Supply Chain Risk Management Framework Supply Chain Risk

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Supply Chain Risk Management Framework Supply Chain Risk Leadership Council Zurich Case Study 30

Supply Chain Risk Management Framework Supply Chain Risk Leadership Council Zurich Case Study 30 January 2008 Confidential – Do Not Forward Outside SCRLC Confidential 1

Zurich Case Study Types of risk are not mutually exclusive Types of risk Y

Zurich Case Study Types of risk are not mutually exclusive Types of risk Y PH SS CE O PR L NA IO TUT TI INS Risk Assessment Risk Response Control Activities Information & Communication Monitoring Your Company First-tier Supplier Event Identification X-Tier Supplier Risk management components Risk Management is an iterative process Objective Setting Primary Customer Internal Environment Downstream Customer AL C I S n hai C ly pp ope u S Sc Includes links (logistics and electronic transfer of information) between supplier, your company, and customer Confidential 2

Manufacturer of Business Machines Confidential 3

Manufacturer of Business Machines Confidential 3

Background § $2. 5 bn business supplying high security equipment and software solutions to

Background § $2. 5 bn business supplying high security equipment and software solutions to the worldwide banking industry § Centralised (European) risk management and audit § Moved European manufacture out to China 3 - 4 years ago § Initial savings of >50% achieved, now around 40% § Investment in local quality management § Initially poorly managed extended supply chain Confidential 4

Risk Management Components I § Commercial drivers, little focus on risk management Internal Environment

Risk Management Components I § Commercial drivers, little focus on risk management Internal Environment Objective setting Control Activities Cost, cost, quality Audit Quality, delivery, EH&S, insurable risks Monitoring § Dimensions: Physical, Tier 1 (China) Confidential 5

Risk Management Components II § Corporate (Enterprise) level, belated focus at Supply Chain level

Risk Management Components II § Corporate (Enterprise) level, belated focus at Supply Chain level Event identification Risk identification ‘deep dive’ Risk Assessment Supply chain mapping, EHS, CSR, QA, physical Risk Response Risk mitigation and transfer Control Activities Verification and audit, BCM Supply chain metrics, risk mitigation review Monitoring Confidential 6

Risk Assessment § ‘Fundamental’ requirement to monitor and assess EH&S and physical risks §

Risk Assessment § ‘Fundamental’ requirement to monitor and assess EH&S and physical risks § Concern over ‘Hyper-optimisation’ in supply chain § Growing recognition of reputation vulnerability § Supply chain mapped – key product lines § Scenarios evaluated Confidential 7

Risk Response § ‘Institutional’ dimension recognised § Focus on critical supplies (not just geographical)

Risk Response § ‘Institutional’ dimension recognised § Focus on critical supplies (not just geographical) § Actions defined to mitigate reputation exposure § Risk transfer options defined Confidential 8

Control Activities § Greater focus on BCM in the supply chain § Push audit

Control Activities § Greater focus on BCM in the supply chain § Push audit focus upstream § Extending BCM testing assurance to Tiers 1 & 2 Confidential 9

Monitoring § Tighten internal monitoring § Establish metrics to evaluate overall supply chain vulnerability

Monitoring § Tighten internal monitoring § Establish metrics to evaluate overall supply chain vulnerability § Monitor suppliers on this basis § Maintain focus on competitor activity, customer response and regional drivers § Measure effects of risk mitigation(? ) Confidential 10

Conclusions § Valuable reference / check § Iterative nature of framework § Focus on

Conclusions § Valuable reference / check § Iterative nature of framework § Focus on different elements at different times § Cumulative value Confidential 11