Tackling risks in modern supply chains New Trendsc8805c6a-c61b-4c4b-8539...Bublu Thakur-Weigold...

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Bublu Thakur-Weigold

Chair of Logistics Management

05.06.2019Bublu Thakur-Weigold Contact: [email protected] 1

Tackling risks in modern supply chains

New Trends

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Supply chain disruptions are as old as trade

What is different today?

Bublu Thakur-Weigold Contact: [email protected]

Source: C. Bode / S. Wagner, ETHZ

05.06.2019

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IT, containers, specialization, liberalization

have resulted in today’s Global Supply Chains

Bublu Thakur-Weigold Contact: [email protected] 05.06.2019

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Known as Global Value Chains (to economists)

All of us are implicated and dependant

De Backer and Miroudot 2014Mapping Global Value Chains

“World trade volume of goods and services

exhibited an average annual

growth of around 6 per cent

over the period 1970-2005,

well above the real growth

rate of world GDP of around

3.5 per cent.”

- Amador and Cabral 2014


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Global Supply Chains are inherently vulnerable

Why

ComplexTightly-

CoupledClusters Global

The Chartered Institute ofProcurement and Supply’s(CIPS) Quarterly Risk Index found that the likelihood thata SC is disrupted had almostdoubled between 1995 and2015, from 40.4 to 79,1


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Recent trends affecting Global Supply Chains

Lead times

FlexibilityCosts

Quality

Suppliers Customers

Source Make Deliver

InterconnectednessIndustry Clock speed

Pace of change(Anti) Globalization OM Trends

�More dependencies (“Tight coupling”)

� Increasing complexities�Mutual trust becomes a

focus in relationships between buyer & supplier

�Shorter product life cycles�Explosion of product variety�Mass customization�Demand forecasts

increasingly difficult�Smaller margins of error

�Globalization of markets�Global sourcing�Longer paths in supply

chains�Populism and border

closures�Re-shoring

�Outsourcing �Single Sourcing�Lean Production�Focus on cost efficiency but

not on robustness�Technologies like Blockchain

and Big Data�Sustainability


Adapted from: C. Bode / S. Wagner, ETHZ

05.06.2019

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Geopolitical risk Example


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Populism and trade policy Example


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Cyberattack Example


“Four business sectors - hospitals, banks, securities firms and market infrastructure providers - potentially face the most significant financial impact from cyberattacks that could lead to a weakened credit profile, according to a new report from Moody’s Investors Service.

‘ In our view, cyber risk is event risk, and we see a rising tide," according to the report from Moody's, a U.S. credit ratings agency. "Digitization continues to increase, supply chains are becoming more complex and attacker sophistication is improving. However, the universe of cyber threat actors remains the same: socially motivated attackers - hacktivists – criminals - and nation-states.’ “

MK McGee, March 4, 2019www.bankinfosecurity.com

05.06.2019

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Natural Disaster

• Volcanic ash cloud leaves shops facing shortages of fruit, vegetables and medicine

• BMW closes down 3 plants for lack of inbound parts• Asia’s link to global supply chains is temporarily disabled,

goods back up at ports and are sent back to plants• Ireland faces a shortage of pharmaceuticals

• A volcano in Iceland erupts

• 20 March to 12 April 201062 Consecutive days of disruption

Example


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Structural supply chain complexity

The Mercedes E-class

~ 150 direct suppliers

� Many of them deliver on a JIT or JIS basis

Source: C. Bode / S. Wagner, ETHZ


Example

05.06.2019

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Tight coupling drives both efficiency and risk

Lean thinking, Just-in-Time, Industrial Clusters

“Lean has not been knocked off its pedestal but people are starting to create back-up plans

and thinking about Balancing.” - 15/9/10 Bruce Arntzen, Senior Research Director MIT Center for Transport and Logistics


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� Large Claims Data, larger than $0.5 million, 2002–2014

� Risk increases in step with growing global trade flows

� BI claims are less frequent than PD claims but larger.

� The larger the claim, the higher proportion was BI

� Different industries have different: � Exposures to risk

� Recovery times

� Average recovery time was 9 months (not meaningful to measure in weeks)

� Not all causes have the same impact. Claims for lightning, machinebreakdown, burst pipes and fire cause have the highest BI share

05.06.2019 14

Summary of 2018 ETH Big Data Study*

Business Interruption claims

* Mizgier, K. J., Kocsis, O., & Wagner, S. M. (2018). Zurich Insurance Uses Data Analytics to Leverage the BI Insurance Proposition. Interfaces, 48(2), 94-107.


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Generic risk management strategies for firms

Generic risk management strategiesGeneric risk management strategies

Prevention

Transfer,

Insurance,

Sharing

Avoidance

Mitigation

Retention

Adapted from S. Wagner / ETHZ

05.06.2019Bublu Thakur-Weigold Contact: [email protected]

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? ?

? ?

?

?

? ? ?

Segment RM strategies across the SC

What root cause does it address? 8and Where?

Increase

flexibility

Reduce

complexity

Supply side Product / Production

� Reduce supply base

� Reduce complexity in inbound logistics

� Standardization; Modular product design

� Reduce product variability

� Flexible sourcing policies (supply contracts)

� Real Options

� Flexible manufacturing

� Pooling of capacity

� Universal product design

� Delayed differentiation (postponement)

Demand side

(Distribution / Customers)

� Reduce channels

� Reduce complexity in distribution networks

� Pooling of customer demand

� Responsive pricing (Dell)

Increase

redundancy

� Multi-sourcing (instead of single-sourcing)

� Add safety stock

� Add excess capacity

� Serve more markets

Co

mp

lex

ity

Tig

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co

up

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Source: S. Wagner / ETHZ

05.06.2019Bublu Thakur-Weigold Contact: [email protected] 16

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Tackling risks in modern supply chains New Trendsc8805c6a-c61b-4c4b-8539...Bublu Thakur-Weigold...

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