low
2
Negligible
Low
1
Risk Product Profile
Severity of Impact
Likelihood
Highly
Probable
Probable
Occasional
Remote
Improbable
Negligible
Marginal
1x5=
2x5=
5
1x4=
10
2x4=
4
1x3=
8
2x3=
3
1x2=
6
2x2=
2
1x1=
4
2x1=
1
2
Serious
3x5=
15
3x4=
12
3x3=
9
3x2=
6
3x1=
3
Critical
4x5=
Catastrophic
5x5=
20
4x4=
25
5x4=
16
4x3=
20
5x3=
12
4x2=
15
5x2=
8
4x1=
4
10
5x1=
5
Risk Product (RP)
Severity of Impact
Likelihood
Highly
Probable
Probable
Occasional
Remote
Improbable
Negligible
Marginal
1x5=
2x5=
5
1x4=
10
2x4=
4
1x3=
8
2x3=
3
1x2=
6
2x2=
2
1x1=
4
2x1=
1
2
Serious
3x5=
15
3x4=
12
3x3=
9
3x2=
6
3x1=
3
Critical
4x5=
Catastrophic
5x5=
20
4x4=
25
5x4=
16
4x3=
20
5x3=
12
4x2=
15
5x2=
8
4x1=
4
10
5x1=
5
High Level SC Risk Matrix
Severity of Impact
Likelihood
Negligible
Marginal
Serious
Critical
Highly
Probable
Pending
legislation
adds 2 days
to on- dock
time
Probable
Non-ISO
verified
vendors
Non-ISO
certified
vendors
Key
component
delivery late
26%
Critical
component
lost
shipments
Occasional
Remote
Improbable
Nationaliza
-tion of
MRO
supplier
Catastrophic
Sole source
vendor in
tornado
alley
Develop Strategy:
Control Risk
Develop Strategy:
Accept Risk
Develop Strategy:
Avoid Risk!
“Would you please elaborate on ‘then something bad happened’?”
4. Future of Supply Management
Takeaways!
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Outsourcing increases risk.
Leaning of supply chains increases risk.
Data chain management increasingly more
important (not only chain of custody, but data
transferred from system to system).
Higher levels of independent verification and
validation required.
Third party risk assessment of vendors is
critical.
Takeaways
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Managing risk is increasingly important and necessary
to compete and survive.
Terrorism, natural disasters, computer system
compromises, are all on the rise.
– DHS is developing risk management system
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Risk based system for import safety
SCM professionals are key to an enterprise’s risk
management.
Be proactive; predict, prevent, and preempt risks.
Know Your Risks Before Fishing
(Offshoring and Outsourcing)!
The Bottom Line
“I think we now live in an era when many
of the concerns in running organizations
are being reframed in terms of risk,
which suggests that risk professionals
are likely to rise to the top.”
Source: ‘Managing Risk in the New World,’
Harvard Business Review (HBR), October,
2009, p. 75.
QUESTIONS?
THANK YOU FOR INVITING ME!
Greg Hutchins
Engineering Principal
Quality Plus Engineering, LLC
800.COMPETE