SUPPLY CHAIN RISK MANAGEMENT IN GLOBAL BUSINESS

MINING SECTOR

Togap Siagian, MBA, CPSMIndonesia Supply Chain Summit 2016

Togap Siagian, MBA, CPSMSupply Chain Management Professional

Career: Senior Manager with extensive leadership experience in Supply Chain Management, Procurement, Materials Management in oil & gas and mining industry

Education: MBA Rochester Institute of Technology, BS in Industrial Engineering Institut Teknologi Bandung

Certification: CPSM (Certified Professional Supply Management) from ISM (Institute for Supply Management)

Affiliations: Institute for Supply Management, Indonesian Procurement Society (Co-Founder & Board of Expert)

Phone: +62 811 9 851 861, email: togap.siagian@gmail.com

“Risk comes from not knowing what you`re doing”

Warren Buffett

Supply chain risk management (SCRM) is "the implementation of strategies to manage both everyday and exceptional risks along the supply chain based on continuous risk assessment with the objective of reducing vulnerability and ensuring continuity”

Wikipedia

1. Background

Internal Challenges in Mining Industry

Usually located in a REMOTE AREA that sometimes is not easy to reach

Many mining companies work in areas close to NATIVE/LOCAL COMMUNITIES

Due to its nature, mining activities have high impact on the ENVIRONMENT

HIGH INVESTMENT is required to operate the mining area

Due to the specific condition of the exploited area, SPECIALIZED EQUIPMENT is required

Source: www.investopedia.com/articles/investing/092315/commodity-supercycle-really-end.asp

External Challenges in Mining Industry

Impact on Mining Supply Chain

Impact to Companies

Need to better manage cash flow

Reduction of supply chain manpower

Need to optimize the current assets (avoid replacement)

Challenged to increase productivity and efficiency

Impact to Companies

Need to better manage cash flow

Reduction of supply chain manpower

Need to optimize the current assets (avoid replacement)

Challenged to increase productivity and efficiency

Impact to Companies

Need to better manage cash flow

Reduction of supply chain manpower

Need to optimize the current assets (avoid replacement)

Challenged to increase productivity and efficiency

Impact to Suppliers

Increased competition due to smaller pool of customers

Reduce profitability to stay competitive

Reduction of manpower Demand planning is more

difficult

2. Risks in Mining Supply Chain

Financial Risks

Supplier Financial Risk

Reduced cash flow, reduced access to credit, insolvency, bankruptcy

Input Price Volatility Risk

Price premium due to remote location, limited supply options for parts and labor, limited negotiation leverage

External Financial Risks

Exchange rate, lack of competition, fluctuation of commodity prices

Regulatory Risks Local regulations and laws are continuously evolving and

sometimes uncertain Strict regulations on environment, health, and safety which

affects inventory, procurement, and transportation of goods

Operational Risks Availability of critical parts to avoid high opportunity costs

when parts are unavailable Suppliers unable to meet the company’s needs across a

range of dimensions (capacity, quality, safety) Transportation of the goods to the mining operations area

Geopolitical and Social Risks Supply lines extend across various countries Each has its own regulations and challenges Lack of involvement from local business may

harm the company in the long term Reputation of the company may be

jeopardized if it does not consider the Corporate Social Responsibility (CSR)

3. Risks Management Process

Risks Management Process

Risks Identification

Collect data Internal and

external

EvaluateOptions

Interdepartmental team - supply management as key

Cost benefit analysis Develop rank and

priorities

ContinuousAssessment

Regular review of risk and mitigations

Update to top management

ImplementMitigations

Assign action leads Apply identified

tactics

Risk Rank and Prioritization

Mitigation Strategy #1: Acceptance Simply accept that it may happen and

decide to deal when it does. Used when the cost to mitigate is very

high compared to the cost of the risk. A company doesn’t want to spend a lot

of money on avoiding risks that do not have a high possibility of occurrence.

Example: the risk of an earthquake hitting the factory of a supplier for a non-critical spare part can be accepted.

Mitigation Strategy #2: Avoidance The opposite of risk acceptance. Avoids any exposure to the risk whatsoever. Changing a plan to eliminate a risk or to protect plan objectives

from its impact. Usually the most expensive risk mitigation options. Example: use standard machine / equipment part, increase

security costs to avoid theft

Mitigation Strategy #3: LimitationThe most common used risk management strategy. Limits a company’s exposure by taking some action. Employing a bit of risk acceptance along with a bit of risk avoidance or an

average of both. Example: conduct quality inspection to incoming goods, limit

suppliers pool to those which have stable financial strength.

Mitigation Strategy #4: Transfer

Handing risk off to a willing third party. Can be beneficial if the transferred risk is not a core

competency. Example: outsource certain operations such as

customer service or payroll services, use insurance to mitigate consequential loss.

Risks RegisterSTRATEGIC OBJECTIVE

RISKEVENT

OUTCOMES RISK INDICATORS

LIKELIHOOD/CONSEQUENCE

MITIGATION PLANS

PRIORITIES ACTION LEAD

Guarantee reliable and competitive supply of critical spare parts

Interruption of deliveries

Safety

Overtime

Additional cost

Airfreight

Production loss

Overtime report

Increased downtime

Lower production

Hold daily meeting with Operations and supplier

Upgrade of supporting equipment

Request support from equipment principal

Develop alternative suppliers

3 Mr. Bambang, Senior Manager of Maintenance

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