USING THE OUTCOME-DRIVEN INNOVATION APPROACH TO DEVELOP A CUSTOMER
Outcome Driven Supply Chain - Part 1
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Transcript of Outcome Driven Supply Chain - Part 1
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Outcome Driven Supply Chain
Dr. Etinder Pal SinghFeb 24, 2012
Presented at MDP organized by Center for Management Development & UPES Dehradun
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A request
Keep an open mindand
Ask lots of questions
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REMEMBER!
• Today’s supply chain is a result of actions taken in the past.
• Tomorrow’s supply chain will be the result of actions that we take today.
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Risks in supply chains?
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Most important risks faced by multinational
firmsAon Global Risk Management Survey 2009(Survey among 550 multinational companies > $ 1
billion revenue)
1. Economic slowdown2. Regulatory / legislative change3. Business interruption risks4. Increasing competition5. Raw materials / commodity prices6. Damage to reputation7. Cash flow / liquidity risk8. Supply chain failure9. Third party liability10.Difficult to attract top talent
Supply chain risks mentioned three times in Top 10!
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Natural disasters reported 1900-2008
Source: EM-DAT (2010)
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Risks in the supply chain – an example
The Albuquerque accident• March 2000• Philips semi-conductor plant in Albuquerque, New Mexico, USA– Sole-supplier of radio-frequency chips to Nokia and Ericsson
• Lightning strike lead to small fire in clean rooms at Philips plant
• Sprinkler installation activated in clean rooms• It took 3 weeks before production was up and running again
• After 6 months, production yields were only 50%• It took years before new equipment was delivered and installed
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Supply chain risk•Risk is a concept with a lot of different definitions•2 main perspectives:
–Exposure to uncertainty (everyday usage e.g. “it is risky to drink and drive”)
–Outcome of an event (e.g. higher total costs and longer lead-times after a fire in a warehouse:
– Risk = Probability * Consequences)
•What can happen? (risk sources)•How likely is it that it will happen? (probability)•If it does happen, what are the consequences? (consequences)
Source: Jüttner et al. (2003); Zsidisin and Ritchie (2008)
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Analysing supply chain risks
• Firms commonly visualise unforeseen and unwanted events by means of a risk-matrix
• A risk-matrix has 2 dimensions: probability and consequences (impact)
• Problem: it relies heavily on risk perception.
Source: Sheffi & Rice Jr. (2005)
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Supply chain risk sources
Source: Christopher & Peck (2004)
• Where can risks originate from?
Environmental risk
Supply risk
Risks internal to the firm
Process risk Demand risk
Control risk
Supply risk Process risk Demand risk
Control risk
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Supply chain risk sources
Source: Christopher & Peck (2004)
• Where can risks originate from?
Environmental risk
Supply risk
Risks internal to the firm
Process risk Demand risk
Control risk
Supply risk Process risk Demand risk
Control risk
Machine break-downEmployee strike
Order quantity policiesQuality control
Volatile customer-demandWrong order-forecast
Natural disastersPolitical instabilitySevere weather conditions
Bankruptcy of supplierQuality problems at supplierTransportation failure
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Supply chain disruptions
• “Supply chain disruptions are unplanned and unanticipated events that disrupt the normal flow of goods and materials within a supply chain”
• Supply chain disruptions: the occurrence of risk
• Consist of: a trigger and the situation that emerges afterwards.
Source: Craighead et al. (2007), Wagner and Bode (2008)
Time
Triggering event
Supply chain risk
Occurrence of risk
Consequential situation
Supply chain
disruption
Exposure to risk
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Most frequently occurring disruptions in 2008-2009
1.Sudden drop in customer demand
2.Quality issues at the supplier
3.Poor logistics performance of suppliers (delivery dependability)
4.Severe weather conditions
5.IT-infrastructure problems (hardware, software)
Source: TNO-onderzoek: Risico’s en Kwetsbaarheden in Logistieke Ketens (2010)
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What are the consequences of a disruption?
Higher costBad performanceLost salesLower profitsBankruptcy Fear, dangerDamage to reputation
For whom?The company itselfSuppliersCustomersSociety