Navigating the Crisis & Beyond: Perspectives for Leaders in South Asia Recognizing and Managing Novel Risks in Your Supply Chain Recognizing and Managing Novel Risks in Your Supply Chain 1 Traditional supply chain management: High likelihood, low impact events, such as defects or delayed delivery of purchased items Today’s Topic: Supply chain management after low likelihood, high impact events (“right of boom”) We will illustrate by working through several mini case studies
Transcript
Navigating the Crisis & Beyond: Perspectives for Leaders in South AsiaRecognizing and Managing Novel Risks in Your Supply Chain
Recognizing and Managing Novel Risks in Your Supply Chain
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Traditional supply chain management: High likelihood, low impact events, such as defects or delayed delivery of purchased items
Today’s Topic: Supply chain management after low likelihood, high impact events (“right of boom”)
We will illustrate by working through several mini case studies
Navigating the Crisis & Beyond: Perspectives for Leaders in South AsiaRecognizing and Managing Novel Risks in Your Supply Chain
Managing Crises: Plan; Read; React
Read signals to recognize as quickly as possible “sparks that can become prairie fires.”
React to the Crisis Plan for a possible low-likelihood, high-consequence event
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Navigating the Crisis & Beyond: Perspectives for Leaders in South AsiaRecognizing and Managing Novel Risks in Your Supply Chain
Supply Chain Risks and Disruptions
o Fire Chief: “It was minor. All we did was walk in and check it out.”
March 17, 2000: a fire caused by a lightning bolt erupted at a Philips semiconductor fabrication plant (“fab”) in Albuquerque, New Mexico.
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o No one was hurt. Damage seemed superficial. News programs and even local newspapers in Albuquerque did not cover the fire.
o Current work-in-process inventory was destroyed.
o Delay was communicated to the plant’s 30+ customers. “We will be back operating in a week.”
Navigating the Crisis & Beyond: Perspectives for Leaders in South AsiaRecognizing and Managing Novel Risks in Your Supply Chain
Nokia One of the Plant’s Customers
o March 20th: Philips called Tapio Markki, Nokia’s Chief component-purchasing manager to explain the circumstances and the expected 1-week delay.
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o Korhonnen placed the affected parts on a “special watch” list. Five types of chips from the Albuquerque plant would receive more scrutiny. Nokia offered to send engineers to Philips – but the help was declined.
o But Markki communicated the news to Perrti Korhonen, Senior Vice President of Operations, Logistics, and Sourcing for Nokia Mobile Phones, and Nokia’s top troubleshooter. “We encourage bad news to travel fast. We don’t want to hide problems.”
o Markki not overly concerned – had inventory of chips and Nokia’s operations would not be affected by a one week delay.
Navigating the Crisis & Beyond: Perspectives for Leaders in South AsiaRecognizing and Managing Novel Risks in Your Supply Chain
Two Weeks Later
Philips realized it would take weeks to restart production and months to catch up on the production schedule. Nokia realized this could be serious – more than 5% of the company’s annual production might be disrupted.
Korhonen and Marrki assembled a team of 30 – supply chain managers, chip designers, and senior executives. The team redesigned chips on the fly, sped up a project to boost production, and flexed the company's muscle to squeeze more out of other suppliers in a hurry. Alternative sources were identified for 3 of the 5 chips.
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o Production of the two chips was re-routed from Philips plants in Eindhoven and Shanghai to Nokia. Nokia’s production was largely unaffected. “At Nokia, the main cost has been frayed nerves on the crisis team.”
o For the two other chips, Philips was the only supplier. Korhonen called Chairman and CEO Ollila, diverted his plane, and joined him at Philip’s HQ in Eindhoven to meet with Philips’ CEO. After the meeting, the two CEOs announced, “Philips and Nokia would operate as one company regarding those components.”
Navigating the Crisis & Beyond: Perspectives for Leaders in South AsiaRecognizing and Managing Novel Risks in Your Supply Chain
Ericsson: Another customer of the Albuquerque plant.
Purchasing manager interpreted the initial phone call as a routine supply chain disruption, for which it already had adequate inventory on hand to keep production running.
By the time Ericsson realized the gravity of the situation, it couldn’t get any components it needed anywhere in the world. “We did not have a plan B.”
Ericsson lost $400 Million in revenue due to the shortage that ensued from this fire and exited the cell phone market in the following year.
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Navigating the Crisis & Beyond: Perspectives for Leaders in South AsiaRecognizing and Managing Novel Risks in Your Supply Chain
“Chief Worry Officer?”
“He communicated the news to others, including Perrti Korhonen (“intense 39-year-old Finn who runs marathons and plays rock guitar in his spare time”), Nokia’s top troubleshooter.”
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Navigating the Crisis & Beyond: Perspectives for Leaders in South AsiaRecognizing and Managing Novel Risks in Your Supply Chain
On March 2011, a 9.0-magnitude earthquake struck off the coast of Japan• Among the 5 most powerful earthquakes on record• Tsunami waves in excess of 40 m high traveled up
to 10 km inland
Supply Chain Risks and Disruptions (2)
• Level 7 meltdown at 3 nuclear reactors at Fukushima Dai-ichi
Massive impact• Over 25,000 people dead, missing or injured• 125,000 buildings damaged• Economic damage estimates in excess of $200
Billion
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Navigating the Crisis & Beyond: Perspectives for Leaders in South AsiaRecognizing and Managing Novel Risks in Your Supply Chain
Company Damage statusNissan Motor (most affected)
• Fires broke out at Tochigi Factory and a foundry in Iwaki • Damage to the Tochigi Factory, Iwaki Factory (engines),
Yokohama Factory (engines, etc.), Oppama Factory and Zama Works (lithium-ion batteries, etc.)
• It will take some time before the Iwaki Factory is repaired
Toyota Motor • Partially damaged facilities at the Iwate Factory (subsidiary Kanto Auto Works), Miyagi Factory(subsidiary Central Motor), and Tohoku Factory (parts)
Honda Motor • Some damage in to facilities in Tochigi Prefecture
Mazda Motor • No major direct impact
Suzuki Motor • No major direct impact
Impact on Japanese Automotive Factories
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Navigating the Crisis & Beyond: Perspectives for Leaders in South AsiaRecognizing and Managing Novel Risks in Your Supply Chain
Nissan’s Response to the Disaster
o Immediately after the disaster, Nissan’s Global Disaster Control Headquarters, led by the chief operating officer, was convened to evaluate the impact on operations and to oversee the restoration activities. A Recovery Committee was established to coordinate the global recovery actions, in particular the work of optimizing the entire supply chain.
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o Each region was asked to send two staff members to Japan to gather their own information and to help solve problems holistically.
o “We launched the Global Disaster Control Headquarters just 15 minutes after the earthquake occurred. The team immediately gathered and assessed damage while overseeing restoration efforts at various facilities.”
Navigating the Crisis & Beyond: Perspectives for Leaders in South AsiaRecognizing and Managing Novel Risks in Your Supply Chain
Allocating Capacity
The sales, marketing, and the regional supply chain management functions identified how to globally allocate supplies to the highest margin products.
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o For example, the supply of integrated Global Positioning System (GPS) units was constrained by the disaster. Nissan identified which car models required integrated GPS to meet customer demands, and allocated resources accordingly. o Low-end, low-margin models did not receive any of the available
GPS since customers were willing to purchase these models without a GPS.
o This process was completed within two weeks of the earthquake and continually updated as the supply situation became clearer.
Navigating the Crisis & Beyond: Perspectives for Leaders in South AsiaRecognizing and Managing Novel Risks in Your Supply Chain
Taking Market Share:For all of 2011, Nissan production was up 9.3% while all auto manufacturing was down 9.3%.
The Varying Pace of Recovery
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Navigating the Crisis & Beyond: Perspectives for Leaders in South AsiaRecognizing and Managing Novel Risks in Your Supply Chain
“Nissan has shown the fastest recovery among the Japanese automakers and was the least affected by the earthquake. In May 2011, Nissan’s domestic vehicle production was about the same as it was in May 2010.” Standard & Poor’s
“While other Japanese automakers have yet to fully recover from the 11 March earthquake, Nissan stands out…With its high-level management and crisis management capabilities, Nissan turned adversity into an advantageous opportunity...” Credit Suisse
“The speed of production recovery at Nissan after March’s earthquake was remarkable.” Mitsubishi UFJ Morgan Stanley Securities
Nissan’s Recovery
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Navigating the Crisis & Beyond: Perspectives for Leaders in South AsiaRecognizing and Managing Novel Risks in Your Supply Chain
Managing Crises: Plan; Read; React
Read signals to recognize as quickly as possible “sparks that can become prairie fires.”
React to the Crisis
Plan for a possible low-likelihood, high-consequence event
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Navigating the Crisis & Beyond: Perspectives for Leaders in South AsiaRecognizing and Managing Novel Risks in Your Supply Chain
Supply Chain Risks and Disruptions (continued)
• William Schmidt, David Simchi-Levi, Yehua Wei, Peter Yun Zhang• Keith Combs, Yao Ge, Oleg Gusikhin, Michael Sanders, Don Zhang
“Identifying Risks and Mitigating Disruptions in The Automotive Supply Chain”
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Navigating the Crisis & Beyond: Perspectives for Leaders in South AsiaRecognizing and Managing Novel Risks in Your Supply Chain
Ford’s Supply Chain: a Large Multi-Tier Network
Complex bill of materials and supply chain structure
Over 50 manufacturing plants
10 tiers of suppliers
1,400 tier 1 supplier companies, with 4,400 manufacturing sites in over 60 countries
55,000 different parts
6 million vehicles produced annually
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Presenter
Presentation Notes
70 manufacturing plants include power train, forging and stamping,
Navigating the Crisis & Beyond: Perspectives for Leaders in South AsiaRecognizing and Managing Novel Risks in Your Supply Chain
Performance Impact of Different Supplier’s Sites
Num
ber o
f Site
s
Performance Impact
2,773 sites with No Impact
2773
805
142 252 154408
1
201
401
601
801
1001
1201
1401
1601
1801
No Impact Very Low Low Medium High Very High
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Presenter
Presentation Notes
4534 sites in the numerical study, slightly different from the 4400+ claimed in the paper. The difference may have occurred because of different datasets
Navigating the Crisis & Beyond: Perspectives for Leaders in South AsiaRecognizing and Managing Novel Risks in Your Supply Chain
Performance Impact and Total Spent at Supplier Site
In March 2012, the auto industry was rocked by a shortage of a specialty resin called nylon12, used in the manufacture of fuel tanks, brake components, and seat fabrics.
The key supplier, Evonik, had experienced a devastating explosion in its plant in Germany. It took Evonik six months to restart production.
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Navigating the Crisis & Beyond: Perspectives for Leaders in South AsiaRecognizing and Managing Novel Risks in Your Supply Chain
Evonik’s Key Customers
19Wonik Cube Corp. (KOSDAQ:A014190) Trading Companies and DistributorsVoxeljet AG (NYSE:VJET) Industrial MachineryUnivar Inc. (NYSE:UNVR) Trading Companies and DistributorsSynthetics Biologics, Inc. (AMEX:SYN) BiotechnologySoilbuild Business Space REIT (SGX:SV3U) Diversified REITsRohm and Haas Texas IncorporatedRohm and Haas Texas IncorporatedRohm and Haas Texas IncorporatedPolypore International, LP Electrical Components and EquipmentPivot Pharmaceuticals Inc. (OTCPK:PVOT.F) PharmaceuticalsOrion Engineered Carbons SA (NYSE:OEC) Commodity ChemicalsOrion Engineered Carbons SA (NYSE:OEC) Commodity ChemicalsNuPathe, Inc. PharmaceuticalsNuPathe, Inc. PharmaceuticalsLanxess AG (XTRA:LXS) Diversified ChemicalsKyokuto Boeki Kaisha, Ltd. (TSE:8093) Trading Companies and DistributorsInsilco Limited (BSE:500211) Commodity ChemicalsInsilco Limited (BSE:500211) Commodity ChemicalsIndian Oil Corporation Limited (BSE:530965) Oil and Gas Refining and MarketingHenkel AG & Co. KGaA (DB:HEN3) Household ProductsFlexion Therapeutics, Inc. (NasdaqGM:FLXN) BiotechnologyEvonik Resource Efficiency GmbHEvonik Industries AG (DB:EVK) Specialty ChemicalsEvonik Industries AG (DB:EVK) Specialty ChemicalsEvonik Industries AG (DB:EVK) Specialty ChemicalsEvonik Industries AG (DB:EVK) Specialty ChemicalsBrenntag AG (XTRA:BNR) Trading Companies and DistributorsBioAmber Inc. (NYSE:BIOA) Commodity ChemicalsAzelis Holding S.A. Trading Companies and DistributorsAkebia Therapeutics, Inc. (NasdaqGM:AKBA) Biotechnology
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Navigating the Crisis & Beyond: Perspectives for Leaders in South AsiaRecognizing and Managing Novel Risks in Your Supply Chain
