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Transcript of Supply Chain Risk Mitigation: Minimizing Exposure to Supplier Failure, Volatile Commodity Prices,...
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Welcome to Today’s Webcast
Supply Chain Risk Mitigation: Minimizing Exposure to Supplier Failure, Volatile Commodity Prices, and
Manufacturing Disruptions
Copyright © 2012 IHS Inc. All Rights Reserved.
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Copyright © 2012 IHS Inc. All Rights Reserved. www.ihs.com/SupplierRisk www.ihs.com/SupplierRisk 2
Today’s Speakers
Katie Lewis
Director, Procurement & Sourcing Solutions, IHS Inc.
Eric Pratt
Senior Director, Pricing & Competitive Analysis, IHS Inc.
John Mothersole
Principal, Industry Practices Group, IHS Inc.
Barry Hochfelder
Editor, Supply & Demand Chain Executive
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Copyright © 2012 IHS Inc. All Rights Reserved. www.ihs.com/SupplierRisk www.ihs.com/SupplierRisk
Join the Conversation
Follow IHS on Twitter… Get the latest supply chain news,
updates and trending topics from
@IHS_SupplyChain
Live Tweet today’s
webcast:
#IHSWebcast
3
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Supply Chain Risk Mitigation: Parts, Materials, & Suppliers
Katie Lewis - Director, Procurement & Sourcing Solutions, IHS Inc.
Eric Pratt - Senior Director, Pricing & Competitive Analysis, IHS Inc.
John Mothersole - Principal, Industry Practices Group, IHS Inc.
www.ihs.com/SupplierRisk
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Copyright © 2012 IHS Inc. All Rights Reserved. 5
Early Survey Findings Reveal Priorities
0% 10% 20% 30% 40% 50% 60% 70%
Parts Management
Geographic Mapping of Supplier Mfg
Benchmarking
Low Cost Country Sourcing
Material Risk Management/Hedging
Gaining Greater Visibility into the Supplier Network
Managing Inventory Levels
Negotiating Contracts/Individual Supplier Relationships
Greatest Supply Chain Focus Areas
IHS Inc and Supply & Demand Chain Executive magazine 2012 preliminary Supplier Risk Survey results (data collection is ongoing)
www.ihs.com/SupplierRisk
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Copyright © 2012 IHS Inc. All Rights Reserved. 6
Segmenting Supply Chain Risk
•Resting Risk • Supplier Segmentation – Partner, Critical, Bottleneck, Transactional
• Fragmentation of Supply
• Conflict Metals or soon-to-be Non-Compliant substances in Supply Chain
• EOL and PCN alerts
• Counterfeit Parts
•Reactive Risk • Natural Disaster Disruptions
• Political Disruptions
• Supply Disruption Alerts/Notices specific to supplier
• Cost – rising & volatile prices for key material inputs
www.ihs.com/SupplierRisk
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Parts & Components: Resting Risk Managing Scheduled Variations
Eric Pratt
Senior Director, Pricing & Competitive Analysis, IHS Inc.
www.ihs.com/SupplierRisk
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Copyright © 2012 IHS Inc. All Rights Reserved. 9
Insight: IHS Analyzes NPI, PCN, EOL Data
Business Driver Stated by Manufacturers
Demand
Demand-Side Economics
LOW DEMAND, LOW SALES
LOW INVENTORY
LOW FORECAST
…
Environment
Compliance and Sustainability
PB-Free Conversion
REACH CONVERSION
ROHS CONVERSION
…
Technology
Innovation, Technology,
and Manufacturing
DIE CHANGE, MANUFACTURING PROCESS CHANGE
NEW VERSION, TECHNOLOGY INNOVATION
QUALITY ISSUES
OBSOLETE MFG PROCESS, OBSOLETE TECHNOLOGY
…
Organization
Consolidation / Rationalization of
Company and its Products
COMPANY ACQUISITION
FAB/FACILITY CLOSURE
PRODUCT RATIONALIZATION/CONSOLIDATION
…
Supply
Supply-Side Economics
SHORTAGE OF MATERIAL
SUPPLIER OBSOLESCENSE
…
www.ihs.com/SupplierRisk
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Copyright © 2012 IHS Inc. All Rights Reserved. 10
Insight: PCN/EOL Correlate with Market Trends,
Business Drivers, and Volatility
2003 2004 2005 2006 2007 2008 2009
End of Life (EOL)
Specific to RoHS/Pb-free Environmental Compliance
.00
.05
.10
.15
.20
.25
.30
.35
.40
.45
.50
.55
.60
.65
.70
.75
.80
800
900
1,000
1,100
1,200
1,300
1,400
1,500
1,600
1,700
1,800
1,900
2,000
2,100
2,200
2,300
2,400
2,500
2,600
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Semiconductor MSI (Right Scale)
End of Life Parts % of Total Parts
IHS EOL insight found “demand side” primary reason for 90% of EOL actions in 2009, vs. more typical 15-20% citations during 2004-2008
Millions Square Inches Silicon Processed - Semi
Parts: IHS Electronics Database
Component PCN 40% CAGR from 1997-2010
Component EOL 40% CAGR from ‘97 to ‘10
Lead-free creates 20% new EOL 2006-2007
Demand weakness 90% of EOL in 2009
Charts Courtesy of IHS Inc., 2011
www.ihs.com/SupplierRisk
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Copyright © 2012 IHS Inc. All Rights Reserved. 11
Today, Counterfeits Are A Big Deal Risks to Company, Brand, and Performance
65%
64%
62%
51%
38%
84%
67%
57%
36%
71%
55%
42%
37%
44%
0% 10% 20% 30% 40% 50% 60% 70% 80% 90%
Increase warranty/maint. costs
Reduce expected product life
Inhibit sales / customer sat
Add to unit costs
Increase product dev’pt time/costs
Product quality/reliability failures
Customer returns/recalls
Production line stoppages
Product launch delays
Damage brand / reputation
Expose product safety / legal liability
Expose contractual liability
Compromise device/product security
Undermine compliance claims
FIN
AN
CIA
L&
PE
RF
OR
MA
NC
E
PR
OD
UC
T&
OP
ER
AT
ION
S
CO
MP
AN
Y&
BR
AN
D
What is the Impact of Counterfeit Electronics? (% Respondents)
Source: Benchmarking Counterfeit & Inferior Grade Components,
Supply & Demand Chain Executive & IHS Inc., April 2009
www.ihs.com/SupplierRisk
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Copyright © 2012 IHS Inc. All Rights Reserved. 12
Insight:
Counterfeit Incidents vs. Revenues 2001 – 2011
ERAI Accounted for Over 90% of High Risk and Suspect Counterfeit Parts Verified
and Reported from 2001-2011
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Reactive Risk Managing Supply Chain Disruption: Thailand & Japan
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Copyright © 2012 IHS Inc. All Rights Reserved. 14
Thailand Flood -Update
• Over 800 fatalities
• More than one-third of
Thailand flooded
• 7 million people affected
• 14,000 factories flooded
An aerial view of the Chaophraya River on Oct. 12, 2011 in Ayutthaya province, central Thailand.
(AP Photo)
The disaster in Thailand disrupted the supply chains of many industries.
• Direct Impact: Automotive production, Analog IC & Discrete Semiconductor
manufacturing, HDD manufacturing and assembly, Electronics Assembly –
PCs, digital cameras
• Indirect Impact: PC, DRAM, Set Top Boxes, Servers
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Copyright © 2012 IHS Inc. All Rights Reserved. 15
Supply and Demand Analysis
Source: IHS
Supply and Demand Analysis:
Q4-11: Total Q4 HDD shipment dropped 29% QoQ. Price has increased ~28% QoQ in Q4-11.
Q1-12: IHS expects Q1-12 shipment and inventory to improve due to increased production from non-flooded HDD makers and component manufacturers. Price may start to decline for certain drives.
2012: Situation will continue to improve. Inventory will increase and prices will gradually decline 3-10% QoQ. Overall supply/demand equilibrium in Q312. Almost 12 months!
Toshiba plant before flood
Toshiba plant during flood
-40.00%
-30.00%
-20.00%
-10.00%
0.00%
10.00%
20.00%
30.00%
40.00%
Q1 '10 Q2 '10 Q3 '10 Q4 '10 Q1 '11 Q2 '11 Q3 '11 Q4 '11 Q1 '12E
Pe
rce
nta
ge
Supply/Demand Analysis SHIPMENTS CHANGE % ASP'S CHANGE % DAYS OF INVENTORY CHANGE %
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Copyright © 2012 IHS Inc. All Rights Reserved. 16
To what extent has your company’s increased
normal purchasing for commodities, materials,
or components believed to be impacted?
How have prices changed for impacted
commodities, materials, or components?
How have you or your suppliers increased the
use of open market or other independent
supply chains to source critical parts?
Which of the following do you believe are true?
Disaster Effect: Japan Crisis
Not at all 9.2% Somewhat 21.7% Moderately 34.2% Significantly 6.7% Very significantly 2.5% Not applicable 25.8%
Significant decrease in prices 0.0% Slight decrease in prices 1.7% No change to prices 24.2% Slight increase in prices 40.8% Significant increase in prices 4.2% Not applicable 29.2%
Not at all 18.3% Somewhat 24.2% Moderately 10.8% Significantly 8.3% Very significantly 1.7% Not applicable 36.7%
Prices are/or will increase for commodities, materials, components or services we need
69.2%
Material shortages or obsolescence will increase
49.2%
Counterfeiting of electronics will increase 55.0%
We will use new suppliers or open market sources to satisfy demands
27.5%
Other 7.5%
Source: IHS Online Poll
60%+
40%+
45%
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Copyright © 2012 IHS Inc. All Rights Reserved. 17
PCNalert: Actual PCN Show Disaster Impact
www.ihs.com/SupplierRisk
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Copyright © 2012 IHS Inc. All Rights Reserved. 18
PCNalert: Illustrate Material/Price Volatility
www.ihs.com/SupplierRisk
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Material Risk What Was Reactive Becomes Routine:
Rising Commodity Volatility
John Mothersole
Principal, Industry Practices Group, IHS Inc.
www.ihs.com/SupplierRisk
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Copyright © 2012 IHS Inc. All Rights Reserved. 20
What Has Changed?
• Commodity prices exploded from 2002 to 2011
• Average annual growth rate of 15%
• Why should we care about commodity prices?
• This surge in prices has impacted profitability and complicated budget
planning - elevating purchasing’s role
• Higher prices joined by higher volatility in recent years
• Upside risk and downside risk combine to create wild gyrations in prices on a
month to month basis
• Emerging markets have exploded onto the global economy
• Influence will continue to grow over the next decade
• Resource nationalism is becoming a factor
• Investors are now firmly entrenched
www.ihs.com/SupplierRisk
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Copyright © 2012 IHS Inc. All Rights Reserved. 21
Copper Versus Gold Prices
0
400
800
1200
1600
2000
0
2000
4000
6000
8000
10000
2000 2002 2004 2006 2008 2010 2012
Copper, $/metric ton, left Gold, $/troy ounce, right
Which to Choose?
www.ihs.com/SupplierRisk
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Copyright © 2012 IHS Inc. All Rights Reserved. 22
3.0
4.0
5.0
6.0
7.0
8.0
9.0
10.0
1982-85 1986-89 1990-93 1994-97 1998-
2001
2002-05 2006-09 2010-
2011
Standard Deviation in Monthly Price Changes*
*Gold, silver, oil, aluminum, copper, coffee, sugar, rubber, cotton, corn, w heat, lumber, steel
scrap, steel plate, HR carbon steel sheet
Price Volatility Has Increased
www.ihs.com/SupplierRisk
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Copyright © 2012 IHS Inc. All Rights Reserved. 23
North America27.1%
Other Americas
6.3%
Western Europe25.2%
Emerging Europe6.4%
Japan8.7%
Other Asia, Pacific20.5%
Mideast, Africa5.8%
2010
US 22.9%
China 9.4%
India 2.7%
The ‘West’s’ Influence is Waning
Share of world GDP, measured in US dollars
2020
North America20.1%
Other Americas
7.1%Western Europe19.6%
Emerging Europe7.5%
Japan5.7%
Other Asia, Pacific33.8%
Mideast, Africa6.1%
US 16.9%
China 19.6%
India 5.5%
www.ihs.com/SupplierRisk
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Copyright © 2012 IHS Inc. All Rights Reserved. 24
Is the Investment Climate Worsening?
36
40
44
48
52
Fraser Institute Global [Mining] Policy Potential Index
Lo
we
r sco
re s
ign
als
le
ss a
ttra
ctive
min
ing
en
vir
on
me
nt
www.ihs.com/SupplierRisk
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Copyright © 2012 IHS Inc. All Rights Reserved. 25
Country Risk Analysis
www.ihs.com/SupplierRisk
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Copyright © 2012 IHS Inc. All Rights Reserved. 26
Quantified Risk Correlates With Volatility
www.ihs.com/SupplierRisk
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Copyright © 2012 IHS Inc. All Rights Reserved. 27
The Role of Investors
65
75
85
95
105
1150.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
1996 1998 2000 2002 2004 2006 2008 2010 2012
IHS Global Insight Industrial Materials Price Index, 2002=1.0, left scale
Trade Weighted Value of U.S. Dollar, 1973:3=100,inverted, right scale
www.ihs.com/SupplierRisk
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Copyright © 2012 IHS Inc. All Rights Reserved. 28
Takeaways
• Commodity prices exploded since 2005 • Global economy continues to struggle from the Great Recession; however
prices have almost regained previous peaks
• A new higher cost profile has been placed under many commodities
• Volatility has increased significantly – and is likely a permanent feature of supply chains
• This raises the need to not just track commodity prices but also the corresponding factors that drive prices
• Build a cost profile of your key materials
• Identify key production centers and raw material exporters
• Be aware of changes and potential changes in policy – these do influence investor flows
• Be prepared for volatility • Formal hedging strategies should be considered if not already in place
www.ihs.com/SupplierRisk
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Supplier Risk
Managing Risk in the Supplier Network
Katie Lewis
Director Procurement & Sourcing Solutions, IHS Inc.
www.ihs.com/SupplierRisk
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Copyright © 2012 IHS Inc. All Rights Reserved. 30
Risk Survey (Preliminary) Results
• Survey results confirm supplier risk management is integral to 2012
operational plans
• Delays and disruption are the biggest concern, with quality and cost
following closely behind
0% 10% 20% 30% 40%
Not At All Significant
Not Very Significant
Moderately Significant
Very Significant
Extremely Significant
Significance of Managing Supplier Risk to
Operational Plan
0% 10% 20% 30% 40% 50% 60% 70% 80%
Supplier Bankruptcy
Counterfeit Risk
Environmental Compliance
Reliability
Cost
Quality
Supply Delay/Disruption
Most Pressing Supplier Risks
IHS Inc and Supply & Demand Chain Executive magazine, 2012 Preliminary Survey Results (survey is on-going)
www.ihs.com/SupplierRisk
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Copyright © 2012 IHS Inc. All Rights Reserved. 31
Understanding the Supplier Network
Supplier Relationship Management
• Building Partnerships
• Gaining Visibility
• Understanding Risk
• Avoiding Disruption
• Achieving Cost Savings
www.ihs.com/SupplierRisk
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Copyright © 2012 IHS Inc. All Rights Reserved. 32
Valu
e o
f Spend
Assessing Supplier Risk
Partner
Bottleneck
Substitutes Available
For the most integral and high-value inputs to your supply
chain, grow strategic partnerships with your suppliers
For lower value, but still integral inputs coming
from a short list of suppliers, close inventory
monitoring is required
For highly competitive commodities and
parts, strategic timing of buys, effective
contract negotiation, and benchmarking
mean cost savings
• The impact of a disruption to the supplier relationship should
influence your relationships with suppliers
• Balancing risk and cost is integral to effective supplier
management
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Copyright © 2012 IHS Inc. All Rights Reserved. 33
Thailand Floods
I read in the news that flooding during
the monsoon season in Thailand has
impacted manufacturing facilities in the
region.
•Will it impact my supply chain?
•What producers could be impacted?
•What facilities are in the path of the
floodwaters?
•Could these disruptions impact my
production schedule?
www.ihs.com/SupplierRisk
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Copyright © 2012 IHS Inc. All Rights Reserved. 34
Thailand Floods
If I know which suppliers were affected, and which ones supply my
production lines, I can react quickly when disaster strikes.
My suppliers
are clearly
marked, so I
can measure
the impact to
my supply
chain
What if I knew instantly which of my suppliers had manufacturing
facilities in the region?
www.ihs.com/SupplierRisk
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Copyright © 2012 IHS Inc. All Rights Reserved. 35
Managing the Supplier Network
• Make informed decisions, balancing cost
and risk based on detailed supplier
information
• The majority of manufacturers do not
have tier 2 or 3 visibility, increasing the
risk of unforeseen disruptions
Know Your Suppliers
• Tier 1
• Tier 2
• Tier 3
Copyright © 2012 IHS Inc. All Rights Reserved.
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Copyright © 2012 IHS Inc. All Rights Reserved. 36
Supply Chain Risk Ratings
• Supplier Database • Financial viability
• Revenues
• Cost of Goods Sold
• Debt
• Security of Supply • Capacity
• Inventories
• Diversity of production facilities
• Counterfeit notices, responsiveness,
correctness • Quality
• Reliability
• Innovation and Investment • Capital Expenditure
• Growth Prospects
• Geographic risk based on production • Diversification
• Cost/Productivity balance
• Infrastructure obstacles
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Copyright © 2012 IHS Inc. All Rights Reserved. 37
IHS Connect: Supply Chain Workbench
www.ihs.com/SupplierRisk
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Copyright © 2012 IHS Inc. All Rights Reserved. www.ihs.com/SupplierRisk www.ihs.com/SupplierRisk 38
Katie Lewis
Director, Procurement & Sourcing Solutions, IHS Global Insight
Eric Pratt
Senior Director, Pricing & Competitive Analysis, IHS Inc.
John Mothersole
Principal, Industry Practices Group, IHS Inc.
Barry Hochfelder
Editor, Supply & Demand Chain Executive
Questions?
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