MIM 524Class 5

Agenda-Risk Mitigation & Strategies-Intro to NPI-DFX-Magretta & Tinsley -Cisco Case Questions-Review Midterms if necessary

Supply Chain Risks

Risk Management

What might cause disruption in supply?

Risk Mitigation plans to address

Cost Vs Risk consideration

What could happen?

Labor disputes – carriers, mfg., etc.Terrorist event Infectious disease - SAR’s, Bird Flu, etc.Military conflict – Iraqi, Korea, etc.Natural Disasters – Tsunami, earthquake,

fire, etc.Limitations of resources – Rolling blackouts

in ChinaCorruption and Political unrestPoor performance – unqualified…

Some ideas to offset the risk…Multiple Sources in Multiple Geo’sAlternate or substitute strategiesInventory strategy

HubsSafety StockOn site consignment/VMI

(Vendor Managed Inventory)Strong qualification process or

evaluationVerify capabilities directly or via

customer referralsAsk for certifications, audit

results, endorsements, etc.

Cost Vs Risk..Global Source Vs Local Source

Transportation costStorage costPotential recovery costAgility of supply lineLoss, etc…

Should consider risk from source to proximity of useUnderstand the flow of the materials in the

supply chainManufacturing location through finished

good distributionValue add should increase as

you get closer to the end customer

Ensure you understand ALL of the costs and understand the Risk What happens if the lines go down? Cost

per minute? Loss of revenue or sales?

Adding Suppliers to Mitigate RiskPros:-Excess Capacity-Good for low obsolescence & low holding costs-Good for high volume commodity parts-Negotiation leverage

Cons:-JIT systems-Bad for high obsolescence & high holding costs-Costly for low volume or custom parts-Double the ECOs & tolerance issues

Category of Risk

Drivers of Risk

Disruptions •Natural disaster•Labor dispute•Supplier bankruptcy•War & terrorism•Dependency on a single source of supply as well as the capacity & responsiveness of alternative suppliers

Delays •High capacity utilization at supply source•Inflexibility of supply source•Poor quality or yield at supply source•Excessive handling due to border crossings or to change in transportation modes.

Supply Chain Risks & Their Drivers

Category of Risk Drivers of Risk

Systems •Information infrastructure breakdown•System integration or extensive systems networking•E- commerce

Forecast •Inaccurate forecasts due to long lead times, seasonality, product variety, short life cycles, small customer base•“Bullwhip effect” or information distortion due to sales promos, incentives, lack of supply chain visibility & exaggeration of demand in times of product shortage

Intellectual property

•Vertical integration of supply chain•Global outsourcing and markets

Supply Chain Risks & Their Drivers

Category of Risk

Drivers of Risk

Procurement •Exchange rate risk•Percentage of a key component or raw material procured from a single source•Industry wide capacity utilization•Long-term vs, short-term contracts

Receivables •Number of customers•Financial strength of customers

Supply Chain Risks & Their Drivers

Assessing the Impact of Various Mitigation Strategies

Stress Testing Your Supply Chain

Tailoring Reserves for Risk Mitigation

Magretta: Questions- What is DELL’s perspective on outsourcing of

services?- What is meant by virtual integration with

customers? Does it still apply?- How does Dell’s model combine single source

suppliers and outsourcing into one model?- What do you think Dell’s cash-to-cash cycle is?

Is this important enough to not mitigate risk with 2 sources of supply?

- What is Dell’s strategy with IT & R&D, does this affect the Sourcing strategies?

Tinsley et al.: QuestionsCases of Apple & Jet Blue, could they have

been avoided?Preventing near misses: What are the 7

identities and learning opportunities?Pick two of seven that make the most sense

to you, discuss.

Global Cases - NPINew Product Introduction (NPI) – Why care?Risks & Concerns without it? 60% cost in

design phaseSCM Strategy – Single / multi-sourcedDesign for “X”AVLPackagingPostponementService strategies

A Word on Technology

EngineeringScience

•Can the Technology be manufactured with known manufacturing processes?

•Are the critical parameters that control the new Technology’s functions identified?

•Are the safe operating ranges known?•Have the failure modes been evaluated?•Have the life cycle effects been evaluated?•Are the environmental effects known?

If yes, engineering. If no, science

Why design for manufacturability matters

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Product development

Total life cycle costs

Ability to control costs

Production Support

60% to 80% of total life cycle costs are largely determined during development

Cross Functional Teams

NPI Summary – All Affect Cost

Purchasing (RFQ / SOW)Engineering (ERP / AVL)Logistics (Packaging)Quality (Yield / Touches)Marketing (PRD)Warranty / ServiceMost Important – “The Crossover”

Drivers of the crossoverDemand side

Environmental – MacroeconomicCompetitionPricingTimingMarket responseProduct capability

Supply sideExternal execution – SCMInternal execution – supply in volume

Purchasing and new product development

Conflicting interest between purchasing and engineering activities…

Sourcing and new product developmentInvolving sourcing decisions in development

processes at an early stage can result in contribution of new knowledge and better understanding of:ConstructionSuitable materialsSuppliersSupplier knowledge

Involving the supplier in new product development can also result in considerable savings

Linear to Concurrent

Design for….- Manufacture- Environment- End-of-life- Disassembly- Recycling- Quality- Maintainability- Reliability- Cost

Manufacturing and ProducabilityMake/buy Supplier alignment Integration of new manufacturing into previous

manufacturing process with minimum disruption and capitalization costs

Maximum responsiveness to surges (and declines!) in demand

Ease of Assembly/Manufacturability /Modularity Parts minimization TestabilityInspectabilityStandardization

Design For “X” (DFX)

Sales and marketing (Customer alignment)Meets Customers’ needs Design to Cost to allow Target pricingTime to marketProduct Price/Volume/Feature mixPackaging and Labels Advertising strategy, plan and literatureCatalogues

Design For “X” (DFX)

After market Support and ServicingTraining of factory personnel, sales force,

customers. Manuals and DocumentationMaintainabilitySpare Parts availabilityCustomer assembly LogisticsUpgradabilityShelf life and StorageInstallabilityWarranties

Design For “X” (DFX)

Defee et al. (2009). Closed Loop Supply Chains (CLSC)

- CLSC – Strategically focused on excellence of forward and reverse SCM

- CLSC can lead an organization in CSR initiatives- RoHS, WEEE, Energy Star, EPEAT

- Reverse SCM is critical- Views CLSC holistically not just supplier-

customer “forward flows”

CLSC – Reverse Flow is critical

Three examples: Walk the talk

Cisco CaseWhat do we know? Please add to this list important factors•Viking Product has transitioned to a faster model, surpassing the competition (Juniper & Alcatel).•Now want to go from US-based NPI & China transition to Foxconn out of the gate in Shenzen.•Foxconn had never made this complex a box, especially from the start, but now level – 3.•45% of employees and sales from outside US.•Proud of their “adaptive supply chain,” cut its number of outsourced partners from 13 to 4 (is this good & why?)•2001 Cisco went from 1,500 suppliers to 600, of which 200 had 80% of the spend.•Cisco Lean was the mantra, pull system & predictable lead-times and on-time shipments.

Cisco NPI – 6 Questions1. What are the risks in NPI overall?2. Why Foxconn or any new supplier?3. What are the challenges and risks with

China directly.4. What are the benefits of going to China

directly.5. Why Foxconn given reputation? (you may

need a little outside research)6. How do you mitigate the risks of going

direct to China?