Class #4

Question 1

SUPPLY CHAIN DISRUPTIONS - main causes

Answer 1

♠ Financial Services  - IT
♠ Manufacturing  - currency
♠ Retail - civil unrest, IT, currency
♠ Engineering / Construction  - insolvency (you have a lot of subcontractors), weather, design
♠ Energy - adverse weather
♠ Health Care  - IT

Question 2

SUPPLY CHAIN DISRUPTIONS - main consequences (7)

Answer 2

1. Loss of productivity
2. Service outcome impaired
3. Loss of revenue
4. Product release delayed
5. Delayed cashflows
6. Damage to brand image / reputation
7. Increased regulatory scrutiny

Question 3

Nokia / Ericson (real world examples)

Answer 3

10 minute fire in New Mexico plant

Question 4

Porsche (real world examples)

Answer 4

Suspended production for 2 weeks because the

manufacturer of the thread used in its seatbelts went bankrupt.

Question 5

Japan earthquake / tsunami 2011 (real world examples)

Answer 5

$210 billion in losses. 370,000 lost vehicles (toyota). Paint manufacturer - no black and red cars for weeks.

Question 6

Other events and real world examples

Answer 6

♠ Taiwan earthquake 2006
♠ Chile earthquake 2010
♠ Iceland volcanic ash 2010
♠ BMW / Edscha — German manufacturer of sunroofs

Question 7

Some general SCRM lessons learned from the case studies, just described - check out p. 3 (2)

Answer 7

1. The management of supply chain risk is an enterprise wide issue.
2. Be aware of:
   - high dependents
   - single supplier
   - cluster of suppliers (same geographic location)

Question 8

Enterprise Risk Management (ERM) definition

Answer 8

A process used by Board of Directors / Management / Personnel - across all, aspects of business - used in strategy setting - designed to identify potential events - manage risks within the business’ appetite.

Question 9

Note about the difference between ERM and other risk management techniques

Answer 9

To date we have discussed risk and how to avoid or minimize it. Here we introduce the concept of risk as an asset. How can we harness it? For example, the capital budgeting example that we discussed becomes a tool to use risk to our advantage rather than just a preventive implement.

Question 10

Why is ERM needed?

Answer 10

1. Reduce unacceptable performance variability.
2. Align and integrate varying views of risk management.
3. Build confidence of investment community and stakeholders.
4. Enhance corporate governance.
5. Successfully respond to changing business environment
6. Align strategy and corporate culture.

Question 11

Align and integrate varying views of risk management (why is ERM needed?)

Answer 11

ERM integrates those individual Silos - which allows a more efficient allocation of resources and management of common risks enterprise- wide.

Question 12

Silo mentality what?

Answer 12

Silo mentality is an attitude that is found in some organizations; it occurs when several departments or groups within an organization do not want to share information or knowledge with other individuals in the same organization. A silo mentality reduces the organization’s efficiency and can contribute to a failing corporate culture.

Question 13

Enhance corporate governance (why is ERM needed?)

Answer 13

(i) Strengthen board oversight
(ii) Forces assessment of existing management structure
(iii) Clarifies risk management responsibilities
(iv) Makes sure your employees know how to respond to hazards.

Question 14

Successfully respond to changing business environment (why is ERM needed?) - causes management to:

Answer 14

1. Identify future alternative scenarios;
2. Evaluate the likelihood and severity of those scenarios (i.e. the probability of an event and the probable expected loss (and the maximum possible loss)).
3. Identify priority risks
4. Improve organization’s capabilities around
   those managing those risks.

Question 15

6. Align strategy and corporate culture (why is ERM needed?)

Answer 15

ERM is different than the risk management techniques discussed - as its primary focus is to (i) protect assets ; but also to (ii) enhance value. Remember by teaching managers to effectively deal with risk, it enhances their understanding of the organization’s strengths and weaknesses.

Question 16

The impact on financial performance and/or

reputation does not necessarily bear a _____________relationship to the cost of the disrupted component or service.

Answer 16

Direct

Question 17

Supply chain resilience can be improved by ______________, for
example, by reviewing the entire business process from ________________ through ___________ to ______________.

Answer 17

1. Increasing flexibility
2. Product design
3. Production
4. Distribution

Question 18

Consider whether the level of ______________ is absolute or relative
– i.e. permanent loss or deferral of sales?

Answer 18

Vulnerability

Question 19

Consider not just direct vulnerability to ___________ but also
indirect vulnerabilities such as ____________________________ _____________________________________________________.

Answer 19

1. Risk

2. Loss of utility, communications or damage to communications infrastructure

Question 20

Supply chains are not always _______________ but can be more
complex networks with interdependencies. Especially evident in _____________________ – which focus primarily on property, equipment and computer systems. But what about ___________ _____________________________________________________.

Answer 20

1. Singular and linear
2. Business continuity plans
3. Senior managment responsibility