Visualizing and Quantifying Global Supply Chain Risk Ranjana

Visualizing and Quantifying Global Supply Chain Risk Ranjana Ninan Chris Wang May 22, 2014

March 11, 2011

2011 Tōhoku earthquake and tsunami

Agenda 1. 2. 3. 4. Key Issues Methodology Results Conclusion

Today’s Supply Chain Key Issues | Methodology | Results | Conclusion

Two Key Issues 1. No links? 2. No quantification? Key Issues | Methodology | Results | Conclusion

Establishing Supply Chain Links / Manufacturing Resource Planning (“MRP”) Key Issues | Methodology | Results | Conclusion

A Visualized Supply Chain Key Issues | Methodology | Results | Conclusion

Establishing Quantification Methods 1 st Method 2 nd Method Revenue Enabled Historical Risk • Risk Exposure Index (“REI”) • Value at Risk Index (“VARI”) Key Issues | Methodology | Results | Conclusion

1 st Method: Revenue Enabled The Risk Exposure Index (“REI”) is the revenue enabled by a node – adjusted to account for pipeline inventory. It is comprised of: Revenue Enabled Recovery Time Inventory Available RISK EXPOSURE INDEX (“REI”) Key Issues | Methodology | Results | Conclusion

2 nd Method: Historical Risk The Value at Risk Index (“VARI”) is the REI – adjusted to account for historical risk. It is comprised of: REI Historical Risk Probability VALUE AT RISK INDEX (“VARI”) Key Issues | Methodology | Results | Conclusion

Establishing Quantification Methods 1 st Method 2 nd Method 3 rd Method Revenue Enabled Historical Risk Imminent Risk • Risk Exposure Index (“REI”) • Value at Risk Index (“Baseline VARI”) • Value at Risk Index (“Eventbased VARI”) Key Issues | Methodology | Results | Conclusion

3 rd Method: Imminent Risk The Event-based Value at Risk Index (“VARI”) is the REI – adjusted to account for imminent risk. It is comprised of: REI Imminent Risk Probability EVENT-BASED VALUE AT RISK INDEX (“VARI”) Key Issues | Methodology | Results | Conclusion

1, 000 Suppliers…At A Glance Key Issues | Methodology | Results | Conclusion

1, 000 Suppliers…In Detail Key Issues | Methodology | Results | Conclusion

1, 000 Suppliers…Identified Key Issues | Methodology | Results | Conclusion

1, 000 Suppliers…Prioritized Key Issues | Methodology | Results | Conclusion

Three Key Takeaways 1. Visualization enables the user to instantly identify weak links in the supply chain 2. Embedded historical risks are difficult to measure metrics such as VARI make it easier to compare one node versus another 3. Up-to-date catastrophe models must be integrated into the visualization tool to make it relevant for day-to-day planning Key Issues | Methodology | Results | Conclusion

Implications and Future Improvements Implications • More effective risk-mitigation (preemptive) • Better business continuity planning (reactive) Future Improvements • Implementation of more catastrophe models and real-time alerts • Extend to more products to get better REI estimate Key Issues | Methodology | Results | Conclusion

Thank You Q&A

Appendix 1. Event-based VARI 2. AIR Worldwide – Catastrophe Model Example

Event-Based VARI (for hurricanes) Event-based VARI = VARIeb = Pr(hit) * Pr(disruption) * REI

Probability of a Hit

Probability of a Disruption

Damage Probability Matrix State None Light Moderate Heavy Severe Collapse Hurricane Intensity (Wind Speed – MPH) 75 100 125 150 200 250 300 0. 903 0. 567 0. 440 0. 191 0. 103 0. 071 0. 000 0. 080 0. 183 0. 141 0. 156 0. 062 0. 027 0. 013 0. 011 0. 178 0. 164 0. 152 0. 044 0. 026 0. 003 0. 048 0. 097 0. 275 0. 242 0. 159 0. 144 0. 001 0. 012 0. 120 0. 104 0. 237 0. 258 0. 100 0. 001 0. 012 0. 024 0. 109 0. 203 0. 440 0. 717 Pr(Disruption) = Pr(Moderate) + Pr(Heavy) + Pr(Severe) + Pr(Collapse) Pr(Disruption) = 0. 178 + 0. 048 + 0. 012 Pr(Disruption) = 0. 25 = risk probability

Event-Based VARI (for hurricanes) Event-based VARI = VARIeb = Pr(hit) * Pr(disruption) * REI VARIeb = (0. 40) * (0. 25) * $10 M

Catastrophe Model for Base VARI 1% of property value = disruption Model Assumption: $1, 000 property value LOCATION DENVER, CO HOUSTON, TX 5% 4% 3% 2% 1% AAL -- -- 10, 000 13, 082 541 2, 401 REDMOND, WA -- -- IRVINE, CA -- -- RICHARDSON, TX 0 349 17 SOMERVILLE, MA 117 2, 987 106 0 340 19 10, 000 21, 449 979 LEXINGTON, KY ROSENBERG, TX 4, 304 Houston, TX: VARIbaseline = 2% * REI