Supply chain Risk Management

Presented by: Hafiz Sabir Ali Global Manufacturing 12

Main Topic
Perspectives in Supply Chain Management By Christopher S. Tang, Published on March 2, 2006

Supply Chain Management

the management of material, information and financial flows through a network of organizations that aims to produce and deliver products or services for the consumers. It includes the coordination and collaboration of processes and activities across different functions such as marketing, sales, production, product design, procurement, logistics, finance, and information technology within the network of organizations.

Supply Chain Risk Management

the management of supply chain risks through coordination or collaboration among the supply chain partners so as to ensure profitability and continuity.

Two dimensions
Mitigation Approach
Supply Management Demand Management Product Management Information Management

Supply chain Risk

Operational Risk Disruption Risk

Operational Vs. Disruption Risk

Inherent Uncertainties uncertain customer demand Uncertain Supply Uncertain cost
Natural & Man Made Earthquake Floods Hurricanes Terrorist Economic crises

Operational refers to

Disruption refers to

Basic frame work

a firm can coordinate or collaborate with upstream partners to ensure efficient supply of materials along the supply chain. a firm can coordinate or collaborate with downstream partners to influence demand in a beneficial manner. A firm can modify the product or process design that will make it is easier to make supply meet demand. The supply chain partners can improve their coordinated or collaborative effort if they can access various types of private information that is available to individual supply chain partners.

Mitigation Approach
Product management

Information Management

Supply Chain Risk Management

Demand management

Supply Management

Supply Management

Five inter related issues Supply network design Supplier relationship Supplier selection process Supplier order allocation process Supply contract

Network design
1.

2.
3. 4. 5.

Network configuration Product assignment Customer assignment Product Planning Transportation Planning

Supplier relationship
Recent

changes in suppler relationship from adversarial to co operative level. types of relationship , ranging from one time purchase to virtual integration four types of relationship , vendor , Preferred supplier, exclusive supplier and partner

Different

Tang(1999)

Short

term contract & Long term contract

Supplier selection process

Selection Criteria dependent or independent
Cost reduction , capability, quality, production volumes

Using Multivariate statistical techniques

(factor analyses, cluster analyses)

Survey conclusions
All

level , commitment to establish long term relationship is important Price is least criteria , where as quality and delivery are more important Supplier capability and financial stability

Selection Approval

Linear weighting model ( assign weights) Total cost of ownership (cost incurred throughout life) Mathematical programming model (minimum cost) Stimulation models (yield loss, stochastic lead times) Some other methods as well suggested by researchers

Supplier order allocations

Uncertain demands
Single supplier allocation Multiple supplier Mostly restricted to 2 suppliers due to complexity Two modes regular & emergency

Uncertain supply yields

Buyer receive random fraction of order from supplier Multistage multiple periods

Uncertain supply lead times

When replenish lead times are stochastic, deterministic demand (s , Q ) ordering policy

Uncertain costs
Currency rates in global supply chain Uncertain supply cost imposed by upstream supply partners Flexibility to shift production between two plants located in two different countires

Supply contracts

Supply partners in different firm make independent decisions Locally operational inefficiency & global suboptimal decisions Disintegrated supply chain is due to

Customer demand follows an AR, which will create bullwhip effect Maximizing their own profit

Locally optimal decisions would result in total loss of supply chain

Supply contracts( Cont)

Uncertain demand

Whole sale price contracts What should the whole sale price Retailer order quantity Retail order according to newsboy model Buy pack contracts Offer return policy Buy pack up to R% up to retailers excess inventory [Q-D]+, where R<=100% and b<=w Revenue sharing contracts In stocking out at retailers , manufacturer has more loss , customer would buy similar products Block buster shares probably between 30% to 45 % of their rental in exchange of reduced whole sale price Quantity-based contracts-quality flexibility and optimal order

Demand Management

Demand Management
Demand

management during fixed supply like in service and fashion Industry Firm uses different managements to increase profit Modified demand should better match the fixed supply Carr and Love joy are the first to develop single period model to handle multiple customers with random demand distributions

Demand Management
Shifting

demand across time Shifting demand across markets Shifting demand across Products

Shifting demand across time ???

In

service Industry Higher price during peak seasons Price discounts Advance purchase through card money , online payments

(Win-Win Strategy )

Demand

postponement strategy

Price discount to customer who accept late shipment

Shifting demand across markets

When

selling products with short life cycles in different markets, firms need to manage product rollovers. Roll over in uncertain demand is great challenge Solo-roll overs ( selling new products in different markets) Shifting demand from primary market to secondary market.

Selling price & Stocking level ? Forecast of demand in secondary markets Transshipment quantity to be shipped

Shifting demand across products

When selling multiple products in a single market, various pricing and promotion strategies to entice customers to switch brands or products. The ultimate goal of various marketing strategies is to help a firm increase market share, sales, or revenue. Product substitution

Product bundling

by selling products with similar features, a firm can increase the product substitutability. product substitution can occur when one product dominates another product in terms of quality or performance. a firm can change the demand of the products by developing bundles. Examples can be found across a range of products including food (cans of chicken broth), apparel (under garments), cosmetics (shampoo and conditioner), and electronics (computers and printers). When products are sold in bundles, they force the customers to buy all products as a bundle, which will affect the effective demand of the products.

Product Management

Product management
Product

variety is an effective strategy to increase increasing market share because it enables a firm to serve heterogeneous market segments and to satisfy consumers variety seeking behavior. may help a firm to increase market share and revenue.

It A

firm can produce Product platforms as Computer manufacturing to reduce cost for variety

Product Management
Two

major issues

Postponement Process sequencing

Postponement
A

manufacturer produces a generic product, which can be modified at the later stages before the final transport to the customer.

Process Sequencing
Some

researcher believe that , variation can be reduced by reversing the original process sequence. Example : woolen Industry

Knitting dying Knit first , dye later

Information Management

Information Management Strategies

Fashion

products

Short life cycle Higher level of demand uncertainties

Functional

Products

Fashion products
Reduction

in standard deviation of the demand over the replenish lead time would result in inventory reduction for entire supply chain Managing short life cycle , short replenish time could enable retailers to order twice in selling season. Quick response

Functional Products
Product

with longer life cycle Market information is critical in generating accurate demand forecast. Bull whip effect , although demand was stable Increase in variability could cause problems like , high Inventory , low customer service, insufficient use of productions , transportation capacities Root causes need to be identified.

Four root causes for Bullwhip effect

Demand forecasting Batch ordering Supply shortage Price variation

Mitigating strategy
Information Sharing Vendor Management Collaborating forecasting

Information sharing
Manufacturer

has the information of demand distribution Retailer order according to order up-to policy in each period Information sharing has the advantage to manufacturer to know the actual demand in certain period.
Manufacturer

cost Manufacturer can benefit retailer with price discount replenish lead time reduction.

can reduce inventory level as well as total expected

Vendor Managed Inventory

As information sharing is beneficial to manufacturer , they build VMI to benefit retailer Retailer delegate the ordering and replenish planning to manufacturer In return manufacturer get direct information about customer demand as well retailers inventory
Retailers can reduce the overhead operating cost Replenish planning Guarantied service level Manufacturer benefits Reduce bullwhip effect Reduce production/transportation cost

Under VMI

Collaborative forecasting
voluntary

Industry Commerce standard(VICE) developed initiative called Collaborative planning and forecasting replenishment (CPFR) Mutual agreeable demand forecasts jointly Both parties agree on common forecasts, retailer develop replenishment plan , while manufacture development plan independently

Robust strategies for disruption Risks

Manager towards disruption Risks

Most companies recognize the importance of risk assessment programs and use different methods, ranging from formal quantitative models to informal qualitative plans, to assess supply chain risks. But most companies invested little time or resources for mitigating supply chain risks. Due to few data points, good estimates of the probability of the occurrence of any particular disruption and accurate measure of potential impact of each disaster are difficult to obtain. Therefore Firms tend to underestimate disruption risk in the absence of accurate supply chain risk assessment but they rarely invest in improvement programs in a proactive manner because nobody gets credit for fixing problems that never happened.

Properties of robust strategies

As

it id difficult to find the probabilities of occurrence major disruption and its impact,,,

Efficiencythe strategy would enable a firm to manage operational risks efficiently regardless of the occurrence of major disruptions. Resiliencythe strategy would enable a firm to sustain its operation during a major disruption and recover quickly after a major disruption

 Robust

supply Management strategies demand strategies

Multi-suppliers in many countries

Robust

Capability to shift demand across product can make supply chain more efficient.
Responsive

pricing strategy enable firm to increase profit by shifting demand across products

Robust

product management strategy

information Management strategy

Postponement strategy is robust Collaborative forecasting and replenishment is robust as it increase the supply chain visibility as upstream partners have access to demand and inventory position to downstream stages

Robust

Conclusions
Demand and supply process
Consider the non stationary demand or supply

Objective function
Change the objective function as cost/profit or some other performance targets, such recovery time after disruption.

Supply Management strategies

Introduce idea for back up suppliers

Demand Management strategies

it appears that dynamic pricing appear to be influential in managing disruption risk , as firm can deploy this strategy easily after disruption Also the revenue management

Product management strategies

Reconfiguring the items on display in the store or in online selling e-tailors can change their products dynamically according to supply and demand.

Conclusions( Cont.)
Product

management strategies

Reconfiguring the items on display in the store or in online selling e-tailors can change their products dynamically according to supply and demand.