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JUST IN CASE NOT JUST IN TIME. Greg Hutchins PE Quality Plus Engineering 800.COMPETE or 503.233.1012 GregH@QualityPlusEngineering.com. Who is Greg Hutchins?. Principal with Quality Plus Engineering (Q+E), Portland Oregon based supply and project management company.

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JUST IN CASE

NOT

JUST IN TIME

Greg Hutchins PE

Quality Plus Engineering

800.COMPETE or 503.233.1012

GregH@QualityPlusEngineering.com


Who is greg hutchins
Who is Greg Hutchins?

  • Principal with Quality Plus Engineering (Q+E), Portland Oregon based supply and project management company.

  • Q+E is US Department of Homeland Security Certified/Designated for Critical Infrastructure Protection: Forensics, Assurance, Analytics™

  • Addresses:

    • www.QualityPlusEngineering.com

    • www.ValueAddedAuditing.com

    • Gregh@europa.com or GregH@QualityPlusEngineering.com

    • 800.COMPETE

  • Author of ISO 9000 (Wiley, translated into 8 languages), Standard Manual of Quality Auditing (Prentice Hall/ASQ), and Value Added Auditing (WIT)

  • ASQ/IEEE/PMI Columnist


My mission critical objective today
My Mission Critical Objective Today:

  • Global sourcing

  • Changing sourcing rules

  • Supply risk management

  • Future of supply management



Today s business model
Today’s Business Model

Aerospace and auto companies business model:

  • Design Product

  • Outsource (up to 85% of manufacturing $)

  • Assemble

  • Test

  • Manage their brand


Today s business model impacts supply risk
Today’s Business Model Impacts Supply Risk

  • Sara Lee Corporation plans to sell its non-core factories. It will focus on its core strengths, specifically developing new products, managing its brands, and increasing market share.

  • Sara Lee will outsource commodity manufacturing and other non-core activities and only retain its ‘highly proprietary’ processes. In other words, it plans to focus on ‘what it does best.’


Recent supply chain articles
Recent Supply Chain Articles

  • “Quake Disrupts Key Supply Chains”

  • “Stress Test for the Global Supply Chain”

  • “Long Pause for Japanese Industry Raises Concerns About Supply Chain”

  • “Japan Quake Likely to Affect Business Globally”


2 changing sourcing rules from just in time to just in case
2. Changing Sourcing Rules From Just in Time to Just in Case


Discussion
Discussion

  • Just in Time

    • Lean supply chain

    • No buffer inventories

  • Just in Case

    • What if

    • Risk analysis

    • Buffer inventories


From single source to multiple sources
From Single Source to Multiple Sources


Discussion1
Discussion

  • Single sourcing makes a lot of sense and offers value

  • However, single source can result in supply risks

    • Earthquake in China

  • All eggs in one basket

  • No diversification of risk


From single source to multiple sources1
From Single Source to Multiple Sources


Discussion2
Discussion

  • Single sourcing makes a lot of sense and offers value

  • However, single source can result in supply risks

    • Earthquake in China

  • All eggs in one basket

  • No diversification of risk



Discussion3
Discussion

  • Price or cost has been traditional method of selecting suppliers

  • Now, risk is becoming critical component of selecting suppliers



Discussion4
Discussion

  • Quality has compliance flavor

    • Historical focus

    • Past performance

  • Risk management

    • Future focus

    • ‘What if’ analyses



Discussion5
Discussion

  • Supplier trust is based on:

    • Long term, mutually beneficial relationship

    • Good products supplied

  • Supplier verification

    • More audits

    • Trust but verify



Discussion6
Discussion

  • Quality Audits

    • ISO 9000

    • Compliance based (still)

  • Risk Audits

    • ‘What if’ audits

    • White space gaps and risks in supply chain


3 supplier risk management that s nice what do i do now
3. Supplier Risk ManagementThat’s Nice, What Do I Do Now?


This is how you start
This Is How You Start!

  • Determine management’s appetite for risk.

  • Identify supply chain risk events.

  • Analyze risk events and assign risk vectors for likelihood and severity.

  • Quantify: determine risk products and prioritize.

  • Begin working with highest risk products (RP).

  • Determine appropriate controls.

  • Implement and monitor risk controls.

  • Manage risks by monitoring and repeating the process.

    This is Supply Chain Risk Management!


Two risk definitions
Two Risk Definitions

Risk – The possibility that an event will occur and adversely affect the achieve-ment of objectives.

COSO, Enterprise Risk Management Framework, web, 2003.

Risk – A situation or circumstance, which creates uncertainties about achieving program objectives.

FAA Programmatic Risk Management, 2002, p. 6.


Risk appetite are you a risk taker
Risk Appetite: Are You a Risk Taker?


Risk identification process
Risk Identification Process

  • Flowchart the overall supply chain and sub processes.

  • Identify critical supply chain system, process, and production activities.

  • Determine likelihood of unwanted variation (risk events).

  • Identify which sources of variation represent higher severity.

  • Determine risk product profile.


Supply chain risk events
Supply Chain Risk Events

  • Early/late shipments or delivery to wrong location

  • Non-conforming/wrong product or quantity

  • Supplier processes

  • Sole source supplier

  • Undesirable events (storm, flood, earthquake, etc.)

  • Contract, legal and regulatory non-conformance.

  • Information system failure and compromises

  • Supplier country political stability


Risk continuum

High

Low

Low

High

Risk Continuum

Likelihood

Severity


Sample risk profile for late or non delivery
Sample Risk Profile for Late or Non-Delivery

Specialized Electronic Chips in

Household Appliances

Off Shore Supplier

Specialized Electronic Chips in

Regulated Products

Off Shore Supplier

High

Likelihood

Maintenance, Repair and Operational (MRO) Supplies

Domestic supplier

Fasteners in Regulated

Products

Domestic Supplier

Low

Likelihood

Low Severity

High Severity



Consequence or severity of impact
Consequence or Severity of Impact





Develop strategy control risk
Develop Strategy: Control Risk


Develop strategy accept risk
Develop Strategy: Accept Risk


Develop strategy avoid risk
Develop Strategy: Avoid Risk!

“Would you please elaborate on ‘then something bad happened’?”


4 future of supply management takeaways
4. Future of Supply ManagementTakeaways!

  • Outsourcing increases risk.

  • Leaning of supply chains increases risk.

  • Data chain management increasingly more important (not only chain of custody, but data transferred from system to system).

  • Higher levels of independent verification and validation required.

  • Third party risk assessment of vendors is critical.


Takeaways
Takeaways

  • Managing risk is increasingly important and necessary to compete and survive.

  • Terrorism, natural disasters, computer system compromises, are all on the rise.

    • DHS is developing risk management system

  • Risk based system for import safety

  • SCM professionals are key to an enterprise’s risk management.

  • Be proactive; predict, prevent, and preempt risks.



The bottom line
The Bottom Line

“I think we now live in an era when many of the concerns in running organizations are being reframed in terms of risk, which suggests that risk professionals are likely to rise to the top.”

 Source: ‘Managing Risk in the New World,’ Harvard Business Review (HBR), October, 2009, p. 75.


Questions
QUESTIONS?

THANK YOU FOR INVITING ME!

Greg Hutchins

Engineering Principal

Quality Plus Engineering, LLC

800.COMPETE


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