Slide 1

Report
Supplier Reliability Track
October 3-4, 2007
Review with the Supply Chain Risk Leadership Council
1
Agenda
 Membership
 Track deliverables/scope
 Risk matrix
 Survey
 Capability key elements
 Summary
 Next steps
2
Membership
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
3
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)
4
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
5
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..
6
Risk Matrix
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
 Came up with the result from Boeing, Cisco, P&G, Jabil,
TSMC
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
7
Cause
Risk Areas
Example
Risk Matrix (Risk Areas)
Supply Chain-Level
Complexity
Concentration
Dynamic demand
Merger/acquisition
Supplier-Level
Natural disasters
Accidents
Supplier capability
Cumulative risk across suppliers
# suppliers, # materials, (product design, maturity)
(over) abundance of suppliers within an area (country, city)
Price changes, promotions, initiatives
disruption of corporate culture, work processes and systems
Supplier policies
Supplier capacity
Supplier financials
Intentional
Regulatory
Material sourcing policies
Outsourcing/contracting
poor leadership, hiring practices
industry constraints
bankruptcy, out-of-business
terrorism, oil prices, sabotage, strike, political, nationalization
supplier compliance to governmental regulations (FDA, OSHA)
contract terms, single sourcing
Use of 3rd party manufacturers
Transportation capacity
Cross-border logistics
NA truck drivers, energy prices
longer supply chains, use of "low cost countries", capability and infrastructure gaps, political
instability, export license, regulation that makes it more difficult to move materials through ports
Internal Policies
Sourcing, planning, order fulfillment, inventory pressure, initiative frequency, change
management, new processes and suppliers
Network connectivity, data network
Custom equipment requirements
Recovery capability
Data center failure, B2B lines between supplier/customer
Clean rooms, refrigerated trucks
Time it takes to restore production or move production. Time it takes to qualify a new
supplier, factory or component if needed
hurricane, flood, tsunami, earthquake, tornado
fire, explosion
Supplier quality management, significant quality incident, low reliability/efficiency,
equipment maintenance, safety
8
Capabilities
Description
Risk Matrix (Capabilities)
Capability
Supplier Business
Continuity Plan
Internal Material
Contingency Plan
Industry Analysis
Sustainability, Regulatory
(e.g. C-TPAT, GMP's)
Capacity Analysis
Inventory Target Setting
Strategic Material Planning/
RCCP/Materials at Risk
Mat'l Change Mgt Process
Initiative Mgt Process
Lane Risk Assessment
Supply network visibility
(alerts, GPS)
Supplier Capability
Assessment
Internal Capability
Assessment
Supplier Business
Interruption Risk Insurance
Supplier
Relationship/Partnership
Crisis
Management/Response
Risk analysis (data,
modeling, measurement,
etc)
Description
A Material Supplier's BCP contains proven emergency procedures the Supplier will deploy during a production interruption at its
primary source to maintain supply of the material to the customer. These procedures will either restore the primary supply source, or
shift production to an alternate source, within the Business Interruption Limit timing.
An internal Critical Material Contingency Plan provides proven emergency procedures to shift to an alternate source in the event the
primary Supplier suffers an interruption of production that will exceed the BIL timing.
Part of the strategic sourcing process to broadly understand market conditions and the supplier industry as a whole.
Proactive work on the part of the customer to assure that the supplier follows legal requirements (e.g. child labor laws). Intent is to
avoid bad publicity and loss of business. Work required to meet governmental regulations and policies.
The process of reviewing demand variability to set Capacity Utilization or Capacity-to-Demand targets. This is an RCCP input.
Typical inventory targets to be set include upper and lower (safety) inventory limits at both the cutomer and suppliers' locations.
RCCP (rough cut capacity planning) is the process of comparing demand with usage over a 12-24 month period. Strategic Material
Planning looks out even further to consider needs in the 2-5 year time frame (mportant for supplier capacity expansions).
Work process to manage material changes. Material changes include new materials, new suppliers and changes to supplier's
manufacturing operation.
Work process to manage the startup and launch of new products.
Each supply lane (supplier-to-customer) has inherent risk based on distance, geographical and logistics considerations. This
assessment is intended to be a "potential problem analysis" to allow for risk mitigation actions.
Use of information technology to provide supply chain visibility of demand, deliveries and inventories.
Process to assess supplier capability. Elements might include Commercial (financial health) and Operational (logistics and quality
management). This assessment could be done with new or incumbent suppliers.
Processes used to assess internal organizational capability of Purchases and Supply Chain Management resources, e.g. MRPII
assessment.
Organizations capability to respond to recovery requirements.
Analytical tools to identify and assess risk.
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
Jabil
TSMC
Average
Std Dev
Fit with Framework
P&G
Supplier-Level
Natural disasters
Accidents
Supplier capability
Supplier policies
Supplier capacity
Supplier financials
Intentional
Regulatory
Material sourcing policies
Outsourcing/contracting
Transportation capacity
Cross-border logistics
Internal Policies
Network connectivity, data network
Custom equipment requirements
Recovery capability
Cisco
Risk Area
(causes not symptoms)
Supply Chain-Level
Complexity
Concentration
Dynamic demand
Merger/acquisition
Boeing
 Top 3 risks have been identified
Score of Importance
Cause
Survey (Risk Priorities)
Example
Risk Areas
3
1
1
1
3
2
1
1
2
1
2
1
3
2
2
1
1
1
1
2.4
1.4
1.4
0.89
0.55
0.55
1
1.0
0.00
1
1
3
2
3
1
3
2
3
2
2
3
3
2
1
2
3
3
2
1
1
1
2
1
3
3
1
1
1
3
3
3
3
3
2
1
2
1
1
1
1
2
1
2
1
1
1
2
1
1
3
2
2
2
1
1
2
2
3
1
2
2
1
2
2
2
2
1
2
1
1
1
2
1
1
1
2
1
1
3
2.0
2.0
2.4
1.4
2.0
1.2
1.6
1.2
2.2
2.0
1.6
1.6
1.8
1.8
1.4
2.4
1.00
1.00
0.55
0.55
0.71
0.45
0.89
0.45
0.84
0.71
0.89
0.89
0.84
0.84
0.89
0.55
11
Internal Material Contingency Plan
Industry Analysis
Sustainability/Regulatory
Capacity Analysis (C:D tgt setting)
Inventory Target Setting
Strategic Material Planning/RCCP/
Materials at Risk
Mat'l Change Mgt Process
Initiative Mgt Process
Lane Risk Assessment
Supply network visibility (alerts, GPS)
Supplier Capability Assessment
Internal Capability Assessment
Supplier Business Interruption Risk Insurance
Supplier Relationship/Partnership
Crisis Management/Response
Risk analysis (data, modeling, measurement, etc)
TSMC
Boeing
Cisco
P&G
Jabil
Average
Supplier Business Continuity Plan
Description
Score of Capabilities
Capabilities
Survey (Capability Effectiveness)
 12 out of 17 capabilities have full capability score
3
4
3
3
2
4
3
5
5
3
2
3
4
2
3
5
2
2
3
5
5
4
4
5
5
5
2
2
5
4
1
4
4
2
5
2
3
3
4
3
4
2
4
4
5
4
3
5
5
4
5
4
4
3
4
3
3
5
2
2
4
4
1
5
2
1
3
4
4
2
4
3
3
5
5
3
3
5
4
3
4
3
3
3.4
3.6
3.8
3.4
3.4
3.6
3.6
4.0
4.8
2.8
2.8
4.2
3.8
1.4
3.2
3.8
2.6
12
Survey (Linkage between Risk
Area and Capability)
Score of Linkage between
Risk Areas and Capabilities
Transportation capacity
Cross-border logistics
Internal Policies
Network connectivity, data network
Custom equipment requirements
Recovery capability
0.5
0.5
0.3
0.6
0.4
0.3
0.3
0.4
0.3
0.4
0.5
0.3
0.3
0.3
0.5
0.4
0.3
0.4
0.4
0.7
0.4
0.4
0.3
0.3
0.4
0.7
0.6
0.4
0.3
0.5
0.5
0.5
0.3
0.4
0.4
0.4
0.3
0.3
0.3
0.3
0.8
0.8
0.7
0.4
0.4
0.3
0.3
0.3
0.6
0.3
0.3
0.5
0.6
0.4
0.3
0.3
0.3
0.5
0.5
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
0.3
0.3
0.4
0.4
0.5
Risk analysis (data, modeling, measurement, etc)
0.3
0.3
0.4
0.3
0.5
0.3
Crisis Management/Response
0.3
0.3
0.3
0.7
0.6
0.4
Supplier Relationship/Partnership
0.5
0.4
0.4
0.4
0.4
Internal Capability Assessment
0.6
0.3
0.3
0.5
0.3
0.5
0.5
0.3
Supplier Capability Assessment
0.3
0.3
0.3
0.3
0.3
0.3
Supply network visibility (alerts, GPS)
0.5
0.3
0.3
0.5
0.3
0.5
0.6
0.5
0.4
0.5
0.4
0.5
0.3
Lane Risk Assessment
0.3
0.3
0.3
0.3
0.5
0.3
Initiative Mgt Process
0.5
0.5
0.3
Mat'l Change Mgt Process
0.6
0.6
0.5
0.4
0.5
0.5
0.6
Inventory Target Setting
0.3
0.3
0.3
Sustainability/Regulatory
0.3
Industry Analysis
0.6
0.4
0.5
0.3
Strategic Material Planning/RCCP/
Materials at Risk
Supplier capability
Supplier policies
Supplier capacity
Supplier financials
Intentional
Regulatory
Material sourcing policies
Outsourcing/contracting
0.5
0.4
Capacity Analysis (C:D tgt setting)
Complexity
Concentration
Dynamic demand
Merger/acquisition
Supplier-Level
Natural disasters
Accidents
Internal Material Contingency Plan
Risk Area
(causes not symptoms)
Supply Chain-Level
Supplier Business Continuity Plan
Work Processes/Capabilities
Supplier Business Interruption Risk Insurance
 5 out of 17 capabilities are strongly linked with risks (> 5
items with high linkage)
0.5
0.5
0.3
0.3
0.5
0.5
0.6
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
13
Supplier Business Continuity Plan
Internal Material Contingency Plan
Industry Analysis
Sustainability/Regulatory
Capacity Analysis (C:D tgt setting)
Inventory Target Setting
Strategic Material Planning/RCCP/
Materials at Risk
Mat'l Change Mgt Process
Initiative Mgt Process
Lane Risk Assessment
Supply network visibility (alerts, GPS)
Supplier Capability Assessment
Internal Capability Assessment
Supplier Business Interruption Risk Insurance
Supplier Relationship/Partnership
Crisis Management/Response
Risk analysis (data, modeling, measurement, etc)
Survey (What capability we shall focus on)
 Top 3 risks (supply chain complexity, supplier capability, recovery capability)
have high-linkage to 7 key capabilities, but no one has full
capability score on “Supplier Business Interruption Risk
Insurance”
(*) Key Capability
3
2
0
1
0
0
1
0
0
0
2
0
0
2
0
0
2
TSMC
Boeing
Cisco
P&G
Jabil
Average
3
4
3
3
2
4
3
5
5
3
2
3
4
2
3
5
2
2
3
5
5
4
4
5
5
5
2
2
5
4
1
4
4
2
5
2
3
3
4
3
4
2
4
4
5
4
3
5
5
4
5
4
4
3
4
3
3
5
2
2
4
4
1
5
2
1
3
4
4
2
4
3
3
5
5
3
3
5
4
3
4
3
3
3.4
3.6
3.8
3.4
3.4
3.6
3.6
4.0
4.8
2.8
2.8
4.2
3.8
1.4
3.2
3.8
2.6
(*) Key capability = high-linkage capability counts related top 3 risks
14
Survey (Identify Priorities)
 SCRLC level: top 3 weakness (average capability <3)
– The track recommends Cisco to share “Supply network visibility”
and “Risk Analysis” because only Cisco has full capability score
– Consider developing “Supplier Business Interruption Risk
Insurance” as no company has full capability score
 Company level
– Many spaces to be improved after we review individual company
15
Key Elements
 Essential elements of a work process are those if in
place could give us the confidence that the work
process will meet objectives. These elements should
be something that can be visibly checked.
16
Capability Key Elements (1/2)
Capability
Description
Supplier Business Continuity Plan A Material Supplier's BCP contains proven emergency procedures the
Supplier will deploy during a production interruption at its primary source
to maintain supply of the material to the customer. These procedures
will either restore the primary supply source, or shift production to an
alternate source, within the Business Interruption Limit timing.
Key Elements
-People have beeen trained
-Critical materials have been identified
-Suppliers have a documented plan
-Supplier BCP has been tested
Internal Material Contingency Plan An internal Critical Material Contingency Plan provides proven
emergency procedures to shift to an alternate source in the event the
primary Supplier suffers an interruption of production that will exceed the
BIL timing.
Part of the strategic sourcing process is to broadly understand market
Industry Analysis
conditions and the supplier industry as a whole.
Proactive work on the part of the customer to assure that the supplier
Sustainability, Regulatory
follows legal requirements (e.g. child labor laws). Intent is to avoid bad
(e.g. C-TPAT, GMP's)
publicity and loss of business. Work required to meet governmental
regulations and policies.
The process of reviewing demand variability to set Capacity Utilization or
Capacity Analysis
Capacity-to-Demand targets. This is an RCCP input.
-People have been trained
-Critical materials have been identified
-Company has a documented plan
Inventory Target Setting
Typical inventory targets to be set include upper and lower (safety)
inventory limits at both the cutomer and suppliers' locations.
Strategic Material Planning/
RCCP/Materials at Risk
RCCP (rough cut capacity planning) is the process of comparing
demand with usage over a 12-24 month period. Strategic Material
Planning looks out even further to consider needs in the 2-5 year time
frame (mportant for supplier capacity expansions).
-Analysis has been completed for targeted markets and
addresses cost structure, technology, competitiveness
-Assessment tool developed, people are trained
-High risk countries and critical materials have been identified
-Assessments completed
-Long-term volume (18 months+) is known and aggregated
across using sites
-Updated annually or with new initiatives
-Capacity utilization targets have been set and are being
monitored
-Statistical methods are used to set safety stocks and target
inventories
-A documented policy exists outlining the operating strategy
and frequency of updates
-Gaps are understood
-"What-if" analysis is conducted for various volume scenarios
-Sourcing plans are in place for new requirements (18+
months out)
17
Capability Key Elements (2/2)
Key Elements
-Change "registration" system is in place
-Changes are tracked and results are measured vs. predefined "success criteria"
-Review process with specific "gates" or phase criteria has
Initiative Mgt Process
been established
-Shipping lane complexity (number of hand-off's, lead time,
Each supply lane (supplier-to-customer) has inherent risk based on
Lane Risk Assessment
distance, geographical and logistics considerations. This assessment is difficult countries) is assessed with an intent to proactively
intended to be a "potential problem analysis" to allow for risk mitigation mitigate risks
actions.
-Information technology is in place for "alerts" (so receiving
Use of information technology to provide supply chain visibility of
Supply network visibility (alerts,
plant is not surprised by late delivery)
demand, deliveries and inventories.
GPS)
-Critical supplier capabilities have been defined
Process to assess supplier capability. Elements might include
Supplier Capability Assessment
-Assessment occurs when new sourcing decisions or updates
Commercial (financial health) and Operational (logistics and quality
management). This assessment could be done with new or incumbent are needed, maybe annually
suppliers.
Processes used to assess internal organizational capability of Purchases -Critical internal capabilities have been defined
Internal Capability Assessment
-Assessments occur with new sourcing decisions and updated
and Supply Chain Management resources, e.g. MRPII assessment.
as needed, maybe annually
-A documented policy is in place outlining criteria for business
Supplier Business Interruption
interruption risk insurance
Risk Insurance
-Top-level meetings occur between company and key
Supplier Relationship/Partnership
suppliers to manage expectations and to build trust
-A process exists for drills and tests
Organizations capability to respond to recovery requirements.
Crisis Management/Response
-Quantitative methods are used to assess risk, e.g.
Analytical tools to identify and assess risk.
Risk analysis (data, modeling,
identification of critical materials/suppliers, high risk lanes
measurement, etc)
Capability
Mat'l Change Mgt Process
Description
Work process to manage material changes. Material changes include
new materials, new suppliers and changes to supplier's manufacturing
operation.
Work process to manage the startup and launch of new products.
18
Summary
 Top 3 risks:
– Supply chain complexity
– Supply capability
– Recover 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
 The bottom 3 capabilities of above are weaker areas for
improvement
19
Next Steps
 Determine whether to share “best-in-class” work
processes
 Determine whether to develop “Supplier Business
Interruption Risk Insurance” capability
20

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