Vivekanand 170

Vyshak Vinod 171

Yashwanth J G 172
Yogesh babu P K - 173

Abstract
SCC members have reported that less than half of
enterprises have established metrics and procedures for
assessing and managing supply risks and organizations lack
sufficient market intelligence, process, and information
systems to effectively predict and mitigate supply chain
risks.
From this need arose the Risk Management Project Team
approved by the SCC to enhance the SCOR model. The
objective is to help organizations avoid/minimize costs,
mitigate supply chain disruptions by managing risk
proactively and thus, offering a competitive edge.
The session presents the outcome of a global multi-industry
team that has worked passionately to integrate risk
management into the SCOR model.

Supply-Chain

Product Design
DCOR

Sales & Support

CCOR

Customer processes

Supplier processes

Product Management

Supply Chain SCOR

The SCOR Framework

SCOR defines supply chain as the integrated processes of Plan,
Source, Make, Deliver and Return, spanning your suppliers supplier
to your customers customer, aligned with Operational Strategy,
Material, Work & Information Flows.
Plan
Plan

Deliver

Suppliers
Supplier

Plan

Source

Make

Plan

Deliver

Source

Make

Deliver

Source

Make

Plan

Deliver

Supplier

YOUR COMPANY

Customer

Internal or External

Return

Internal or External

Supply Chain Operations Reference Model

Source

Customers
Customer

SCOR Hierarchy
Level 1

Level 2

Level 3

Level 4

Level 5

Scope

Configuration

Activity

Workflow

Transactions

Supply-Chain
Supply-Chain
Source
Source

S1
S1
Source
Source
Stocked Product
Product
Stocked

EDI
EDI

S1.2
S1.2
Receive
Product
Receive Product

XML
XML

Differentiates
Business

Differentiates
Complexity

Names Tasks

Defines Scope

Differentiates
Capabilities

Links, Metrics, Tasks Job Details

and Practices

Details of
Automation

Framework
Language

Framework
Language

Framework
Language

Technology Specific
Language

Standard SCOR definitions

Sequences Steps

Industry or
Company Specific
Language

Links Transactions

Company/Industry definitions

Maps to Organizations
Level 1

Level 2

Level 3

Level 4

Level 5

Scope

Configuration

Activity

Workflow

Transactions

Supply-Chain
Supply-Chain
Source
Source

S1
S1
Source
Source
Stocked Product
Product
Stocked

EDI
EDI

S1.2
S1.2
Receive
Product
Receive Product

XML
XML

CxO
EvP, SVP

SVP
VP

VP, Director
Line Manager

Manager
Team Lead

Team Lead
Individuals

Strategic DecisionMaking

Line of Business
Management

Activities
Management

Job Management

Transaction
Management

Enterprise
Supply-Chain
Requirements

Operations
Strategy

Fine-Tuning
Operations

Adjusting
Process
Performance

Tuning
Technology
Performance

Standard SCOR program

Company/Industry implementation

The SCOR Model and Risk

What is Supply Chain Risk

Management?

Business Continuity Management (BCM), defined by the

Business Continuity Institute as a holistic management
process that identifies potential impacts that threaten an
organization and provides a framework for building resilience
and the capability for an effective response that safeguards the
interests of its key stakeholders, reputation, brand and value
creating activities (BCI, 2005).
Business Vulnerability, defined as an exposure to serious
disturbances, arising from risks within the supply chain as well
as risks external to the supply chain (Christopher, 2003).
Vulnerability is a result of any weakness within a complex
system that can seriously jeopardize its activities (Ayyub,
Enterprise
Risk Management (ERM) as a set of coordinated
2003).
actions about protecting and enhancing share value to satisfy
the primary business objective of shareholder wealth
maximization (Chapman, 2006).
Resilient enterprise meaning the ability of the company to
recover quickly from a disruption (Sheffi, 2005).

Risk Defined
The International Organization for Standardization
(ISO, 2002) defines two of the essential
components of risk:
1. losses (along with related amounts) and
2. uncertainty of their occurrence.
In the financial industry, operational risk is
defined as the risk of loss resulting from
inadequate or failed internal processes, people
and systems or from external events (New Basel
Capital Accord, 2006).

Risk in general can be defined as a collection of pairs of likelihood (L) and outcomes / impact (O) of
events.
The combination of all the (likelihood; outcome) pairs is called a risk profile.
Definitions of risk must also have a time dimension or a specific time horizon (day, month, year, etc.)
and a specific perspective or view that defines the scope (boundaries, whats not included, etc.).

Supply Chain
Disruptions

Any event that negatively impacts the intended functioning of the

supply chain.

Discrete Events

Can be a rare event or frequent event that happens at a specific

instance in time
Internal (machine break down, fire, strike, product failure)
External (weather related, earthquake, etc.)

(yes/no)

Continuous Events
(a matter of degree)

Internal (performance metrics variability, warranty trends)

External (supply / demand shifts, economic factors)
Sometimes group into buckets

Supply Chain Risk Perspectives

Global Environment
Organizations Environment
Suppliers
Environment

SuppliersSupplier
Facing
(And outsource
Manufacturing)

Customers
Environment

Organization Customer
Facing

Customers

Internal Facing

Relationship Risk
Financial Risk
Supplier Performance Risk
Operational Risk
Distribution Risk
Human Resource Risk
Technical Risk
Relationship Risk
Supply chain disruption risk
Financial Risk
Market Risk
Supplier Environment RiskLegal / Regulatory Risk
Market Dynamics Risk
Environmental Risk Brand / Reputation Risk
Product Liability Risk
Disaster Risk
HR / Health and
Environmental Risk
Political / Country Risk
Safety Risk
Supplier Financial Risk Political/ Country Risk Political/ Country Risk
Regulatory Risk

Supply chain risk management is the systematic

identification, assessment, and quantification of
potentialsupply chain disruptions with the
objective tocontrol exposure to riskor reduceits
negative impact onsupply chain performance.
Potential disruptions can either occur within the
supply chain (e.g. insufficient quality, unreliable
suppliers, machine break-down, uncertain demand
etc.)or outside the supply chain(e.g. flooding,
terrorism, labor strikes, natural disasters, large
variability in demand etc.).
Management of risk includes the development of
continuous strategies designed to control,
mitigate, reduce, or eliminate risk.

A Nintendos Wii has a chip designed by IBM, which may have

been fabbed in New York, tested in Taiwan, stored in Hong
Kong, aggregated in parts, and sent in kits to China for
assembly.
"They put all of their eggs with one supplier that had the best
product at the lowest price
"In the race to provide better quality at lower prices,
manufacturers picked very narrow, optimized supply
chains,"

Preventing supply chain disruption

Controlling supply chain disruption
Mitigating damage

Some of the quickest emergency assistance to

victims of Hurricane Katrina did not come from the
American Red Cross or FEMA. It came from WalMart.
GM Halts Work at More
GM Halts Work at More
Plants
Plants
Due to Strike at Parts
Due to Strike at Parts
Supplier
Supplier

Kobe earthquake
Kobe earthquake
resulted in computer
resulted in computer
memory shortage,
memory shortage,
impacting multiple
impacting multiple
companies
companies

United States
United States
experienced
experienced
significant disruptions
significant disruptions
when borders and air
when borders and air
transportation shut
transportation shut
down after 9/11.
down after 9/11.
Nokia production shut
Nokia production shut
down due to supplier
down due to supplier
plant fire.
plant fire.

Supply chain risk management (SCRM) is a means

for ensuring uninterrupted customer service.
The SCOR Model is a framework for modeling and
managing supply chain processes, practices and
performance.

SCOR 9.0 will include Risk Management processes,

practices, and performance indicators.

Using SCOR as a Risk Management foundation will

provide a better SCRM program.

Faster implementation
More comprehensive identification of potential risks
Better application of SCRM best practices
Better SCRM coordination with customers, suppliers,
and stakeholders.

SCRM Best
Practices

10 Best Practices under the following

categories:
RM Programs Coordination with

Supply Chain Risk Identification

Partners

Supply Chain Risk Monitoring

Sourcing Risk Mitigation Strategies

Supply Chain Risk Assessment

Crisis Communication Planning

Supply Chain
Risk
Management

Formal Risk
Management

Configure to Reduce Risk :

Supply Chain Business Rules
Supply Chain Information

Coordinated
Risk
Management

Visibility and
Quantification
of Risk

Best Practices

Supply Chain Risk Management

Supply Chain Network

Supply Chain
Designed for
Risk

Supply Chain Risk Management (SCRM)

Systematic identifying, assessing, and resolving of potential
disruptions in supply chain networks with the objective to reduce
their negative impact on the networks performance

Supply Chain Risk Identification

Creating of a list potential events that could disrupt or harm any
aspect of the supply chains performance (more details included
in exercises)

Supply Chain Risk Monitoring

Creating of a list potential events that could disrupt or harm any
aspect of the supply chains performance (more details included
in exercises)

Supply Chain Risk Assessment

Quantifying risk to understanding of where the greatest risks
may exist in order to prioritize resources for risk mitigation and
management
Measures include Likelihood and Impact (more details included
in exercises)

Supply Chain Risk Management (SCRM)

Systematic identifying, assessing, and resolving of potential
disruptions in supply chain networks with the objective to reduce
their negative impact on the networks performance

Supply Chain Risk Identification

Creating of a list potential events that could disrupt or harm any
aspect of the supply chains performance (more details included
in exercises)

Supply Chain Risk Monitoring

Creating of a list potential events that could disrupt or harm any
aspect of the supply chains performance (more details included
in exercises)

Supply Chain Risk Assessment

Quantifying risk to understanding of where the greatest risks
may exist in order to prioritize resources for risk mitigation and
management
Measures include Likelihood and Impact (more details included
in exercises)

Risk Management Programs Coordination with Partners

Coordinating risk management with your supply chain partners by
emphasizing cooperation among departments within a single
company and among different companies of a supply chain to
effectively manage the full range of risks as a whole
Establishing a Risk Management Coordination Committee

Sourcing Risk Mitigation Strategies

Includes strategies to address source risks, for example multiple
sources of supply, strategic agreements with suppliers

Crisis Communication Planning

Creating a plan for managing a crisis when it occurs
Some common components of a crisis communication plan include:
Crisis definitions
Crisis roles and responsibilities
Crisis response operating procedures

Supply Chain Business Rules

Establishing business rules (e.g., customer priority, supplier priority, production
routing, transportation routing, etc.) based on minimizing the risk to the supply
chain

Supply Chain Information

Managing supply chain information networks to minimize the risk to the supply
chain. This includes information sharing with partners as well as internal locations.
This helps all parties to be quickly informed of a real or potential disruption and
respond quickly and appropriately to minimize the disruption impact.

Supply Chain Network

Node locations, transportation routes, number of suppliers, number of production
locations, etc. are all determined in a fashion that mitigates potential disruptions
to the ability to deliver product and service to the end customer.
This practice relies on the information collected through risk identification and
risk assessment processes to identify nodes that are at a high risk of disruption
due to the location of the node.

Risk Management Implementation using the

SCOR Model five phase approach.
Phase

Name

Initial

BUILD

Organizational Support
Risk Management Program

Who is the sponsor?

DISCOVER

Supply-Chain Definition
Supply-Chain Risk Priorities
Project Charter/Risk Program definition

What will the program

cover?

ANALYZE

What is the risk

tolerance of your supply
chain?

ASSESS

Geo Map
Thread Diagram
Risk assessment

Initial Analysis where

and how big are the
risks?

MITIGATE

Mitigation plans
Level 3, Level 4 Processes
Best Practices Analysis

Final Analysis how will

risk be eliminated or
mitigated?

IMPLEMENT

How to deploy
mitigations?

II

III

IV

Deliverable

Scorecard
Benchmark
Competitive Requirements
Customer service requirements

Opportunity Analysis
Mitigation Definition
Deployment Organization
Monitoring and response programs

Resolves

26

Challenges for implementing a supply chain risk

management program
Organizational Support:
supply chain risk management needs cross-functional participation, agreement and
cooperation in order to succeed. This requires executive level commitment and active
participation. Building this is a critical first step in the implementation process.

Rules and strategies

Before risk management activities can start, a decision must be made as to the
approach and the strategy. The main guidelines for managing risks and the rationale
behind them must be developed, documented and communicated.

Roles, Responsibility:
Clear roles and responsibility are critical for any process or program. Crossfunctional, company wide responsibility and authority are critical for success. In
addition, supply risk management adds new responsibilities to existing jobs. These
must be clearly communicated, current skill levels of incumbents assessed and
corrections made (training or replacement) as required.

Funding:
Effective levels of funding are always a challenge in any company. The amount
depends upon the scope of your program and how much detail is requirement.

Total Supply Chain

Costs ($)

Level 1
Supply Chain
Value at Risk
(Gross VaR)

Level 2

Level 3

Supply Chain
Residual Risk ($, %)

Supply Chain
Value at Risk (VaR $)

Supply Chain
Event Risk (EVAR $)

Supply Chain
Value at Risk (VAR $)
By PSMDR

Supply Chain
Event Risk (EVAR $)
By PSMDR

Value at Risk (VAR $)

By PSMDR &
individual
performance metric

Risk by Event
(EVAR $)
By PSMDR
& individual
event category

Internal Enabler
Process and
Data Quality
measures

Supply Chain
Mitigated Risk ($, %)
By PSMDR

Supply Chain
Mitigation Costs ($)

Supply Chain
Mitigation Cost($)
By PSMDR

Mitigated Risk
by Category ($)
By PSMDR
& individual
performance metric
& event category

Mitigation
Cost($)
By PSMDR
and event

Value-at-Risk (VaR)

Value-at-risk is widely used by banks, securities firms, and trading organ

Quantifies the value of potential disruptions in terms of both
Probability (likelihood) and impact on the supply chain.

Probability
(i.e. 10 out of 100 total
occurrences)

Target

I1
Impact 1

P1

I2

Impact 2

P2
T

Event
1

Event
2

Value at Risk (VAR) = (P1 x I1) + (P2 x I2)

P = percentage of total negative events;
event

I = impact of

Meter and Core

Kit
Plastic
Injection
Molding Mfg.
Electroni
c Circuit
Mfg.
Plastic
Roll
Suppliers
(circuit)

Test
Meter

Care
Kit

Strips

Plastic
Roll
Suppliers
(plain)

Assembly,
Test Pack
Care Kit
Instrument
Contractor
Strips in Bottle
Bottle and
Lid
Supplier
(w/
desiccant)
Bio World

Adhesive
Suppliers

Chann
el

Custome
rs

12 pack of
Strips in
Bottles

Chann
el

Chemical
Suppliers
A,B,C

Case Study
Risk Identification
ID

Process
Area

Source

Risk Identification
Event

Plastic Strip
supplier shut down
by labor strike

Description

The main plastic strip supplier has been in talks with their
worker's union. The talks have broken down and the union has
gone on strike, shutting down all operations and shipments for
30 days
The actual sales and distribution of kits is 50% higher than the
forecast for the north eastern US. Distributors are out of stock
leading to lost orders and emergency shipments from other
regions. The Bio World plant is on over time and it will take 30
days to catch up.

Plan

out of stock
incidents with the
distributors

Make

Packing Equipment
Failure

Product cannot be packaged automatically. Increase labor costs

due to additional overtime to package the products manually.

Deliver

Increased delivery
costs due to high
price of fuel

Higher delivery costs from Bio World to distributor resulting in

higher costs per unit. Loss of competitive advantage as the low
cost diabetes meter/strips.

Risk Assessment
ID

Process
Area

Risk Identification
Event

Plastic Strip supplier shut

down by labor strike

Risk Assessment

Risk Zone
(H,M,L)

Annual
Probability
(%)

Impact

VaR

10.0%

$5,000

$500

Source

Plan

out of stock incidents

with the distributors

25.0%

$1,000

$250

Make

Packing Equipment
Failure

25.0%

$300

$75

Deliver

Increased delivery costs

due to high price of fuel

65.5%

$400

$262

Total Risk Magnitude (VAR) =

$1087

Note: All costs are in 000 $

Risk Mitigation
ID

Risk

Mitigation Strategy

Plastic Strip
supplier shut
down by labor
strike

Identify suppliers that are unionized and

assess their relationship with their union. Need
to certify back-up supplier and pay them an
annual fee for stand by production capability.

$50

10.0%

out of stock
incidents with
the distributors

Maintain a central inventory at the Bio World

plant equal to 2 weeks of 50% of demand for a
region. Include the distributors in S&OP
meetings.

$100

Packing
Equipment
Failure

Follow a schedule of equipment retirement &

replacement with new equipment.

Increased
delivery costs
due to high
price of fuel

Purchase oil futures to hedge against an

increase in fuel costs.

Total Mitigation Costs =

New VAR
L*I

Original
VAR

ROI

$1500

$150

$500

$300

5.0%

$500

$25

$250

$125

$20

15.0%

$10

$1.5

$75

$53.5

$10

100%

$1

$1

$262

$251

$178

$1087

$730

Implement
Cost

$180

New Prob
(L)

New
Impact (I)

Note: All costs are in 000 $

Risk Mitigation Action Plan

ID

Mitigation Action

Person
Responsible

Status

Identify suppliers that are unionized and

assess their relationship with their union.
Need to certify back-up supplier and pay
them an annual fee for stand by
production capability.

Supplier
Liaison
Manager

Suppliers identified.
Annual fee to be
negotiated.

Maintain a central inventory at the Bio

World plant equal to 2 weeks of 50% of
demand for a region. Include the
distributors in S&OP meetings.

Demand
Planner

New inventory level

defined for the product.

Floor
Manager

In Progress

TBD

Risk Management Team

working with Finance
Dept to obtain person
responsible for mitigation
action

Frequent maintenance of equipment.

Follow a schedule of equipment
retirement & replacement with new
equipment.

Purchase oil futures to hedge against an

increase in fuel costs.

Due Date

Risk(s)
Addressed

End of
Q208

Plastic Strip
supplier shut
down by labor
strike

Done

out of stock
incidents with
the
distributors

Immediately

Packaging
equipment
failure

End of
Q308

Increased
delivery costs
dues to high
price of fuel

THANK YOU