Presentation is loading. Please wait.

Presentation is loading. Please wait.

Supply Chain Risk Management

Similar presentations


Presentation on theme: "Supply Chain Risk Management"— Presentation transcript:

1 Supply Chain Risk Management
Midwest User Group Supply Chain Risk Management Terry Onica, QAD, Director Automotive

2 Midwest User Group Safe Harbor Statement The following is intended to outline QAD’s general product direction. It is intended for information purposes only, and may not be incorporated into any contract. It is not a commitment to deliver any material, code, functional capabilities, and should not be relied upon in making purchasing decisions. The development, release, and timing of any features or functional capabilities described for QAD’s products remains at the sole discretion of QAD.

3 Agenda Sources of Supply Chain Risk
Midwest User Group Agenda Sources of Supply Chain Risk Risk Management and Industry Standards Understanding Risk Exposure Risk Management at Cascade Engineering QAD Solutions Support Next Steps

4 News Headlines Keep Coming . . .
Midwest User Group News Headlines Keep Coming Why is risk management becoming such a key issue in the automotive industry? Over the recent years, global supply chain disruptions have made risk management a hot topic. As the automotive industry becomes more and more global, any disruption can cause it to be heard around the world. There is a need to mitigate disruptions to create resilient supply chains. Let me share with you a few examples. When the Tsunami struck in Japan several years ago, the industry found out the supplier who produces the pigment for black paint for much of the global vehicle production was located in Japan. As a result, temporarily cars could not be produced that were black. When blizzards occur in the United Statesst, it can prevent trucks from delivering parts as the roads become too hazardous to drive. And, lastly, when a fire hit a supplier in Germany, it prevented 40% of the worlds supply of a nylon compound used in plastic fuel and brake lines to be brought to a halt. These are just a few examples of how impactful a disruption can be. As a result, risk management and assessment is being written into quality and delivery standards to ensure in the future the supply chain will have the ability to prevent and/or quickly recover from major disruptions. Risk is not limited to natural disasters or fires. Risk can be anything that prevents a supplier from delivering a quality part to the customer. So, even things like financially troubled suppliers, the inability to send customer EDI or to have the proper packaging at the time of shipment are also considered risks. Tsunami Snow Storms Fire

5 Sources of Supply Chain Risk
Midwest User Group Sources of Supply Chain Risk Unknown Uncontrollable Natural disasters Geopolitical Risks Epidemics Terrorist Attacks Labor disruptions Raw material prices Currency volatility Material shortages Shipping disruptions Financial health of suppliers Supplier performance Quality issues This graphic was put together by Ford and MIT. Organizations find this chart quite useful as a starting point for considering what items need to be addressed for risk plans. At the top, there are unknown and uncontrollable events such as a natural disaster, geopolitical risk, or terrorist attacks. These can happen without warning. If a supplier is located in an area that might be more susceptible to these types of events, then they need to put together contingency plans to address such events. In the middle we see events like labor disruptions, raw material prices, and currency volatility. Here, these risks start to be a little more known. For instance, typically a plant might know when a labor strike is likely to occur or that they deal with currency in a particular region that is volatile. As you get to the bottom of the chart, these are things that should be should already be actively being monitored. Here, typically tools should be already be in place to proactively avoid such things as material shortages, shipping disruptions, financial health of suppliers, quality issues and supplier performance. Known Controllable Source: Ford-MIT Alliance / Simchi-Levi Managing Supply Chain Risk

6 Risk Management Added to Quality & Delivery
Midwest User Group Risk Management Added to Quality & Delivery Materials Management Operations Guideline/ Logistics Evaluation Risk Management is also be written into the quality standards. ISO 9001:2015 will include a section on risk management. The automotive industry takes ISO 9001:2015 quality standard and then derives the automotive ISO/TS standard. It is fully expected that when the new ISO/TS standard is available in 2016 or 2017 that it will include Risk Management from ISO 9001: The ISO 9001:2015 standards recommends that suppliers leverage ISO for risk management. QAD QMS’s risk management module is based on ISO So, customers can leverage this standard in QAD QMS. Automotive Delivery in 2015 Automotive Quality in 2017

7 Midwest User Group What is MMOG/LE? Developed by AIAG/ Odette with OEMs, Suppliers and QAD Assessment tool to evaluate/select suppliers Completed at the site level Supply chain capabilities against best practice and reduce supplier risk Used for production and after sales Determines level of plant performance Full and Basic Assessment MMOG/LE is an assessment for materials management and logistics used by in the automotive industry for the initial selection and on going evaluation of suppliers in the automotive industry. MMOG/LE is a tool that suppliers use to assess their plant facilities to best practices. New supplier selection and assessment is critical in the automotive industry. Also, ensuring that suppliers continuously demonstrate world class capabilities is equally important. Therefore, OEMs and Tier 1 suppliers usually either ask for the suppliers to submit an annual assessment and may even go out to their suppliers to do an audit. Audits are usually triggered for a new supplier, a new product launch or a poor performing supplier. While not all OEMs use MMOG/LE as their selection and evaluation tool, the majority of OEM evaluation tools align with 90% of the content of MMOG/LE. Later in this module, we will discuss what OEMs and Tier 1 suppliers are currently are requiring or considering to require MMOG/LE. MMOG/LE contains six chapters and 197 criteria. Suppliers go through each of the 197 criteria and indicate whether or not they meet each of the 197criteria. Once they are done answering all 197 criteria, MMOG/LE will automatically score the plant’s operation and determine the current level of plant performance. With a Level “A” score meaning the plant is world class to a “C” score meaning the plant will not have long term acceptable operations. A Level “C” score means that the odds are high that the supplier will cause disruption to the customer. Typically, Level “C” suppliers are required to develop a plan to become a Level A within six months to a year of the submission of the Level “C” assessment. With the introduction of MMOG/LE version 4, a Basic assessment was added. The Basic assessment was designed to be leveraged down the supply chain and contains 106 criteria. With the introduction of MMOG/LE Basic, there is a significant increase in the adoption of MMOG/LE from Tier 1 to Tier 2. To conclude, MMOG/LE is to supply chain management and delivery performance, what ISO-TS/16949 is to quality. MMOG/LE = Delivery ISO/TS = Quality

8 Two Assessments Full Basic Midwest User Group 197 criteria
Six Chapters Used by OEM with Tier 1 A,B and C Levels World Class 34 F3 questions 106 criteria Six Chapters Used with Tier 2-N ZA, ZB and ZC Levels Fundamentals in place 34 F3 questions With the release of Version 4, MMOG/LE now consists of two assessments - a Full and a Basic assessment. The Basic version contains a subset of 106 of the 197 criteria used in the Full version. MMOG/LE was originally created as a best practice assessment toolkit for the vehicle manufacturers. Over time, some large, multi-national, Tier 1 organizations also started to adopt MMOG/LE with Tier 2 suppliers. General feedback from the Tier 1 community was that the “Full” MMOG/LE is sometimes difficult to accomplish for suppliers in the lower tiers. The Basic version was developed so that assessments can be completed by the lower tier suppliers and provide a meaningful roadmap of continuous improvement opportunities. Both the MMOG/LE Full and Basic contain the same 34 critical F3 criteria. And, like the Full assessment, if one F3 criteria is missed in the Basic, the organization will automatically fall to a Level “ZC”. Scores for MMOG/LE Basic are ZA, ZB and ZC. By achieving a “ZA” it means that the organization has the “basics” of supply chain management in place, were as a score of “A” in the Full MMOG/LE means that the supplier is world class. MMOG/LE allows the supplier receiving a Level “ZA” the option continue on to complete the Full assessment and therefore onto world class. F3 F2 F1 Total Full 34 83 80 197 Basic 59 13 106

9 MMOG/LE Customer Usage with Suppliers
OEMs Using Tier 1 Using Fiat Chrysler Autoliv Selzer Automotive CNH – Latin America Benteler SNOP FAW-VW Beru Valeo Ford Bosch WABCO GM Brose ZF Iveco Continental Governments Adopting Jaguar/Land Rover Faurecia Korean Government PSA Gates Mexican Government Qoros Johnson Controls USA Government Renault Lear Under Review Tofas Fiat (Turkey) Magna Powertrain Fiat Volvo Car MGI Coutier Honda, Toyota, Nissan NA Volvo Truck Pierburg VW Here are some of the OEMs and large Tier 1 suppliers who are either currently using or are considering using MMOG/LE. MMOG/LE continues to grow in adoption with OEMs and Tier 1 suppliers too. While not all OEMs use MMOG/LE as their selection and evaluation tool, the majority of OEM evaluation tools align with 90% of the content of MMOG/LE. Some of the urrent OEMs using MMOG/LE are Ford, Chrysler, GM, PSA, Renault, Volvo Car, Volvo Truck and Jaguar Land Rover. The German OEMs such as Volkswagen, Daimler and BMW are currently assessing MMOG/LE and view MMOG/LE to be better than the tools that they currently use to assess suppliers. Honda in North America is considering to use it for poor performing suppliers while Toyota has indicated that they assess suppliers on all the same things as MMOG/LE. In the past few years, several of the Chinese OEMs have adopted or are in the processing of adopting MMOG/LE. Additionally, several large Tier 1 suppliers such as Continental, ZF, Faurecia and others are adopting MMOG/LE with Tier 2 suppliers. With the introduction of MMOG/LE Basic we are seeing a significant increase in Tier 1 suppliers adopting MMOG/LE. As you can see, based on all of the current OEM and Tier 1 usage as well as feedback from OEMs who have assessed MMOG/LE – MMOG/LE truly is best practice. Even the OEMs who do not use MMOG/LE yet, consider it to be equal to or better than what they have today. Today, we even see governments promoting or examining MMOG/LE. In particular, the Korean and Mexican governments are subsidize automotive supplier’s in their countries to take MMOG/LE Training. Even the US Government has studied MMOG/LE as a way to make US suppliers more competitive.

10 MMOG/LE Assessment Midwest User Group
Focuses supplier attention on SCM impact areas inclusive of: dealing with customer volume fluctuations, contingency plans, capacity constraints, Tier 2 capability, resource allocation, employee skills, etc. 1 2 3 4 5 6 MMOG/LE helps to address many of the key challenges that the industry faces today such as customer volume fluctuations, capacity constraints, contingency plans, Tier 2 capability, resource allocation and maintaining employee skill sets. The process map helps to pictorially show all the key processes that are examined in the MMOG/LE assessment. Again, this process map concept was developed by QAD and is now included in the Introduction and Instructions section of MMOG/LE as the Supply Chain Model. Across the top in red are the six chapters of MMOG/LE. I will cover these in more detail on the next slide. Below the six chapters are the processes that MMOG/LE examines. Let me quickly walk you through at a high level the processes. It starts on the left with receiving EDI forecasts and schedules from the customer, Then it moves to planning with MRP, From MRP, we need to determine if we enough resources such as capacity, After running MRP, we now also know what we need from suppliers, So next we send our forecast and schedules electronically via EDI or Web to our sub suppliers, We then receive ASNs from our sub suppliers ship and then receive it into inventory, Coming out of planning, we schedule and manufacture and eventually ship to the customer. During this process, our customers measure us and we measure ourselves and our suppliers. Contingency plans are needed if the organization does not have enough resources, cannot get parts from suppliers, or if they are unable to ship to the customer. And, lastly, we need to make sure that our resources are trained and have good work instructions.

11 Risk Management Added to Delivery
Midwest User Group Risk Management Added to Delivery MMOG/LE Best Practice for Risk Risk Sub Chapter Criteria 2.5.1 Risk Assessment Process Define (new F3) Prioritize Proactively reduce risk Contingency Plans Documented (F3) Reviewed, tested, validated, and trained (F3) Lessons learned documented Communicated to sub suppliers In MMOG/LE version 4, Risk Management was added to the assessment. In sub chapter 2.5.1, it asks that the organization has a Risk Assessment Process. This means that they need to have a documented process on how they assess, prioritize and proactively reduce risk in their operation. This is an F3 question. So, if they do not have a risk assessment process, they will automatically be a Level “C”. Therefore, it is critical that they have a documented risk assessment process. In sub chapter 2.5.2, for all the risks they have identified as high priority and high impact, they need to have a documented contingency plan for each risk including how they will recover if the disruption occurs. Included in this plan, the organization needs to show how the step by step process to return to normal operations as well as how the plans are reviewed, tested and validated. They also need to have a training matrix of who has been trained on each contingency plan to ensure that everyone knows what to do in the event of the disruption. It is also important in the event of a disruption, the process includes going back to document and share any lessons learned. Lastly, in 2.5.2, they need to document a proccess on how they instruct their sub suppliers on how to handle certain disruptions. For instance, has the organization instructed the sub supplier what to do if the proper packaging is not available at the time of shipment? Or, has the organization instructed their suppliers on what to do if the customer-assigned transportation provider does not show up to pick up the supplier’s parts?

12 Risk Management Process
Midwest User Group Risk Management Process Here is a good example that Ford shared with at the industry on how they assess risk. This can be shared with organizations who are struggling to come up with a process or who do not know where to begin.

13 Supplier Assessment MMOG/LE Best Practice for Supplier Performance
Midwest User Group Supplier Assessment MMOG/LE Best Practice for Supplier Performance Risk Sub Chapter Criteria Supplier Assessment MMOG/LE is part of the selection process Supplier Assessment Assess suppliers on formal basis (MMOG/LE or equivalent) Supplier Assessment Process to regularly review supplier performance The performance is communicated to all relevant parties Process improvements are initiated and implemented as required In MMOG/LE version 4, Risk Management was added to the assessment. In sub chapter 2.5.1, it asks that the organization has a Risk Assessment Process. This means that they need to have a documented process on how they assess, prioritize and proactively reduce risk in their operation. This is an F3 question. So, if they do not have a risk assessment process, they will automatically be a Level “C”. Therefore, it is critical that they have a documented risk assessment process. In sub chapter 2.5.2, for all the risks they have identified as high priority and high impact, they need to have a documented contingency plan for each risk including how they will recover if the disruption occurs. Included in this plan, the organization needs to show how the step by step process to return to normal operations as well as how the plans are reviewed, tested and validated. They also need to have a training matrix of who has been trained on each contingency plan to ensure that everyone knows what to do in the event of the disruption. It is also important in the event of a disruption, the process includes going back to document and share any lessons learned. Lastly, in 2.5.2, they need to document a proccess on how they instruct their sub suppliers on how to handle certain disruptions. For instance, has the organization instructed the sub supplier what to do if the proper packaging is not available at the time of shipment? Or, has the organization instructed their suppliers on what to do if the customer-assigned transportation provider does not show up to pick up the supplier’s parts?

14 Prioritizing Risk Step 1: Assess Sub Supplier Capabilities
Midwest User Group Prioritizing Risk Step 1: Assess Sub Supplier Capabilities Financial performance Quality performance Supplier performance Now, a supplier might say their organization could potentially face many “possible” disruptions. So, where does assessing risk end? And, yes, the OEMs and standards organizations understand this. Organizations should look at all potential risks but focus on documenting risks that will have a high probably and a high impact if the disruption occurs. So, for instance, if an organization is in a region that is prone to blizzards, tsunamis, typhoons or hurricanes, they should be developing a plan for those that might impact their operation. If an organization is along the coast in Japan, the organization may have a high probability of a tsunamis. However, if the organization is in Detroit, Michigan, the organization would have a high probably of a blizzard. Every organization’s risk is going to be different. There is no standard for risk that may impact the organization. Again, depending on where you are located in the world, can really impact what risk you might be facing. For instance, the organization might be in a part of the world where maybe ports might impact their operation. Or, the organization might be in a part of the world that is more prone to labor strikes. So, it is imperative that the organization look at all risks and determine what is critical to their organization.

15 Reducing Exposure with Sub Tier Suppliers
Midwest User Group Reducing Exposure with Sub Tier Suppliers Step 2: Turn insights into action Supplier scorecards or ratings Corrective actions Mapping supplier locations Warning Sign Example 1: Employee Labor Strike + Late Deliveries = Financially Trouble Supplier The OEMs want the Tier 1 suppliers to be assessing risk with Tier 2. Because the OEMs have no visibility into the Tier 2 suppliers, this causes them sleepless nights as they do not know who they are or how they are managed. As, I mentioned earlier, the OEMs didn’t know about the lower tier supplier provides 40% of the worlds supply of a nylon compound used in plastic fuel and brake lines. First of all, the OEMs what to be sure that the Tier 1 supplier has mapped and determined the locations of all Tier 2 suppliers. You may ask, why is this important? In the event of a Typhoon, the organization will immediately know what sub suppliers to contact for determining if they are OK. Or, they might see by mapping their supply base, that several sub suppliers may have to ship through a certain port that may be ready to go on a labor strike. Next is financial viability. This has been on the fore front since the economic crash in 2008 when so many suppliers went bankrupt in such a short period of time. However, organizations should always be monitoring for financially troubled suppliers as a part of their normal process in sub supplier assessment. If an organization has a financially trouble supplier, they should either be looking at replacing them with a new supplier or have a team working with the supplier provide some sort of aide to help to resolve the situation. The last key area is operational viability. The Tier 1 suppliers should have some way to formally assess as well as provide the sub suppliers with performance reports in the areas of quality and delivery. In the area of delivery assessment, with the introduction of MMOG/LE Basic, many Tier 1 suppliers are adopting this tool to assess the Tier 2 suppliers. Tier 1 suppliers who provide a monthly delivery and quality rating and who actively execute a formal assessment are proactively managing risk. In addition to the monthly supplier rating, providing corrective actions is also a good way to monitor, prevent and correct any future risks. Once all of these areas have been reviewed, then formal contingency plans should be put in place to address these risks. In the long term, what the OEMs want is for Tier 1 suppliers to be documenting supplier risk data. By documenting supplier risk information, a Tier 1 supplier can then mine this data and to turn these “insights into action”. As an example, if a Tier 1 supplier finds the Tier 2 supplier has a monthly rating below 75% for three months in a row, this is typically a sign that the supplier may be having financial troubles. Or, if a sub supplier is having a labor strike and they are missing deliveries, then this is another sign of a financially troubled supplier. Warning Sign Example 2: Three months of poor supplier scorecard is a troubled supplier

16 Risk Management Resources
Midwest User Group Risk Management Resources Business Continuity Planning for the Automotive Supply Chain (M-12) Process Failure Mode and Effects Analysis (PFMEA) Odette SC Risk Management Guideline Insurance organizations When you are working with suppliers and they are looking for other sources of information to help on risk assessment these are good resources can refer to. AIAG published the Business Continuity Planning document. This was put together after the US and Canda experienced a major power outtage or black out. This massive outage cut power to 50 million people in eight states and part of Canada. Needless to say, it caused major disruptions to the auto industry and so this guideline was developed. This document includes all elements of business continuity planning including emergency, communications, business resumption planning and IT disaster recovery. A Process Failure Mode and Effects Analysis or PFMEA is a structured analytical tool used by an organization, business unit, or cross-functional team to identify and evaluate the potential failures of a process. This is commonly used in quality but can be extended to any form of risk. Odette published a supply chain risk management guideline that also goes through the process of determining risk. This document can be down loaded from their web site at odette.org. And lastly, the OEMs also suggest to reach out to insurance providers and consultants. They often will have good advice on how to prevent, avoid or minimize major disruptions or disasters.

17 Case Study: Cascade Engineering
Midwest User Group Case Study: Cascade Engineering

18 Cascade Engineering 14 facilities globally
Midwest User Group Cascade Engineering 14 facilities globally Present in11 markets supporting: Automotive Commercial truck/bus Solid waste Recycling Furniture Material handling Renewable energy RFID asset management

19 Mitigate Risks for Known/Controllable items
Midwest User Group Mitigate Risks for Known/Controllable items 1. Communicate Expectations 2. Track and communicate concerns, actions as needed 3. Communicate performance 4. Escalate concerns 5. Audit against requirements

20 1. Communicate Expectations
Midwest User Group 1. Communicate Expectations Work Manager Document Control Audits QAD QMS Problem Solver Supplier Portal QAD

21 QAD QMS – Supplier Portal
Midwest User Group QAD QMS – Supplier Portal Documentation 175 suppliers on the portal Most current supplier manual Inspection Requirements Photos Suppliers use Cascade’s instructions for consistency

22 2. Track and Communicate Concerns
Midwest User Group 2. Track and Communicate Concerns Work Manager Document Control Audits QAD QMS Problem Solver Supplier Portal QAD

23 QAD QMS – Problem Solver
Midwest User Group QAD QMS – Problem Solver Defect Log Log supplier concern directly into system Document quantities Symptom Cause (if known) Disposition Corrective action? Repeat issue Impacts scorecard

24 QAD QMS – Problem Solver
Midwest User Group QAD QMS – Problem Solver Assign Corrective Action in the System

25 QAD QMS – Supplier Portal
Midwest User Group QAD QMS – Supplier Portal Communicate Concerns Supplier response Checklist items Supporting documentation Submit CPR View status at any time

26 3. Communicate Performance
Midwest User Group 3. Communicate Performance Work Manager Document Control Audits QAD QMS Problem Solver Supplier Portal QAD

27 Supplier Performance Scorecard (Monthly)
Midwest User Group Supplier Performance Scorecard (Monthly) Sections Description Value Disruptions Quality/Delivery Repeat issues, impact on customer, doc error, action, poor communication 30 Points Quoting, cost reductions, support 24 Points Quality Product not meeting requirement 20 Points Delivery Early, late or short shipment Management System Quality/Environmental Systems in place 6 Points

28 QAD QMS – Problem Solver
Midwest User Group QAD QMS – Problem Solver Tracking Supplier Performance Review of concern and reason for point deduction Look for trends (e.g., repeat issue?) Document point deduction information Communicate performance information back to supplier

29 4. Evaluate Performance / Escalate Concerns
Midwest User Group 4. Evaluate Performance / Escalate Concerns Audits Document Control QAD QMS Problem Solver Supplier Portal QAD

30 Supplier Scorecard Classifications
Midwest User Group Supplier Scorecard Classifications Preferred (95 – 100) First in line for new business opportunities in their commodity Acceptable (80 – 94) May still be awarded new business Substandard (70 – 79) 3+ consecutive months possible new business hold Options: Corrective actions. Desource? Financially viable? Probationary (0 – 69) 3+ consecutive months corrective actions and desource Options: New business hold. Financially viable?

31 5. Audit Against Requirements
Midwest User Group 5. Audit Against Requirements Work Manager Document Control Audits QAD QMS Problem Solver Supplier Portal QAD

32 QAD QMS – Audits Complete internal or supplier audits
Midwest User Group QAD QMS – Audits Complete internal or supplier audits Purchasing conducts supplier audits as needed Document concerns Assign corrective actions Supplier views where they failed and corrects

33 Risk Assessment (MMOG/LE 2.5.1)
Midwest User Group Risk Assessment (MMOG/LE 2.5.1) Work Manager Document Control Audits QAD QMS Problem Solver Supplier Portal QAD

34 Emergency Situation – Supplier Disruption
Midwest User Group Emergency Situation – Supplier Disruption QAD contains a list of all supplier locations

35 Follow-up Contingency Plan
Midwest User Group Follow-up Contingency Plan Concern Meeting Requirement? Follow-up with Suppliers No Yes Determine Steps How Long Down? Other Supplier Available? Change Schedule with Customer? End

36 Midwest User Group Contingency Plan

37 QAD Support for Risk Management
Midwest User Group QAD Support for Risk Management

38 QAD Support for Risk Management
Midwest User Group QAD Support for Risk Management Risk QAD Solution Internal/Sub Supplier Capability MMOG/LE Q-Scan Material Shortages QAD Supplier Portal MSW/PSW Supplier Performance QAD QMS Contingency Plans Supply Chain Visibility QAD Cloud EDI

39 QAD Support for Risk Management
Midwest User Group QAD Support for Risk Management Risk QAD Solution Quality and Traceability Issues QAD QMS Item Attributes Serialization Lot Trace Work Bench Long Term Forecasting Visibility QAD DSCP Knowledge Attrition Automotive Process Maps IT Failures QAD Cloud EDI QAD Cloud ERP

40 Overall Benefits of Systems/Planning
Midwest User Group Overall Benefits of Systems/Planning Supplier awareness of expectations Visibility of concerns and actions Portal reduces duplication of entries Reduction in supplier issues/repeat concerns Faster reaction time for concerns “We know we are prepared for current risks”

41 Summary Risk management requirements are here
Midwest User Group Summary Risk management requirements are here OEMs ISO/TS 9001:2015 MMOG/LE v4 Organizations are starting to prepare Are your suppliers are putting you at risk? QAD has solutions/services to support based on industry best practices Down load Risk Management White Paper at

42 Midwest User Group Questions and Answers Terry Onica:

43 Midwest User Group © QAD Inc


Download ppt "Supply Chain Risk Management"

Similar presentations


Ads by Google