Supply Chain Risk Management in Project Based Industries
Supply Chain Risk Management in Project Based Industries Gøril Hannås Associate Professor /Program Director Industrial Economics and Technology Manage...
Supply Chain Risk Management in Project Based Industries Gøril Hannås Associate Professor /Program Director Industrial Economics and Technology Management
Transport og Logistikk konferansen Gardermoen 17. og 18. oktober 1
Putting SCRM on the agenda The emerging importance of risk management in global supply chains Supply Risk Context in project based industries
Managing supply chain risks in projects
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Increasing sources of threats and vulnerability in business operations • •
Growing threats
• • • • • • • •
Extreme weather Deviation of exchange rates Growing Labor strikes vulnerability Volcanic eruption Piracy attacks Terroristic attacks Earthquake Changes in regulations Hindered customs handling Deviations of oil price Risk Management
• • • • • • • • •
JIT Globalization Outsourcing Lean Production Growing complexity Growing dynamics in cooperation Single sourcing Reduction of redundancies Long transportation
Mitigation:
Preparedness:
Reduce the impact of risk events
Reduce exposure and vulnerability 3
Why is supply chain risk important? •
Even a relatively small supply chain disruption caused by a localized event may have consequences across the global economic system.
•
Globalization, offshoring and outsourcing leads to - “no” control over the causes of events in the supply chain.. - “only” control over consequences of events in the supply chain..
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Supply risk context
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Project based production
Source: Prof Andreas Wald et al i Prosjektledelse nr 3 –September 2016
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Project based industries
Operating in high risk high cost markets ….facing increasing
pressure to cut cost in the context of uncertain markets 7
Generic pain points Regulatory requirements
• • •
Broad spectrum of demands Documentation requirements Checking, validation, control
Complex design
• • •
Overdesign Customization and complex ETO processes System interface with many suppliers
Frequent specification changes
• • •
Similar projects - different specifications Re-do rather than re-use Small changes generate large costs
Complex logistics
• • •
Low industrialization in project execution models Long lead times Complex supply
Transactional supplier relations
• •
Arms length Short term optimization 8
Central challenges of supply chain risk •
Very difficult to predict many sources of risk, especially the unknown – unknown
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Impact of disruption can be devastating
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Large investment in identifying every possible risk in the supply chain
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Existing tools and techniques have been inadequate (Simchi-Levi, 2016 and Comez, 2013):
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Mostly ad-hoc, intuition, gut feeling Exposure to risk may reside in unlikely places May lead to the wrong actions and waste resources No ability to prioritize mitigation investments 9
Managing supply chain risks in projects
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Processes for Project Risk Management Performance measures
Risk Assessments in Projects
Quality
Integrated, holistic and consistent
Scope Time
Cost
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Risk hierarchy To structure and capture complexity of cause and effects of risks in projects
Example of Risk Drivers
• • • •
Market uncertainties New technology Equipment customization System interface
• • • •
New supplier Logistical complexity Single sourcing Long lead times 12
Example of risk reporting Risk hierarchy
Risk reporting structure Est. delay risk cost: xxx USD
”Hva er årsakene til at det estimeres xxxx USD i kostnader på forsinkelser ?
Sum of delay risk
Liquidated Damages
Delay in long lead item
Internal delay in documentat ion
Forcing Costs
Lack of follow up and communication
Delay in design
Local content
Other delay costs
Delay in fabrication
Delay in transport
Change of scope
”Hvilke egenskaper ved prosjektene leder til Scope change?”
New Shipyard
Cultural conditions
New Design
Macroeconomic conditions
New Customer
Regulative requirements
New supplier
”En viktig årsak til at det er høy risiko for LD, er endring i scope, og kvalitetsutfordringer hos
sentral fabrikasjonsleverandør. Den økonomiske størrelsen på dagbøtene ventes å utgjøre xx % av alle kostnadene som skyldes forsinkelser. Deler av dette skyldes prosjekt XXX med høy iboende risiko pga nytt design og strenge regulatoriske føringer. 40% av prosjektene har POC >65%. Tiltak for reduksjon av risikoeksponering ansvarliggjøres på PM og …nivå, og innebærer ….”
Risk reporting on the project portfolio level Risk data
Project risk management processes
Management information
• Uniform approach to risk assessment • Identification of relevant risk drivers and categories
• Ensure data reliability and risk category validity • Clarified roles and responsibilities • Handling and controlling risks in projects at the right enterprise level • Relevant KPI and KRIs for reporting purposes and efficient control measures
Critical risk path •
Long lead time for critical items
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A single source of supply with no short-term alternatives
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Dependence on specific infrastructure, e.g. ports, transport modes, or information systems
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Critical system interface
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Bottlenecks or ‘pinch points’ through which material or products must flow
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High degree of concentration amongst suppliers and customers
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High levels of identified risks (e.g. supply, market, internal processes, compliance and environmental risk)
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Instrumental factors to control SCM risk in projects •
Industrialization of project execution models
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Standardization of processes
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Strong focus on delivery goals
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Integrated planning systems
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Starting point •
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Supplier business intelligence: ‒
What market conditions are critical for your strategic suppliers?
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What other industries do they serve, how well diversified are they, and how are their critical markets performing?
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What role does your market play in the overall demand for suppliers?
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How important are you to their business?
Contingency planning: ‒
How much inventory is needed to stay on top of your projects, and how resilient are your suppliers if raw material or other essential inputs were disrupted?
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How long does it take develop new suppliers for critical input to your project portfolio?
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What are the costs of project delay and your appetite for risk of disruptions and overruns?
Business continuity plans: ‒
To what extent will disruptions compromise your most important supply chains?
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What is anticipated time to recovery for critical supply (TTR)? 17
