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@scguydan
Concert Interrupted? – An agenda
for the chief supply chain officer to
develop countermeasures for
supply chain risks and disruptions
Danie Schoeman
Concert interrupted
@scguydan
#SAPICS2016
38th Annual Conference & Exhibition
@scguydan
China
Typhoon
Philippines
Typhoon
Indonesia
Forestfires
Indonesia
Seapiracy
South Africa
Hijackingviolence
Brazil
Transportstrikes
India
Childlabour
India
Floods
India
Portstrikes
Germany
Anti-Westernterrorism
SchengenStates
Bordercontrols
Turkey
Workingconditions& Bordercontrols
Japan
Counter-feits
China
Portexplosion
China
Factorystrikes
Guatemala
Politicalinstability
Argentina
Workingconditions
Peru
Supplychain
corruption
USA
Floods &Extremeweather
Mexico
UMC –Drugs
Canalcongestion
Panama
Colombia
Cargotheft
Bordercontrols
Chile
Netherlands
Cargotheft
UK
Cargotheft
It can happen to you …
BSI 2015 SCREEN Global Intelligence Report; DHL Resilience360
Mexico
Hurricane
Politicalinstability
Terrorism(ISIS attacks)
Earth-quake
@scguydan
At a hefty price tag
$56 billion+
2015
2014
2013>$300 billion
$57 billion
BSI Global Intelligence Reports
0
20
40
60
80
100
120
140
160
Co
st in
US$
bill
ion
33
93
23
@scguydan
“In one industry after another, supply chains have been stretched farther than they have ever been stretched in the past [with] few [that] have much experience managing supply risks across oceans and continents.” 5
1. BCI Supply Chain Resilience Survey 2014; 2. World Economic Forum Study 2012, Insurance News; 3. UPS Capital: Managing Risk in the Global Supply Chain 2014; 4. Deloitte 2012 Risk Management Report; 5. Ruud Bosman (2006) - The New Supply Chain Challenge: Risk Management in a Global Economy, Factor Mutual Insurance
90%
We coulda, woulda, shoulda
of respondents report at least one instance of supply chain disruption1
of companies DO NOT assess value and supply chain risk continuously4
of firms DO NOT quantify risk when outsourcing production3
of industry experts surveyed believe that supply chain and transport risk management are greater priorities in their companies today than 5 years ago2
81% 79%
90%
have risk managers in their firms, either in legal or compliance, but virtually all of those internal functions ignores supply chain risk3
DO NOT have full visibility of their supply chains1
66%
74%
@scguydan
The C-Suite is in the hot seat …
CEO, 26%
CFO / Treasurer,
23%CRO / Head of
Risk, 19%
Risk Committee (company level),
15%
Legal / Compliance, 14%
COO or CAO, 2% Other, 2%
Primary responsibility for risk management
Risk management is now a C-Suite issue, but “45% of executives lacks confidence in their supply chain risk management programmes.”
Deloitte - Aftershock: Adjusting to the new world of risk management, 2012
@scguydan
…yet commitment is low
34.2%28.6%
40.8%
38.0%
21.1%28.6%
1.3% 3.3%
2013 2014
Chart Title
None
Low
Medium
High
BCI Supply Chain Resilience Survey 2014
How would you assess the current commitment (attention and priority) of Top Management in your organization to managing supply chain risk proactively?, % of respondents
@scguydan
…and immaturity persists
Supply chain risk management remains a relatively immature discipline with only a minority of companies (9%) fully prepared to address potential challenges from supply chain disruptions in increasingly complex environments.
• No risk governance structure • Poor visibility into sources of
supply chain risk and suppliers’ operations
• Limited analysis of potential threats
• No prior anticipation of positioning or response mechanisms
• Risk management processes are documented and integrated internally
• Basic threats and vulnerabilities are analysed
• Scenarios concerning the base integrated plan are conducted to position inventory and capacity buffers
• Postponement product design principles are explored to respond to changing demand
• Minimal visibility of changes/ patterns outside the company
• Formal quantitative methodologies for risk management
• Collaboration across the supply chain
• High levels of information sharing and visibility
• Sensors and predictors used to proactively position response mechanisms
• Products and processes rationalised to reduce complexity
• Monitoring of resilience levels among suppliers
• Business continuity plans are created
• Risk governance is formal but flexible
• Full alignment between supply chain partners
• Supply chain is segmented to match customer value propositions
• Risk sensors and predictors supported by real-time monitoring and analytics
• Supplier segmentation to identify key risks
• Risk strategies are segmented according to supplier profiles and product/ market characteristics
Level 1Ad hoc
Level 3Proactive
Level 2Integrated
Level 4Flexible
9%32%42%17%
Less mature More mature
PwC and the MIT Forum for Supply Chain Innovation - Making the right risk decisions to strengthen operations performance, 2013
@scguydan
Consequences of supply chain
disruptions are far reaching …
BCI Supply Chain Resilience Survey 2014
5%
7%
7%
7%
18%
18%
24%
27%
34%
35%
38%
41%
45%
48%
59%
Share price fall
Product recall/withdrawal
Regulatory fines for non-compliance
Payment of service credits
Increase in regulatory scrutiny
Loss of regular customers
Product release delay
Stakeholder/shareholder concern
Delayed cash flows
Damage to brand reputation/image
Service outcome impaired
Customer complaints received
Loss of revenue
Increased cost of working
Loss of productivity
@scguydan
…with significant economic impact
39.6%
13.5%
7.7%
14.5%
2.9%
1.0%
0.0%
1.0%
0.0%
19.8%
46.0%
14.2%
8.5%
7.6%
1.0%
0.0%
0.0%
0.0%
0.0%
22.7%
<€50K
€50K-€250K
€251K-€1M
€1.1M-€10M
€11M-€50M
€51M-€100M
€101M-€250M
€251M-€500M
>€500M
Don't know
Single event 12 Month cumulative
BCI Supply Chain Resilience Survey 2014
The world is still not flat, but …
@scguydan
#SAPICS2016
38th Annual Conference & Exhibition
@scguydan
The road to globalisation – and
greater risk …“One of the very trends that has increased supply chain risk – globalisation – also provides opportunities to manage risk.”
2014 DHL Global Connectedness Index; R Bosman - The New Supply Chain Challenge: Risk Management in a Global Economy, FM Global 2006
@scguydan
… increasing complexity
Adapted from G. Linden, K.L. Kraemer, and J. Dedrick (2009), “Who Captures Value in a Global Innovation Network? The Case of Apple’s iPod”, Communications of the ACM, March 2009, Vol. 52, No. 3, pp. 140-144; World Economic Forum Global Risks 2015.
$80
$75
$85
$19 $27
$7 $5 $1
$40
Apple (Margin) Distribution and Retail Major Components
Other Inputs Japan (Margin) USA (Margin)
Taiwan (Margin) Korea (Margin)$80
$75
$85
$19 $27
$7 $5 $1
$40
@scguydan
Evolving supply chains to minimise
cost …
of companies had re-structured their distribution network in the last year.
of the cases the distribution re-structuring had involved relocating distribution centres to a lower cost country.
More Fewer
National DCs 49.5% 50.5%
Regional DCs 58.5% 41.5%
Global DCs 52.8% 47.2%
of respondents cited the main reasons for the distribution re-structuring were predominantly related to cost.
indicated that they were establishing more regional (multi-country) distribution hubs.
75% 20%
50%
58%
How has the structure of your distribution network changed?
European supply chains are evolving to become more product- and/or channel-specific enabling them to adapt to different customer and product service level requirements.
Transport Intelligence - Global Distribution Strategies Survey, 2008
@scguydan
… causing complexity and fragility
PwC and the MIT Forum for Supply Chain Innovation - Making the right risk decisions to strengthen operations performance, 2013
38%
74%
80%
87%
94%
95%
The relationships betweensupply chain entities havebecome less transparent
The number of entities in thesupply chain has increased
Products and services havebecome less standard
New product introductionshave been more frequent
Changes in the extendedsupply chain network occur
more frequently
Dependencies betweensupply chain entities* have
increased
Chart TitleEvolution of supply chain complexity over the past three years
*suppliers, partners, customers Strongly Agree / Agree
@scguydan
…with the cost efficiency chasers
losing
Difference in performance resilience measured by percentage of companies that suffered a 3% or higher impact on their performance indicators as a result of supply chain disruptions in the past twelve months
-6% -5%-6% -21% -8% -14% -26% -24% -32%-33%
PwC and the MIT Forum for Supply Chain Innovation - Making the right risk decisions to strengthen operations performance, 2013
46% 47%
36%
53%
71%64% 67%
73%80%
73%
13%
41%
31%
47% 50%56% 53%
47%
56%
41%
Market value Sales revenue Market-share Total supplychain cost
Supply chainasset
utilisation
Inventoryturns
Customerservice level
Total supplychain lead
time
Total supplychain lead
timevariability
Orderfulfilmentlead time
Mature (Level III—Level IV) cost efficient companies Mature (Level III—Level IV) flexible response companies
@scguydan
Risk visibility in sub-tiers is lacking
17%36%
79%90%
78%
31% 31%
Indirectsuppliers
Indirectsuppliers
Direct suppliers Internal plants& operations
Directcustomers
Indirectcustomers
Indirectcustomers
Tier-3 +supplier
Retailer
Endcustomer
Whole-saler
Whole-saler
Retailer
Retailer
Endcustomer
Endcustomer
Endcustomer
Tier-2supplier
Tier-1supplier
Tier-3 +supplier
Tier-3 +supplier
Tier-3 +supplier
Tier-2supplier
Tier-2supplier
Tier-1supplier
OEM
SCMWorld - Innovative Approaches to Supply Chain Risk, 2014
Risk visibility across the value chain
@scguydan
…making it the biggest challenge in
moving goods
Transport Intelligence - Supply Chain Risk & Visibility in the Movement of Goods, 2014
3.5%
3.9%
7.7%
8.2%
8.7%
11.0%
13.2%
13.9%
14.4%
15.5%
Meeting the demands of Omni-channel
Environmental programmes /CO2 reductions
Complexity of handlingmultimodal transportation
Schedule compliance
Speed
Competition
Delivering to schedule
Rising costs
Transport reliability
Supply chain visibility
Chart TitleThe key challenges faced in moving goods,% of respondents
Anatomy of a supply chain
disruption
@scguydan
#SAPICS2016
38th Annual Conference & Exhibition
@scguydan
What happens with a supply chain
disruption
Bu
sin
ess
Pe
rfo
rman
ce In
dic
ato
r
Time
Stable situation/Business-as-usual
Y Sheffi - The Resilient Enterprise - Overcoming Vulnerability for Competitive Advantage, 2005; B Asbjørnslett - Assessing the vulnerability of supply chains, 2008; David Simchi-Levi - A New Approach to Manage Supply Chain Risk, HBR, 2015
Disruptiveevent
Time offull impact
Firstresponse
Preparationfor recovery
Recovery
Initialimpact
New stablesituation /Business-as-usual
Time to Recovery (TTR)
PerformanceImpact
(PI)
@scguydan
… with the actual residual effectB
usi
ne
ss P
erf
orm
ance
Ind
icat
or
Time
Stable situation/Business-as-usual
Y Sheffi - The Resilient Enterprise - Overcoming Vulnerability for Competitive Advantage, 2005; B Asbjørnslett - Assessing the vulnerability of supply chains, 2008; David Simchi-Levi - A New Approach to Manage Supply Chain Risk, HBR, 2015
Disruptiveevent
Time offull impact
Firstresponse
Preparationfor recovery
Recovery
Initialimpact New stable
situation /Business-as-usual
Long-termimpact
Time to Recovery (TTR)
PerformanceImpact
(PI)
@scguydan
Having a significant impact on
business and financial performance
68%
72%
65%
64%
67%
66%
69%
40%
54%
35%
Order fulfilment lead time
Total supply chain lead timevariability
Total supply chain lead time
Customer service level
Inventory turns
Supply chain asset utilisation
Total supply chain cost
Market-share
Sales revenue
Market value
Chart Title
Percentage of companies that suffered a 3% or higher negative impact on their performance indicators as a result of supply chain disruptions in the past twelve months
PwC and the MIT Forum for Supply Chain Innovation - Making the right risk decisions to strengthen operations performance, 2013
@scguydan
Disruptions can happen anywhere in
the supply chain network“A collapse in one part of the network can have a magnifying effect on every part of the network. These interrelationships are either not well understood or are ignored by most companies.” - David Simchi-Levi, professor MIT
Tier 2+ Tier 1 CustomersDistribution Assembly
LTL
FTL
@scguydan
With sources of supply chain risks
far beyond the company
Macro environment risksHave potential effects across the entire supply chain
Exist among enabling functions that support supply chain processesFunctional risks
Human resources Information technology LegalFinance
EconomicEnvironmental/
Social responsibilityInfrastructure/
ResourcesGeopolitical Hazards SecurityRegulatory
Supply Demand
Tier N Tier 1 End usersDistributors3rd party services
Operational risks
DeliverDevelop Plan Source Make Return
Relate to internal process risks
Extended value chain risksOriginate in upstream and downstream supply chain partners
The risks to supply chains today are numerous and constantly evolving, and emanate both from within and outside of the company.
Deloitte - Supply Chain Resilience: A Risk Intelligent approach to managing global supply chains, 2012
From the risk observatory
@scguydan
#SAPICS2016
38th Annual Conference & Exhibition
@scguydan
Categorising sources of disruption
to define strategies
Business continuity
• Natural disasters
• Man-made disruptions
• Supplier redundancy & contingency
Security
• Cargo disruption
• Cargo theft
• Hijacking exposure
• Unmanifested cargo
• Information/cyber attacks
• Sea piracy
• Supply chain terrorism
• Anti-western terrorism
Brand protection
• Facility traceability (forced & child labour)
• Compliance to social & human rights
• Compliance to environmental, health & safety
• Counterfeiting
• Intellectual property violations
Geopolitical
• Political stability
• Economic & financial stability
• Corruption
• Crime & government effectiveness
• Employee screening practices
@scguydan
Major causes of supply chain
disruption
0% 10% 20% 30% 40% 50% 60% 70% 80% 90%
Energy scarcityLack of credit (cost, availability)
Currency exchange rate volatilityNew laws or regulations
Loss of talent/skills
Environmental incidentIntellectual Property violation
Product quality incidentHealth & Safety incident
Act of terrorismFire
Business ethics incidentData breachCyber attack
Transport network disruptionUnplanned IT/telecoms outage
Animal diseaseEarthquake/tsunami
Insolvency (in the supply chain)Human illness
Civil unrest/conflictIndustrial dispute
Outsourcer service failureAdverse weather
High Impact Some Impact Low Impact
Security risks
Business continuity risks
Brand protection risks
Geopolitical risks
Business continuity disruptors
@scguydan
#SAPICS2016
38th Annual Conference & Exhibition
@scguydan
Natural disasters have become more
pervasive …
EM-DAT: The CRED/OFDA International Disaster Database, 2016
0
100
200
300
400
500
600
19
00
19
07
19
14
19
21
19
28
19
35
19
42
19
49
19
56
19
63
19
70
19
77
19
84
19
91
19
98
20
05
20
12
TitleNatural disasters reported 1900-2015
@scguydan
…at a very high price
Munich Re, NatCatSERVICE, 2016
760
8 000
18 500
16 000
15 300
29 500
300
3 000
60 500
40 000
28 000
30 000
38 000
43 000
44 000
68 500
85 000
100 000
125 000
210 000
Japan - Earthquake (2004)
Chile - Earthquake, tsunami (2010)
Caribbean / USA - Hurricane Ike (2008)
Thailand - Floods, landslides (2011)
United States - Earthquake (1994)
Caribbean / N.A. - Hurricane Sandy (2012)
China - Earthquake (2008)
Japan - Earthquake (1995)
United States - Hurricane Katrina (2005)
Japan - Earthquake, tsunami (2011)
Losses in US$ million original values
Overall value Insured value
0
0
0
0
0
0
0
0
0
0
46
520
170
813
61
210
84 000
6 430
1 720
15 880
Fatalities
Fatalities Dummy
@scguydan
Old reliable have come under man-
made disruptions
Heavy manufacturing (steel, machinery, etc.)
25%
Electronics17%
Garment and Textiles
17%
Consumer Goods and Retail
11%
Food7%
Footwear6%
Automotive5%
Pharmaceutical2%
Other10%
Chart TitleStrikes by Industry in China, 2015
Labour unrest in China grows with factory strikes increasing by 58.3 percent in 2015, as factory owners struggled to pay workers due to a slumping economy, leading to protests and walk-offs.
BSI - Business Continuity Risk Index, 2016
@scguydan
And even increasingly popular
destinations are succumbing
34
121
147
108118
2011 2012 2013 2014 2015
StrikesGarment Sector Strikes in Cambodia, 2011-2015
Historically wages have been a major cause of strikes in Cambodia, but workers in recent strikes have also cited more specific grievances such as the cost of living, labour contracts, and working conditions.
BSI - Business Continuity Risk Index, 2016; Photo: Luc Forsyth
@scguydan
Explosive negligence … Tianjin port
@scguydan
Supply chain partner failure is the
major supply chain network problem
3%
5%
13%
10%
13%
13%
24%
19%
8%
12%
9%
13%
14%
14%
13%
19%
Downstream logisticspartners
Indirect customers
Upstream logistics partners
Company-owned supportfunctions
Direct customers
Tier 2 suppliers
Tier 1 (direct) suppliers orthird parties
Company-owned supply chainoperations
Chart Title
Ranked #1 Ranked #2
Locations in the supply chain of the most costly outcomes of risk events over last three years
38%
37%
27%
22%
17%
27%
23%
11%
Deloitte - The Ripple Effect - How manufacturing and retail executives view the growing challenge of supply chain risk, 2013
The most costly disruptions are caused by own supply chain, then failure at Tier 1 and Tier 2 suppliers. According to BCI respondents, 11.5% of disruptions are caused by suppliers at Tier 3 and lower. 3PLs are the third highest reason for failure.
Supply chain security disruptors
@scguydan
#SAPICS2016
38th Annual Conference & Exhibition
@scguydan
34%
35%
41%
44%
53%
68%
90%
Conveyances not inspected
Failure to screen businesspartners
Containers, trailers, pallets,etc. not secured/properlyinspected prior to loading
Lack of seal procedures
Inadequate transportationmonitoring
Security procedures notfollowed (lack of checks,balances, accountability)
Involved “trucks” as the mode of transportation for
breached cargo
Major factors contributing to cargo
breaches
C-TPAT Program Study June 2009
@scguydan
Global cargo theft risk levels
FreightWatch International
Risk level ofcargo theft
Highest level
Lowest level
@scguydan
Cargo theft in South Africa
Crime Stats SA - Crime Stats Simplified
Robbery: non-residential
Number of incidents
2014 2015
18 476 19 170
3.8%
@scguydan
Hijacking exposure in South Africa
Truckjacking
Number of incidents
2014 2015
989 1 279
29.3%
Crime Stats SA - Crime Stats Simplified
@scguydan
Omni-channel retailing has given the
consumer newfound power …
Forrester report: Welcome To The Era Of Agile Commerce, 2014
@scguydan
HomeChore automation
and security$200B−350B
…and the Internet of Things (IoT)
brings huge opportunity …
HumanHealth and
fitness$170B−1.6T
OfficesSecurity and
energy$70B−150B
FactoriesOperations and
equipment optimization$1.2T−3.7T
VehiclesAutonomous vehicles and
condition-based maintenance$210B−740B
OutsideLogistics and navigation
$560B−850B
CitiesPublic health
and transportation$930B−1.7T
WorksitesOperations optimization/
health and safety$160B−930B
Retail environmentsAutomated checkout
$410B−1.2T
Enable new business models
For example, remote monitoring enables anything-
as-a-service
Transform business processes
Predictive maintenance, better asset utilization, higher
productivity
Types of opportunities
9 settingsgave us a cross-sector view of
a total potential impact of$3.9 trillion–11.1 trillion
per year in 2025
McKinsey Global Institute (MGI): The internet of things: mapping the value beyond the hype, 2015
@scguydan
0.1%
0.7%
0.8%
3.9%
4.1%
15.3%
20.6%
25.1%
29.4%
Payment card skimmers
Point of sale intrusions
Cyber espionage
Denial of service attacks
Web app attacks
Physical theft and loss
Insider and privilege…
Crime ware
Miscellaneous errors
… but it also creates great peril
Almost all cyber attacks can beclassified by 9 patterns
Verizon 2015 Data Breach Investigations Report
@scguydan
Typical cyber attack incidents for
transport & logistics
24% 16% 16%Transportation
Cyber-espionage Insider and privilege misuse Web app attacks
WEB APP ATTACKSWhen attackers use stolen credentials or exploit vulnerabilities in web applications — such as content management systems (CMS) or e-commerce platforms.
INSIDER AND PRIVILEGE MISUSEThis is mainly by insider’s misuse, but outsiders (due to collusion) and partners (because they are granted privileges) show up as well. Potential culprits come from every level of the business, from the frontline to the boardroom.
CYBER-ESPIONAGEWhen state-affiliated actors breach an organization, often via targeted phishing attacks, and after intellectual property.
Verizon 2015 Data Breach Investigations Report
72%ON AVERAGE of the incidents in an industry can be described by just
three of the nine patterns.
@scguydan
Cyber attacks are physical
Verizon 2014 & 2015 Data Breach Investigations Report
of insider and privilege misuse attacks used the corporate LAN.
of theft / loss happened at work.
of miscellaneous errors involved printed documents.
49%
85%
55%
A significant amount of cyber attacks are actually through physical means and can be mitigated through physical security systems.
@scguydan
Look inside your company for cyber
attack origins
31%
29%
16%
13%
12%
22%
12%
13%
23%
7%
5%
24%
35%
30%
18%
15%
13%
24%
15%
16%
24%
7%
6%
18%
Unknown
Domestic intelligence service
Foreign nation-states
Competitors
Activists / activist organisations / hacktivist
Organised crime
Hackers
Suppliers / business partners
Former service providers / consultants / contractors
Current service providers / consultants / contractors
Former employees
Current employees
Likely sources of incidents
All industries in all regions Transportation & Logistics
PWC Global State of Information Security Survey 2015
@scguydan
…making screening and vetting
business critical
PWC Global State of Information Security Survey 2015
47%
48%
55%
54%
52%
57%
58%
69%
51%
54%
55%
56%
56%
59%
60%
73%
Accurate inventory of where personal data for employees andcustomers are collected, transmitted and stored
Employee Chief Information Security Officer in charge ofsecurity
Information security strategy that is aligned to the specificneeds of the business
Employee security awareness training programme
Secure access-control measures
Priviledged user access
Conduct personnel background checks
Require 3rd parties to comply with our privacy policies
Security safeguards in place
All industries in all regions Transportation & Logistics
@scguydan
Sea piracy is still rife
Based on info from IMO, IMB, ReCAAP
@scguydan
…you survive pirates and then this
Newsflare
@scguydan
Countries effected by terrorism
disruptions
Institute for Economics and Peace , 2015
The impactof terrorism
Highest impactof terrorism
Lowest impactof terrorism
Brand reputation disruptors
@scguydan
#SAPICS2016
38th Annual Conference & Exhibition
@scguydan
7%
10%
17%
19%
15%
32%
10%
11%
15%
17%
25%
22%
Social responsibility failure
Regulatory non-complianceand/or worker-safety failure
Product quality failure
Physical product flowdisruption
Sudden demand change
Margin erosion
Chart Title
Ranked#1 Ranked#2
Brand reputation is the most costly
outcome of disruption ….
34%
19%
15%
32%
36%
17%
25%
22%
Brand reputation damage
Physical product flowdisruption
Sudden demand change
Margin erosion
Chart Title
Ranked#1 Ranked#2
Most costly outcomes of risk events in the supply chain
Most costly outcomes of risk events in the supply chain
54%
40%
32%
17%
36%
21%
54%
40%
70%
36%
@scguydan
Wearing human rights is cheap
0.18 0.27 1.151.2 2.19
3.4
3.614.63
12.37
29
Selli
ng
pri
ce
Pay
to
gar
me
nt
wo
rker
Ove
rhea
d c
ost
Pro
fit
fact
ory
Ban
glad
esh
Inte
rmed
iary
Tran
spo
rt c
ost
Mat
eria
l co
st
Bra
nd
pro
fit
Val
ue
add
ed t
ax
Ret
ail*
Share in Euro:
Share in %: 42.616.00.6100 0.9 4.0 4.1 7.6 11.7 12.5
Share of value – T-shirt fromBangladesh sold in Germany
*Includes all costs at a retail level including staff, rent, store profit, etc.
WEF: Beyond Supply Chains, Empowering Responsible Value Chains, 2015
@scguydan
Bitter aftertaste of child labour in the
cocoa supply chain
• Small, family farms (>750 000)• Independent operation• Few cooperatives (<2% of crop)
• Privately-funded operators• Pisteurs, Traitants• Fewer quality linkages
• Various participants, including international companies
• Includes semi-finished goods
• Beans, small family farm products into global market
• Further manufacturing of products
• Retail outlets, restaurants, small businesses
• Final customer
Global Market
Manufacturers
Farmers
CollectorsTransporters
Processors
Exporters
Customers
Consumers
Other Beans
Cocoa Supply Chain - Côte d'Ivoire
Center for Reflection, Education and Action (CREA)
@scguydan
Counterfeiting - a global $600 billion
epidemicCzech Republic Turkey
NigeriaNigeria loses N200
billion annually to sales and circulation of
adulterated lubricants
Saudi Arabia50% of deaths in automobile accidents caused by counterfeit parts
Philippines
Korea
France Georgia
USA
Brazil
Paraguay
Counterfeiting costs US businesses between
$200 and $250 billion dollars annually
One of the main sources of counterfeit
agro-chemicals
Alcoholic drink counterfeiting widely reported in Paraguay
Sub-standard wines found in premium brand bottles
30 people died in 2012 from consuming counterfeit Rum
containing methanolPakistan
Authorities fighting counterfeit motor-oil supply
High volume producer of counterfeit bags and other fashion items
China
High volume producer of counterfeit branded clothing and leather goods
One of the main sources globally of counterfeit cosmetics
• 400 billion counterfeit cigarettes produced every year
• Counterfeit baby food found in original packaging
IndiaOne of the main contributors to global counterfeit medicines epidemic
Increasing problems with counterfeit soft drink production
HH Global - Brand Protection & Anti-Counterfeiting
Geopolitical disruptors
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Countries effected by disruptions
due to political instability
World Bank, 2015
Level ofpolitical stability
Politicallymost stable
Politicallyleast stable
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Disruptions in countries effected by
corruption
2014 Transparency International
Level ofcorruption
Highlycorrupt
Veryclean
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Customs “integrity” of SA’s biggest
trade partners
Honest Joe’sHonest Crooks
AngelsDark Horses
DS&C Analysis, WEF ETI (2014)
ZimbabweAngola
Zambia
BotswanaMozambiqueNigeria NamibiaMadagascar
GhanaLebanon India
Thailand Mauritius Saudi ArabiaSouth AfricaChinaItaly
United States GermanyUnited Kingdom Japan
Netherlands
0
1
2
3
4
5
6
7
0 1 2 3 4 5 6 7
Effi
cien
cy a
nd
tra
nsp
aren
cy o
f b
ord
er
adm
inis
trat
ion
(1
= in
effi
cien
t, 7
= e
ffic
ien
t)
Irregular Payments (1 = common, 7 = never occurs)
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Government (in)effectiveness that
can cause disruptions
Level ofgovernmenteffectiveness
Most effective
Least effective
World Bank, 2015
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The war for talent continues …
15%
19%
14%
22%
37%
43%
2011 2013 2014
Chart Title
Easier More difficult
0%
5%
10%
15%
20%
25%
30%
2011 2012 2013 2014
Chart Title
Career progression Retaining
Developing Finding
Hiring Measuring
Knowledge worker challenges% of respondents saying ‘extremely challenging’
Knowledge worker challenges% of respondents saying ‘extremely challenging’
SCMWorld - The Chief Supply Chain Officer Report, 2014
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Being able to bounce back
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A systematic approach to supply
chain risk is required
Identify Quantify
MitigateRespond
What types of risk are we exposed to and where are they in our supply chain?
What financial impact could these risks have on our sales
and profitability?
How quickly can we recover from a disruptive event and
return to normal operations?
What strategies/tactics do we have in place to minimise the disruption to our business?
Supply ChainRisk
Effective supply chain risk management is not a static exercise or a linear process. It requires constant monitoring, ongoing assessment and the periodic re-evaluation of contingency plans, whether or not they have actually been implemented.
SCMWorld - Innovative Approaches to Supply Chain Risk, 2014
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Identifying and assessing risk
19%
25%
38%
40%
42%
47%
48%
54%
58%
61%
72%
Social media monitoring
Business impact surveys
Real-time datamonitoring/analytics
Segmentation of suppliers /customer value propositions
Intuition or managementinsight
Third-partyresearch/intelligence
Scenario planning/businesssimulations
Risk mapping
Regular/open dialogue withcustomers
Analysis of historical data
Regular/open dialogue withsuppliers
Chart Title
SCMWorld - Innovative Approaches to Supply Chain Risk, 2014
Methods used to identify risk exposure% of respondents
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Data driven … a stark contrast to the
normal intuition-based approach
The power of predictive analytics
Visual mapping and social media
Innovators in supply chain risk use these tools and techniques within an enterprise-wide “culture of data driven decision making” that informs and shapes their risk mitigation strategies. When you are dealing with complex networks that have evolved over time, intuition can be misleading and take you in completely the wrong direction.” - David Simchi-Levi professor MIT
SCMWorld - Innovative Approaches to Supply Chain Risk, 2014
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Tools of the risk trade …
29%
32%
35%
36%
42%
42%
44%
45%
Business simulation
Worst-case scenariomodelling
Risk sensing data
Predictive modelling
Risk intelligence data
Supply chainmapping/visualization
Supply chain operationalmodelling
Financial risk modelling
Chart Title
Types of data/visualization/analytical tools used to manage risk within the supply chain
Deloitte - The Ripple Effect - How manufacturing and retail executives view the growing challenge of supply chain risk, 2013
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Identifying and assessing risk -
illustration
Gartner - Case Study: Cisco Addresses Supply Chain Risk Management, 2010
How Cisco mapped the 2011 disaster in Japan
No impact-low risk profile
Significant impact reported-mitigate with higher prioritySome impact reported-monitor and/or mitigate
Capacity disabled or assumed highest risk-mitigate with highest priority
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Available supply chain risk solutions
and services
ChainLink Research - Supply Chain Risk Solutions: A Market Overview, 2013
Supply chain& business continuity
consultants
Supplier audit and monitoring
services
Supplier quality management
Contract, SLA management
Supplier performance management
Hedgingtools and
instruments
Trading partner/ IT security/
identity management
Supplier data subscription
services
Cargo securitySustainability/ CSR platforms,
product analytics
Supply chain insurance
Eventmonitoring &
alertingservices
Anti-counterfeiting
solutions
Cold chain
Business continuity
management
Design collaboration/IP protection
Inventory optimisation,
demand management
Governance,risk management
& compliance
Supplier risk and compliance
Logistics, visibility, TMS
Traceability, chain of custody
Supply chain mapping and monitoring
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Natural disastersGeopolitical risks
EpidemicsTerrorist attacks
Environmental risksVolatile fuel pricesRising labour costs
Currency fluctuationsCounterfeit parts and products
Port delaysMarket changes
Suppliers’ performanceForecasting accuracyExecution problems
Quantifying and prioritising risk
This may work reasonably well in the case of recurring operational risks – the “controllable” or “known-unknown” risks where historical data is available, but not for the “uncontrollable” or “unknown-unknown” risks.
Unknown-Unknown Uncontrollable
Known-Unknown
Controllable
Like
liho
od
of
occ
urr
ence
Business impactModerateMinor Major Critical
Possible
Likely
Highly likely
Unlikely
A typical risk evaluation matrix Sources of supply chain risk
SCMWorld - Innovative Approaches to Supply Chain Risk, 2014; David Simchi-Levi, et al. - Identifying Risks and Mitigating Disruptions in the Automotive Supply Chain (Ford case study)
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The Risk Exposure Index as an
alternative
Bu
sin
ess
Pe
rfo
rman
ce In
dic
ato
r
Time
Stable situation/Business-as-usual
Y Sheffi - The Resilient Enterprise - Overcoming Vulnerability for Competitive Advantage, 2005; B Asbjørnslett - Assessing the vulnerability of supply chains, 2008; David Simchi-Levi - A New Approach to Manage Supply Chain Risk, HBR, 2015
Disruptiveevent
Time offull impact
Firstresponse
Preparationfor recovery
Recovery
Initialimpact
New stablesituation /Business-as-usual
Time to Recovery (TTR)
PerformanceImpact
(PI)
The Risk Exposure Index allows companies to understand the dependencies within their supply chains, estimate hard-dollar impacts and prioritise their risk mitigation efforts.
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The Risk Exposure Index illustrated
Time-To-Recover (TTR): The time it takes to recover to full functionality after a disruptionPerformance Impact (PI): Impact of a disruption for the duration of TTR on a given performance measureRisk Exposure Index (REI): Normalizes the PI by the maximum PI over all disruption scenarios
Tier 2+ Tier 1 CustomersDistribution Assembly
TTR =2 WeeksPI = $400m
2 Weeks$300m 2 Weeks
$100m
2 Weeks$400m
2 Weeks$2.5bn
1 Week$100m
2 Weeks$1.5bn
LTL
FTL
1
Adapted from David Simchi-Levi, et al. - Identifying Risks and Mitigating Disruptions in the Automotive Supply Chain (Ford case study)
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The Risk Exposure Index illustrated
Time-To-Recover (TTR): The time it takes to recover to full functionality after a disruptionPerformance Impact (PI): Impact of a disruption for the duration of TTR on a given performance measureRisk Exposure Index (REI): Normalizes the PI by the maximum PI over all disruption scenarios
Tier 2+ Tier 1 CustomersDistribution Assembly
TTR =2 WeeksPI = $400m
2 Weeks$300m 2 Weeks
$100m
2 Weeks$400m
2 Weeks$2.5bn
1 Week$100m
2 Weeks$1.5bn
LTL
FTL
2
Adapted from David Simchi-Levi, et al. - Identifying Risks and Mitigating Disruptions in the Automotive Supply Chain (Ford case study)
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The Risk Exposure Index illustrated
Time-To-Recover (TTR): The time it takes to recover to full functionality after a disruptionPerformance Impact (PI): Impact of a disruption for the duration of TTR on a given performance measureRisk Exposure Index (REI): Normalizes the PI by the maximum PI over all disruption scenarios
Tier 2+ Tier 1 CustomersDistribution Assembly
TTR =2 WeeksPI = $400m
2 Weeks$300m 2 Weeks
$100m
2 Weeks$400m
2 Weeks$2.5bn
1 Week$100m
2 Weeks$1.5bn
LTL
FTL
3
Adapted from David Simchi-Levi, et al. - Identifying Risks and Mitigating Disruptions in the Automotive Supply Chain (Ford case study)
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The Risk Exposure Index illustrated
Time-To-Recover (TTR): The time it takes to recover to full functionality after a disruptionPerformance Impact (PI): Impact of a disruption for the duration of TTR on a given performance measureRisk Exposure Index (REI): Normalizes the PI by the maximum PI over all disruption scenarios
Tier 2+ Tier 1 CustomersDistribution Assembly
TTR =2 WeeksREI = 0.16
2 Weeks0.12 2 Weeks
0.04
2 Weeks0.16
2 Weeks1.0
1 Week0.04
2 Weeks0.6
LTL
FTL
4
Adapted from David Simchi-Levi, et al. - Identifying Risks and Mitigating Disruptions in the Automotive Supply Chain (Ford case study)
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41%
59%
Companiesthat do not
segmenttheir riskstrategy
Companiesthat segment
their riskstrategy
Mitigating risk and speeding
recovery
55%
70% 70%64%
73%
88% 90%80% 82% 80%
11%
32%
17%
46%52% 50% 46% 50%
59%
46%
Mature companies that do not segment their risk management strategy
Mature companies that segment their risk management
Mature companies that invest in risk segmentation are more resilient to disruptions than mature companies that don’t.
-18% -53%-38% -21% -38% -44% -30% -23% -34%-44%
Difference in performance resilience measured by percentage of companies that suffered a 3% or higher impact on their performance indicators as a result of supply chain disruptions in the past twelve months
PwC and the MIT Forum for Supply Chain Innovation - Making the right risk decisions to strengthen operations performance, 2013
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Mitigating risk and speeding
recovery – segmentation illustration
• Partnerships• Risk-sharing contracts• Track performance• Share experience• Business continuity
plans
• Inventory• Long-term contracts
• Inventory• Dual sourcing/sites• Flexibility• Standard components• Track performance
Financial impact
Tota
l sp
end
High
HighLow
20% of suppliers80% of spend
Using supplier segmentation to drive mitigation actions
Mature companies that invest in risk segmentation are more resilient to disruptions than mature companies that don’t.
David Simchi-Levi
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Bouncing back without missing
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43%
55%
56%60%
70%
Concentrating the CSCO’s priorities
Cost Containment
Supply Chain Visibility
Globalization
Customer Intimacy
Risk Management
IBM - The Smarter Supply Chain of the Future - Insights from the Global Chief Supply Chain Officer Study 2010
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27%
33%
41%
48%
54%
59%
59%
60%
72%
72%
78%
79%
82%
Other actions
Use postponement or delayed differentiation strategy
Use regional strategy only
Use component substitution strategy
Pursue near-shoring manufacturing strategy
Establish distribution centres in multiple regions
Increase inventory levels and safety stock
Apply forward buying/hedging strategy
Pursue demand collaboration with customers
Pursue (1st and 2nd tier) supplier collaboration
Use both regional and global strategy
Implement dual sourcing strategy
Create and implement a business continuity plan
Chart Title
Risk mitigation strategies
Actions companies take to mitigate supply chain risk
PwC and the MIT Forum for Supply Chain Innovation - Making the right risk decisions to strengthen operations performance, 2013
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Risk mitigation strategies
9%
10%
12%
15%
15%
15%
18%
19%
19%
21%
23%
24%
Purchasing business interruption insurance
Increasing hedging against currency or commodity volatility
Participating in lobbying efforts to influence legislation
Developing the capability to more rapidly deploy pipeline…
Increasing the ability to protect the brand reputation and…
Creating a more flexible workforce
Enhancing the ability to intelligently collect and react to…
Enhancing the ability to dynamically change product flow
Building the ability to rapidly adapt the supply network
Building the ability to rapidly adapt the production or…
Developing business continuity and risk contingency plans
Building stronger extended value chain relationships
Chart TitleMost effective strategies for preventing and recovering from negative outcomes of supply chain risk events
Deloitte - The Ripple Effect - How manufacturing and retail executives view the growing challenge of supply chain risk, 2013
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The main themes
• Proper developed supply chain strategy
considering various trade-offs
• Proactive vertical collaboration in the
extended value chain
• Network visibility and flexibility
• Business continuity planning
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What happens when business
continuity planning is in place
Bu
sin
ess
Pe
rfo
rman
ce In
dic
ato
r
Time
Stable situation/Business-as-usual
Y Sheffi - The Resilient Enterprise - Overcoming Vulnerability for Competitive Advantage, 2005; B Asbjørnslett - Assessing the vulnerability of supply chains, 2008; Wipro Consulting Services -Supply Chain Vulnerability in Times of Disaster, 2012; David Simchi-Levi - A New Approach to Manage Supply Chain Risk, HBR, 2015
Disruptiveevent
New stablesituation /Business-as-usual
Time to Recovery (TTR)1
Effect of visibility systems
Time to Recovery (TTR)2
Effect of swift action as per BCP
Preparationfor recovery2
Recovery1
Recovery2
Initialimpact
Firstresponse
Preparationfor recovery1
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Add some best practices
• Supply chain security efforts such as TAPA, C-TPAT, AEO and Maritime ISPS
• Business continuity management standards such as ISO 22301:2012, ISO/IEC 27001 information security management and ISO 28000 2007 supply chain security management standard
• Supply chain security intelligence resources, including trade and compliance intelligence, global supply chain security risk data and analysis
• Real-time trade interruption updates and reports on major disruption incidents
• Country-specific reports on supply chain terrorism, cargo disruption, business and political climate, population and culture, economy and trade, transportation infrastructure, general governance, export control governance, employer security practices, and customs-trade supply chain security programs
• Thorough vetting of your supply chain and participating firms’ supplier base
An agenda
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The CSCO Agenda
• Never say never – it can happen to you
• Know your network – 3 to 4 tiers deep
• Flexibility trumps cost towards resilience
• It’s not a guessing game – its data driven based on intelligence of specific risks
• Supply chain visibility and supply chain risk walk hand in hand
• Learn from best practice and others
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What are the three things you hope
to achieve?
“Demosthenes, the greatest of
Athenian orators, was asked
what the three tests of a great
speech were. “Action, action
and action‟ was his reply.”
James C. Humes
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Danie Schoeman+27 82 940 [email protected]
There’s more to talk about, so let’s
have coffee …
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Disclaimer
This document has been prepared by Danie Schoeman andCompany to provide background information on the subjectsmentioned herein, the forecasts, opinions and expectations areentirely those of Danie Schoeman and Company. Thispresentation was prepared with the utmost due care andconsideration for accuracy and factual information; the forecasts,opinions and expectations are deemed to be fair andreasonable. However there can be no assurance that futureresults or events will be consistent with any such forecasts,opinions and expectations. Therefore the authors will not incurany liability for any loss arising from any use of this presentationor its contents or otherwise arising in connection herewith.Neither will the sources of information or any other relatedparties be held responsible for any form of action that is taken asa result of the proliferation of this document.