What Every Procurement Professional Should Know About Supplier and Supply Chain Risk IBM Global Procurement Louis Ferretti Product Environmental Compliance & Supplier Chain Social Responsibility www.sig.org/eval What Every Procurement Professional Should Know About Supplier and Supply Chain Risk photo of the "Ital Florid by NASIM4248 photo of the "Ital Florid by NASIM4248 Louis Ferretti, IBM Global Procurement Project Executive, Product Environmental Compliance & Supplier Chain Social Responsibility [email protected] October 27-29, 2015 Abstract Businesses today are ever more depend on their supply chain partners for goods and services which make up a significant portion of the solutions they provide to their clients. Correspondingly globalization has introduced the opportunity to do business with suppliers the world over, allowing greater access to a host of untold products and services - that can provide a competitive advantage to the OEM, which enables them delivering increased value to their clients. Nevertheless, a global sourcing strategy has introduced a set of risks well beyond what was typical in the traditional suppler chain. The question is how does a company engage in global sourcing and yet gain the benefits while weighing and managing risks. Beyond assessing the risk of a supplier and their supply, there are opportunities to collaborate and assess a supplier's level of resiliency, and where appropriate engage in actions of remediation. 3 Business Continuity Planning & Supply Chain Risk – An Overview Managing Risk is an imperative for Business Continuity Planning RISK is one of the SIX mega-trends impacting IBM Chief Supply Chain Officer Study Identified The enterprises around the world Top Five Challenges Major factors affecting the enterprise today Risks, both operational and financial, is the #2 1. Globalization Redefined 4. Risk Complexity concern of supply chain executives worldwide 2. Technological Progress 5. Sustainability Imperative 3. Population Migration 6. Informed Customer • Managing market and political uncertainty is more complex than ever • Accelerating global shifts pose new risks; resiliency/responsiveness differentiate • Evolution to a holistic view of risk management Complexity Risk • Risks can be hedged through intelligence Supply chains have become increasingly more global and complex, bringing with them greater Risk Management System challenges and risks • Japan earthquake / tsunami On-going Risk Risk Risk • Thailand Flooding Mitigation Assessment Monitoring • Hynix China Fire Planning • Philippines Typhoon and Control • Thailand State of Emergency/Martial Law • Ukraine Political Unrest • Manage risks within the extended supply chain based on • Russian Sanctions continuous risk assessment • Gaza Bombings • Utilize a collaborative and structured approach • Reduce vulnerability, increase resiliency and ensure supply continuity via mitigation planning 4 4 Supply Chain Risks Currency Fuel Costs Social Responsibility Intellectual Property Labor Disputes Brand Impact Responsiveness Product Safety Political Taxes Cyber Security Regulatory Compliance Environmental Labor Costs Geophysical Attrition Rates 5 Supplier Failure 5 How “Risky” is the Supply Chain ? Supply chain failures continue to be the top concern for US and Canadian business leaders. … The CHUBB Multinational Risk Survey finds that . ….. Businesses cite supply chain failure as the top concern. … . ……[only] 56% of the companies report having a business continuity plan.. … The lack of continuity plans … is disturbing From Inside Supply Management – June/July 2014 Global Trends – news in a changing world 6 6 IBM Enterprise Risk Management IBM has developed a robust Risk Management program – and Supply Chain risk management is an important focus area Leadership Report Communicate . A systematic approach to Identify, Assess and Address risk Risk . Enterprise-wide view Management Program Effectiveness Competitive and Practices Advantage . Focus on both hazards and missed opportunities . Improve business results and drive competitive advantage Monitor Implement Enablement External Environment Executive Low Medium-Low Medium-High High . Sample . Sample . Sample . Sample . Sample High Interviews . Sample Business Strategy Senior . Sample . Sample . Sample . Sample Medium . Sample Board / Audit - Emerging Leadership High Committee . Sample . Sample . Sample . Sample Medium Operational Model Approval and Impact . Sample . Sample - Risks Review Low Ownership . Sample . Sample Reputation Low External Likelihood Research Financial Model Relationship with critical suppliers: Ability to manage the end-to-end supply chain, including the dependency on critical suppliers 7 7 Setting the Context Executive Direction c. 2009 ….. will initiate a broad piece of work to evaluate the risks in our extended supply chain….. will prioritize based upon known or anticipated issues. The gas supply . …. Israeli situation . …. ongoing issues in Thailand . …..effects of a lower economic growth rate on political and social stability . And many other risks including but not limited to transportation costs/climatic/political/economic/social/environmental/health, etc... …. globalizing our supply chains have introduced additional risks 8 Key ingredients necessary to - successfully uncover and manage supplier and supply chain risk . Well defined “on boarding” check list and tool . Risk profile assessment . Documented process, line ownership and management system . Data base / tool to house data and perform computations . Impact / likelihood weighing algorithm . Risk ranking methodology . Mitigation and business continuity plans . Real time alerts . Experienced cross functional, multi cultural core team 9 Initial and On Going Risk Compliance – to legal and internal policies . Ethics, Bribery and Corruption . Import / Export & Embargoed Country Restrictions . Environmental, Product Safety, Electromagnetic Compatibility (EMC) . Chemical Management and clean up . Quality and defective products reporting, corrective action and recalls . Diverse business relationships . Data security . Sustainability and code of conduct . Financials . Supply chain risk / business continuity planning 10 Uncovering and Managing Supplier / Supply Chain Risk Our objective is not to eliminate risk, because without risk there is no progress. Instead it is to ensure we can manage and mitigate risks. Managing market and political uncertainty is Risks can be hedged through intelligence and holistic view of more complex than ever risk management Supply Chain Supplier Total Risk Tool & Process Risk Management Tools 1. Incorporating key information about global supply chain from market Social On-going Listening intelligence Risk Risk Risk communications Mitigation Assessment Monitoring 2. Augmenting existing Planning and Control Business information not available via current Analytics market intelligence • Comprehensive risk assessment Social • Ongoing mitigation and Market processes Environmental Intelligence 3. Listening for Leadership Solution Protections against loss of sentiment and revenue and profits by minimizing trends for critical likelihood and severity of supply items and events chain disruption Recognition Key Benefits • Uncovers multiple risks, assesses likelihood & impact of each • IBM Outstanding Innovation Award • Addresses risks with formal mitigation plans • Patent for impact likelihood algorithm • Provides consistent risk management approach across brands/commodities • CSCMP finalist Award for Supply Chain Innovation • Trends and patterns are revealed by systematic risk analysis 11 Highlights - Risk Process and Management System . 2 x year complete Supply Base Assessment . Country / Hub / Supplier / Supplier Site / Commodity . Based on External and Internal Market Intelligence . 4 x year Finanical Assessment – top critical suppliers . Real Time Alerts . Critical elements of the Supply Chain for Countries, Hubs, Suppliers, Sites, Commodities . External and Internal Market Intelligence . Additional Market Intelligence Feeds and Actions . White Paper, Advisories, Weekly Reports . Bi-Weekly Updates to the Management Team . Quarterly Briefing to IBM‘s Chief Risk Officer . Central Repository (aka community) for all Risk Related Topics . Outputs from Social Listening tool . External Data Source focusing on selected growth market countries and hubs . Providing specialized alerts . External Data Source Provider searching upstream supply chain, e.g. Conflict minerals, rare earth metals 12 Total Risk Tool and Process Landscape Council Lead Complemented by Real Time Alerts from External Data Source Provider Supplier & – anytime, re. potential disruption threats External Data Commodity Source Provider Questionnaires Commodity Country & Hub Lead Questionnaires Uncover Analyze Mitigate Supplier-Site & Pandemic Manage Questionnaires Risk Market Intelligence Country & Hub Questionnaires Total Risk Cognos Business Assessment Tool Intelligence Reporting Supplier Financial Risk (Determines Risk Rating for • Risk ratings by … Assessment (SFRA) Tool combination of all entities and risks) Country Hub Supplier Output of from Supplier Site Business Continuity Planning Social Listening tool Commodity Supplier Assessment Ratings Reports Generated … Risk Mitigation Plans Risk - Global View (via Lotus Notes database) Identified - Supply Chain Report Supply Chain Social .Plans formulated to address - Questionnaire Report Responsibility Audit identified risk Compliance Reference .Plans reviewed and approved by management