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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
Global sourcing Changing sourcing rules Supply risk management Future of supply management
1. Global Sourcing
Design Product Outsource (up to 85% of manufacturing $) Assemble Test Manage their brand
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.
Discussion
Just in Time
Lean supply chain No buffer inventories
Just in Case
What if Risk analysis Buffer inventories
Discussion
Single sourcing makes a lot of sense and offers value However, single source can result in supply risks
Earthquake in China
Discussion
Single sourcing makes a lot of sense and offers value However, single source can result in supply risks
Earthquake in China
Discussion
Price or cost has been traditional method of selecting suppliers Now, risk is becoming critical component of selecting suppliers
Discussion
Risk management
Future focus What if analyses
Discussion
Supplier verification
More audits Trust but verify
Discussion
Quality Audits
ISO 9000 Compliance based (still)
Risk Audits
What if audits White space gaps and risks in supply chain
7.
8.
Determine managements 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!
Risk A situation or circumstance, which creates uncertainties about achieving program objectives.
FAA Programmatic Risk Management, 2002, p. 6.
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.
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
Low Likelihood
Low Severity
High Severity
Likelihood of Occurrence
Descriptor Probability Rank Value
Highly Probable
>75%
High
Probable
Occasional Remote Improbable
4
3 2 1
Catastrophic Critical
Serious Marginal Negligible
5 4
3 2 1
Marginal
2x5=
Serious
3x5=
Critical
4x5=
Catastrophic 5x5=
5
1x4=
10
2x4=
15
3x4=
20
4x4= 5x4=
25 20
5x3=
4
1x3=
8
2x3=
12
3x3=
16
4x3=
Occasional
Remote
3
1x2=
6
2x2=
9
3x2=
12
4x2= 5x2=
15
10
5x1=
2
1x1=
4
2x1=
6
3x1=
8
4x1=
Improbable
Marginal
2x5=
Serious
3x5=
Critical
4x5=
Catastrophic 5x5=
5
1x4=
10
2x4=
15
3x4=
20
4x4= 5x4=
25 20
5x3=
4
1x3=
8
2x3=
12
3x3=
16
4x3=
3
1x2=
6
2x2=
9
3x2=
12
4x2= 5x2=
15 10
5x1=
2
1x1=
4
2x1=
6
3x1=
8
4x1=
Critical
Catastrophic
Highly Probable
Probable
Nationaliza -tion of MRO supplier
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
Managing risk is increasingly important and necessary to compete and survive. Terrorism, natural disasters, computer system compromises, are all on the rise.
Risk based system for import safety SCM professionals are key to an enterprises risk management. Be proactive; predict, prevent, and preempt risks.
DHS is developing risk management system
QUESTIONS?
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