Managing Operational Risk in the Global Supply Chain Feb 15, 2008 - - PowerPoint PPT Presentation

Managing Operational Risk

in the Global Supply Chain Feb 15, 2008 Doug Sunkel

Director – Americas Parts Distribution

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Key Points

• Elements of Risk in the Supply Chain
• Mitigation Strategies
• Performance – “Your Best Bet”

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Elements of Risk in the Supply Chain

• Origin of risk:
• Internal
• Process &/or systems capability
• Resource capacity &/or availability
• External:
• Competition

Regulations

• Labor disruptions

Logistics providers

• Type of risk:
• Controllable vs uncontrollable
• Severity – major vs minor
• Awareness of risk:
• Known vs unknown
• Ability to detect

. .

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Mitigation Strategies

• Elimination
• Avoidance
• Redundancy
• Detection
• Contingency / back-up plans
• Documentation
• Preparation
• Communication
• Business Continuity Plan

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Process Step/Input Potential Failure Mode Potential Failure Effects S E V Potential Causes O C C Current Controls D E T R P N Actions Recommended

What is the Input What can go wrong with the Input? What can be done? What is the Effect

• n the

Outputs? What are the Causes? How are these found

• r

prevented? How Bad? How Often? How well?

Tools for Managing Risk

FMEA = Failure Mode & Effects Analysis

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• The output of an FMEA
• A calculated number based on:
• Potential failure modes
• Effects
• Ability to detect failures before reaching the customer
• Calculated as the product of three quantitative ratings, each
• ne related to the effects, causes, and controls:

RPN = Severity X Occurrence X Detection

Effects Causes Controls

RPN = Risk Priority Number

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Examples

• Global sourcing
• Risks – longer supply chain, quality, transportation
• Mitigation – domestic WH’s, SMI agreements, inventory

visibility, local SQI/supplier development resources, terms of sale

• Parts Distribution Center relocation
• Risks – facility preparation, learning curve, customer disruption
• Mitigation – dedicated project team/management, phased ramp

up, duplication of resources

• Warehouse Management System implementation
• Risks – loss of functionality, “invisible factory”, IT infrastructure,

bottlenecks/reduced throughput

• Mitigation – experienced project team, unit & integration

testing, capacity testing, operational walk-thru’s, cutover rehearsal

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Performance – “Your Best Bet”

Joe Loughrey – Cummins Inc. President & COO

• Many risks in our global operating environment:
• Will US carmakers enter the diesel market?
• What will our competition do?
• Will fuel costs drive governments to take actions?
• Will energy be available?
• The actions CMI has taken in the last 3 years have

made the company stronger & more resilient to these potential threats

• The most prudent strategy for managing risk is to

perform consistently well

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• 1. Put the

customer first and provide real value

• 2. Synchronize

flows (material, physical and information)

• 3. Design

quality in every step of the process

• 4. Involve

people and promote teamwork

• 5. Ensure

equipment and tools are available and capable

• 6. Create

functional excellence

• 7. Establish

the right environment

• 8. Treat preferred

suppliers as partners

• 9. Follow

common problem solving techniques

• 10. Use Six Sigma as

the primary process improvement method

Cummins Operating System

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Outperformed our Peers

50 250 450 650 850 1050 1250 1450 Oct-02 Jan-03 Apr-03 Jul-03 Oct-03 Jan-04 Apr-04 Jul-04 Oct-04 Jan-05 Apr-05 Jul-05 Oct-05 Jan-06 Apr-06 Jul-06 Oct-06 Jan-07 Apr-07 Jul-07 Oct-07 Stock Price Index CMI S&P 500 Peer Avg.

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Don’t think it can’t happen

February 5, 2008 – Memphis, TN 200 yards from Cummins MDC All employees safe Operations restored within 12 hours Ran 3 full days on Cummins generator power No customer impact

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Recap - Key Points

• Elements of Risk
• Mitigation Strategies
• Performance – “Your Best Bet”

Thank You

Doug Sunkel

Director – Americas Parts Distribution doug.a.sunkel@cummins.com