AB15-3 Risk-- SCM
-
Upload
ajeetashreya2475 -
Category
Documents
-
view
228 -
download
0
description
Transcript of AB15-3 Risk-- SCM
Risk and Risk Management
Risk can be defined as the chance of deviationfrom planned outcome resulting in loss due tooccurrence of an event or events
Present in all business activities or even ordinaryactivities of life
The probability of risk is measurable andappropriate action can be taken to minimize
Uncertainty is not measurable so no preventivemeasure possible
.
Employee risksCompliance risksOperational riskMarket risk, foreign exchange risk
Financial risksCredit and interest rate riskHealth and safety risksPolitical and Economic Risk
Risks can be classified as
• Idiosyncratic risks (unsystematic) that usuallyaffect only individual firms (e.g key managersquitting, fire damage)
• Covariate risks (systematic) that affect manyenterprises simultaneously (e.g., major droughtsor floods, fluctuating market prices).
Internal Risks and External Risks
Internal Risks
Human factors are an important cause of internal risks.They may result from strikes; negligence and dishonestyof an employee; incompetence of the manager or otherimportant people in the organisation, etc.
Also, failure of suppliers to supply the materials or goodson time or default in payment by debtors may adverselyaffect the business enterprise
Physical factors are the factors which result in loss ordamage to the property of the firm. They include thefailure of machinery and equipment used in business; fireor theft in the industry; damages in transit of goods, etc.
External Risks
Economic factors are the most important causes ofexternal risks. They result from the changes in theprevailing market conditions.
price fluctuations,changes in tastes and preferencesinflationary tendency in the economy,fluctuations in world economyGovt. Policy changesExchange Rates (Depreciation or appreciation of
currency)
Natural factors are the unforeseen naturalcalamities over which an entrepreneur has verylittle or no control. They result from events likeearthquake, flood, famine, cyclone, lightening,tornado, etc. Such events may cause loss of lifeand property to the firm or they may spoil itsgoods.
Political factors have an important influence onthe functioning of a business, both in the long andshort term. They result from political changes in acountry like fall or change in the Government,communal violence or riots in the country, civil waras well as hostilities with the neighbouringcountries.
Risk ManagementRisk Management is a process of thinkingsystematically about all possible risks, problemsbefore they happen and setting up procedures thatwill avoid the risk or minimize its impact or copewith its impact if it happens
It is basically a process where you can identify therisk and set up a strategy to control or deal with it.
the systematic way of ensuring protection ofbusiness resources and income against losses sothat the aim, goals and vision of the company canbe reached
9
Risk management is a process by which the most important risks can be identified, prioritized, and mitigated or eliminated.
Five stages
-- identify the risk.-- Measure the risk how big and how important or
critical and prioritize-- Strategies to eliminate or mitigate the risk -- Implement the strategies-- Monitor the strategies to find their
effectiveness and revision.
The steps in Risk Management process are:
Risk analysis- Risk identification & Risk evaluation(Risk measurement)(Risk quantification)
Risk control - Risk avoidance (improve systems and procedures) (Risk minimization)
Risk transfer- Insurance; Hedging in futures market
Risk financing- Risk retention (setting aside funds to cope with the situation)
11
The treatment of the potential risks
the transfer of the risk— Persuasion of another party to accept the risk
Insurance, contracts etc
the exclusion (avoidance) of the risk
The probability of the risk is high and high frequency and cannot be transferred
12
the reduction of the risk– Managerial, technological, and behavioural activity that lower the probability of the risk • better maintenance of machines,• several suppliers, work with suppliers• geographical spread of sourcing, • minimum counter party risks (minimum exposure
against default)
the acceptance (retention) of the risk or an amount of the risk
Risks that cause minimum loss or frequency is low
Properly budget for the losses
Supply chain analyses can be carried out at differentlevels of analysis including the
• Dyadic level: The two-party relationship, such asbetween input supplier producer, producer and buyer,producer and financial institution
• Sub-chain level: A set of dyadic relationships, such asinput supplier and producer, and buyer
• Chain or network level: The entire supply chain andnetwork of operations (backward and forward linkages,horizontal linkages)
Risk Management at OLAM
→Multiple Geographic area
→Variety of agricultural commodities
→Political risks, market risk, exchange rate risk and credit risk
→Presence in upstream plantation→Midstream Processing segments
→Board Risk Committee→Value at Risk (VaR)
Supply Chain Management
15
Supply chain – A network of interrelated entities theirfacilities, functions and activities which are involvedin Procurement, Conversion and Delivery of Goods.
Primary purpose of supply chain is to satisfy thecustomer needs
Sequence begins with the raw materials andextends all the way to the final consumer.
Facilities include : warehouses, factories, processingcentres, distribution centres, retail outletsFunctions and activities : Forecasting, purchasing,scheduling, inventory management, qualityassurance, delivery, customer service
16
Supply chain
Supplier Manufacturer Distributor Retailer Customer
Supplier Manufacturer Distributor Retailer Customer
Supplier Manufacturer Distributor Retailer Customer
Upstream Downstream
18
It is dynamic with constant flow ofinformation, goods and funds
SCM is a process of planning andcontrolling the efficient, effective flow ofgoods, services and related informationfrom the point of origin to the point ofconsumption
• to have the right products in the right quantities (at the right place) at the right moment at minimal cost.
Improves Transactional Efficiency
By
Better quality control
Traceability
Less waste
20
Flows in a supply chain
Customer
Information
Goods/Product
Cash/MoneyProducer
Supply Chain
The objective : Providing the maximumvalue to the customer at low cost
Efficiency : The Basis of Management
• Efficiency leads to lower costs
• Lower cost implies
Lower Price Greater demand Bettermarket growth Higher profits Bettermarket share
Uncertainties and conflicts in the supply chain
-- Each entity trying to maximize its profit
-- Each entity having a safety stock thus pushing up inventory cost ( working capital as well as cost of carry)
Leading to “Bullwhip Effect”
Cooperation among entities by sharing of information
Think as a single entity to minimize cost and uncertainty
24
Bull whip Effect
Each organisation seek to solve the problem from its own perspective
Small changes in consumer demand resultin large variations in orders placedupstream
Dramatic order size variation
Amplification of order size variation as one moves up the supply chain
25
Causes
• Little or no communication between supplychain partners.
• Delay times between order processing,demand, and receipt of products.
• Over reacting to the backlog orders.• Inaccurate demand forecasts.
Supply Chain Integration
• The degree to which the firm canstrategically collaborate with their supplychain partners and collaboratively managethe intra- and inter-organization processesto achieve the effective and efficient flows of
• Product and services• Information• Money
• With the objective of providing the maximumvalue to the customer at low cost and highspeed
28
Competitive Strategy and Supply Chain Strategyof the Firm Have the Same Goal.
The Customer Priorities the Company StrategyHopes to Satisfy and the Supply ChainCapabilities that the Company Strategies aims toBuild
Fundamentals of SCM
Single entityPlanning and control with single entity
(purchase, manufacturing and marketing team)
Systems ApproachThe supply chain from vendor to customer is viewed as asingle integrated system rather than many subsystemswith interface with each other
Inventory PerspectiveInventory to be used as a buffer of last resort
Less inventory by reduced lead timeMore flexibilityReduce uncertaintyImprove quality
29
Strategic Decision Making
Strategic implications rather than operational – building relationships to reduce cost
Doing what one can do best
Concentrate on activities one does best and outsource others
30
Physically Efficient Vs Market Response Supply Chains
Supply chain effectiveness – with basecharacteristics of the market in which it is operating
If product and technology is stable—pricecompetitiveness in terms of cost control on supplychain
If market characteristics are dynamic—non pricecharacteristics – supply chain responsiveness
31
Physically Efficient Process Market Responsive Process
Primary Purpose Supply predictable demand efficiently at the lowest possible cost
Respond quickly to unpredictable demand in order to minimize stockouts, forced markdowns and obsolete inventory
Manufacturing focus Maintain high average utilization rate
Deploy excess buffer capacity
Inventory Strategy Generate high returns and minimize inventory through out the chain
Deploy significant buffer stocks of parts or finished goods
Lead time Focus Shorten lead time as long as it does not increase cost
Invest aggressively in ways to reduce lead time
Approach to choosing suppliers
Select primarily for cost and quality
Select primarily for speed, flexibilityand quality
Product-design strategy
Maximise performance and minimize cost
Use modular design in order to postpone product differentiation for as long as possible
32
Thrust Areas of SCM
Minimising uncertainty Vendor development and certification Sharing production planning information Joint attention to transport
Reducing Lead Times
Minimising the number of stages
The number of stages the goods goes through Improving flexibility Using flexible manufacturing and assembly
techniques 33
Improving process qualityReducing inventory and wastage
Minimising VarietyStandardize products and offerings
Managing DemandMeeting unanticipated demand – flexibility of supply chain
Delaying differentiationTill final consumption point do not assemble
34
Kitting of suppliersAll components needed for assembly supplied atone stage
Focus on A categoryLarge value or critical components get special attention
Planning for multiple supply chainsDifferent supply for different consumer segments
Modifying performance measureUtilisation of space in the warehouse versus time needed for retrieval
35
Competing on service using SCM
Service delivery for long term competitiveadvantage
Products and quality only short term advantage
Moving from function to processes
Taking initiative at the industrial levelConsortium approach
36
In the end, all business comes down toSupply Chain vs. Supply Chain
Robert Rodin, CEO, Marshall Industries
37
38