Eliminating Sources of Catastrophic Risk

Your Shockproof Value Chain

Scott is a seasoned management consultant with broad experience in manufacturing, supply chain, finance and strategy functions. His industry experience includes automotive, medical devices, oil & gas, food & beverage, financial services and non-profit.

Bio: Scott Stallbaum

Scott has a strong analytical and strategic background and a history of successfully addressing complex issues facing organizations and mitigating risk. He brings a unique perspective to solving problems thanks to his experience in a variety of roles across different industries.

Before entering the consulting industry, Scott led the manufacturing organization and supported the CEO with projects focused on business process improvement and corporate strategy. He also managed new vehicle launches at a major automotive firm.

Agenda• Global trends• The complex organization• Moving beyond FMEAs• High reliability organizations• BP Deepwater Horizon• Summary• Q&A

Global Trends• Modern Value Chain Trends

– Shift to value web/network– Long, dispersed value chains– Tight value chains– SKU expansion– Channel expansion– Design & engineering outsourcing

Global Trends• Additional trends

– Higher overall number of suppliers/customers– Dispersed supplier/customer locations– Supplier concentration– Expanded and distributed inventory– Increased coupling– Increased complexity

Global Trends• These trends and characteristics of modern

value chains increase the likelihood and severity of failure– Global operations are more vulnerable than ever– Sources of critical risk are unknown, ignored or

viewed as permanent fixtures

Global Trends

• High profile operational failures– Boeing 787 Dreamliner– BP Deepwater Horizon

• Typically a lack of proactive risk management capability…when we need it the most

The Complex Organization• Why is risk management so

hard?– Product complexity

• Number of products/services offered

– Process complexity• Number of processes, steps,

handoffs, etc.

– Organizational complexity• Number of facilities, assets,

business units, etc.

Complexity results from a large # of interconnected “items”:

#Items #links

1 0

2 1

3 3

4 6

5 10

…10 45

The Complex Organization• Complexity exists along

the dimensions– Can be good or bad

• Complexity costs exist on the faces and within– Result from interactions

between dimensions– Grow geometricallyOrganization

Value add

Non-value add

Complexity Cube

The Complex Organization• The typical process:

– Large number of handoffs, NVA steps, products competing for resource capacity

The Complex Organization• Even our organizations are more complex than

we realize• Expand this further to our end-to-end

supply chains

We look like this on paper But operate like this

Moving Beyond FMEAs

• Traditional tools like FMEA are:– Time & resource intensive– Snap-shot views of risk– Locally focused

• In today’s environment, need real-time issue identification and prevention/reaction

• Deep understanding of processes, players and relationships is needed to act quickly

High Reliability Organizations (HROs)• Characteristics of HROs

– Preoccupation with failure– Drive deeper than symptoms– Sensitivity to operations– Commitment to resilience– Deference to expertise

High Reliability Organizations (HROs)• Creating a learning culture is foundational to

developing an HRO• Learning cultures:

– Build a system of dynamic discovery– Solve problems as they arise and proactively

prevent reoccurrence– Disseminate knowledge rapidly– Develop managers who drive continuous

improvement

The Nuclear Navy & HROs• US Nuclear Navy

– Operates more reactors than anyone else (150)– Operates in remote, dynamic, harsh environments– Young personnel with high turnover

• No accidents in 50 years (6000 reactor-years)– Compare this to:

• Three Mile Island• Loss of Space Shuttle Columbia• USAF lapse in nuclear accountability

Nuclear Navy – Defense in depth

Robust Equipment

Rigorous Procedures

Well-Trained Operators

Impossible to design equipment that will never fail

Impossible to devise procedures to cover all possibilities

Training operators to have thorough understanding is the only logical course

Defense in depth is the multilayered approach to safety and operational performance:

5 Pillars of High Reliability OrganizationsLE

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HRO 5 Pillars of HROs•Level of knowledge•Formality•Questioning attitude•Forceful backup• Integrity

BP Deepwater Horizon• April 20, 2010: explosion aboard BP

Deepwater Horizon drilling rig• Seafloor oil gusher during capping phase• 11 workers killed by explosion• 4.9mm barrels of crude oil released• Management visibility tour onboard that day

BP Deepwater Horizon

• VIP team arrive on rig• Team attends safety

orientation

• Follow-up to previous safety improvement recommendations

• Tour begins with visit to riser skate to observe adoption of lessons learned from another rig – slip/trip

• Tour continues to Driller’s control room

• One VIP notices “confusion”

• VIPs conduct “light-hearted” meeting w/ personnel in galley

• Discuss safety goals, emphasizing “hand safety” and “dropped objects” campaigns

• VIP follows up with Rig Manager and asks "Everything all right up on the rig floor there? Get everything sorted out?“

• Rig Manager responds with thumbs up

3 PM 4 PM 5 PM 6 PM 7 PM 8 PM 9 PM

• Rig staff misinterpreted results of negative pressure test

BP Deepwater Horizon• “Good” behaviors exhibited by VIPs

– Attended safety orientation– Pointed out slip/fall, harness, etc. issues– Shared lessons learned from other rigs– Visible leadership

BP Deepwater Horizon• Those good behaviors alone are not enough

– VIPs arrived w/o agenda or explicit purpose– Focus on trips/falls, PPE, etc.

• Also need 5 Pillars of operational discipline:– Drive deeper understanding of intent– Provide direction for all actions– Apply to all employees

BP Deepwater Horizon• Impact 5 Pillars would have had on Deepwater

Horizon– Level of knowledge– Formality– Questioning attitude– Forceful back-up– Integrity

Summary• We operate in a very complex environment• Catastrophic events are more likely, including:

– Events like Deepwater Horizon– Supply chain disruptions like Toyota’s brake

pressure valve supplier fire• Implementing 5-Pillars removes and

manages risk– Builds an organizational culture that continually

refines its understanding, leading to reduced risk

Q&A

Contact

Scott StallbaumConsultantEmail: sstallbaum@wilsonperumal.comTel: +1 (734) 652-0543