Sources of Risks
Supply Chain Risk Management BPLM II
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Sem I
Business Environment
Part 2: Sources of risks
• Today’s hazards emanate from a wide range of
sources
– Local
– Global
– Internal/ external
• They occur as a result of;
– natural events in the market
– competitive conditions
– non compliance or compliance with regulatory
authorities.
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Sources cont’d
• Commercial and legal relationships
• Economic circumstances
• Human behaviors
• Natural events
• Political circumstances
• Technology and technical issues/ ATM fraud
• Management activities and controls
• Individual activities Katosi road/ UNRA/ IGG
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And among these we have common
risks like
• Quality
• Environmental Pollution
• Health & Safety
• Fire
• Computer failure
• Marketing risk
• Fraud
• Security
• International Trading
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• What we need to be aware of is that these
occurrences and changes occur at frightening
speeds and frequency therefore it’s pertinent
that we identify them on time.
• The nature of some work requires young,
intelligent and enthusiastic people with a
drive to win but this itself is a risk since they
may be the same people to circumvent the
controls to achieve speedier results through
shortcuts.
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• At times we create risks ourselves in the work
place in form of;
1.No ergonomics i.e. seats and computers
2.Cables and stationary across walkways
3.Files and boxes stored overhead
4.Operating procedures not enforced
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Sources of risks
• External sources of risks
• Internal sources of risks
• Vulnerability within the Supply Chains
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Analyzing External Sources of Risks
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The STEEPLE framework
FACTORS
Socio-cultural (How might changes affect the demands or expectations of
customers, suppliers or other stakeholders?)
Technological (Are there opportunities for development – or risks of
obsolescence?)
Economic (How might changes affect product demand and/or supply and
cost of inputs?)
Environmental (or (Which factors may cause supply problems, compliance issues,
‘ecological’) market pressure or risk to reputation?)
Political (What are the likely implications of policies or changes in policy?)
Legal (How will the organisation need to adapt policies and practices in
order to comply?)
Ethical (Which issues may cause market pressure or reputational risk?)
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PEST/PESTEL/PESTLE Analysis
• Political Factors
• Economic Factors
• Socio Cultural Factors
• Technological Factors
• Environmental Factors
• Legal Factors
Political Factors
• This is the most important influence on the
regulation of any business.
– How stable is the political environment?
– Influence the Government Policy / Law on your
business
– Government’s position on Marketing Ethics
– Government’s policy on the economy
– Government’s view on culture under religion
Political Factors - Contd.
– Political System is responsible for Law Making.
– Immediate laws which affect any business in
general are Central Excise, Sales Tax/ VAT,
Corporate Income Tax, Personal Income Tax &
Service Tax
– Environmental Protection Law
– Controls if any on Marketing Strategies
• Like Marketing / Advertising of Cigarettes,
Tobacco, Alcohol etc.
Political Factors - Contd..
• Control on Pricing
– like sugar, drugs etc.
• Government Policies on the Economy
– Role of Public Sector
– Role of Private Sector
– Role of Joint Sector
Economic Factors
• Government outlook towards
• Bank Financing
• Interest Rates
• Exchange Rate Mechanism
• Incentives for Exports
• Restrictions for Imports
• Inflation
• Labour Policies
Economic Factors - Contd.
• Level of Government Spending
• Avenues for Capital Creation
– Size of the Capital Market
– Role of the Regulator
– Type of the Instruments
– Nature of the Investors
Economic Factors - Contd.
• Business Cycles (The business cycle is the
fluctuation in economic activity that an economy
experiences over a period of time. A business
cycle is basically defined in terms of periods of
expansion or recession)
• Monsoon (a seasonal reversing wind
accompanied by corresponding changes in
precipitation)
• Energy Availability
• Cost of Energy
Socio-Cultural Factors
• Demographics
• Distribution of Income
• Social Mobility
• Life Style Changes
• Consumerism
• Educational Levels
Socio-Cultural Factors - Contd.
• Demographics
Demographic analysis cover gender (male/female), age groups,
education level, nationality, religion & ethnicity.
• Distribution of Income
Is the smoothness or equality with which income is dealt out among
members of a society. If everyone earns exactly the same amount of
money, then the income distribution is perfectly equal.
– Disposable Family Income
• Disposable Income in the hands of the different Age Groups
• Social mobility: Is the movement of individuals, families, households,
or other categories of people within or between social strata in a
society
Social Cultural Factors - Contd.
• Life Style Changes: Attitude to living;
• By different age groups
• In tune with available disposable income
• Joint living and nuclear families
• Availability of various media tools
• Reach of the media to the population
• Consumerism: the protection or promotion of the
interests of consumers. The belief that it is good for people to
spend a lot of money on goods and services.
Drives on taking care of present needs by spending than
saving for the future.
Technological Factors
• Advantage of Technology
– In terms of Economies of Scale
• New Discoveries & Innovations
• Speed & Cost of Technology Transfer
• Rate of Obsolescence
Other Factors
• Judicial System
• Insurance System
• Banking System
• Regulatory System
• Infra Structure
– Communication
– Transportation
Role of PEST/PESTLE Analysis
• Business Planning: PESTLE Analysis forms a safe start for a business
endeavor. It provides management with data, feedback and
information about the factors involving a business decision. When
used along with the SWOT Analysis, it can help identify the major
threats and opportunities that a business decision will face.
• Marketing: PESTLE Analysis greatly influences the marketing
environment of a product or service. It also determines the strategies
adopted in marketing based on information obtained through this
analysis.
• Product Development: PEST is relevant for any type of Business large,
small & medium to decide on a product to be developed, knowing the
external factors of the project via the PESTLE Analysis helps this
decision making.
Role of PEST/PESTLE Analysis cont’d…
Organizational: While PESTLE Analysis takes into
account the major external features, it also affects
the organizational structure, especially when
decisions in changes to be made come into play. For
example, it may concern the political makeup of the
organization or the fiscal factor of project funds.
Research: PESTLE Analysis is a good way to study the
environmental factors affecting a project. While it
may be relevant to a current project, document
reports of risks may be referred to during future
projects facing similar conditions.
Saunders’s integrative model of
environmental factors
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PORTER’S FIVE FORCES MODEL
• Michael Porter recognized that there are a
number of key influences upon an organization in
the market in which it operates. The forces are;
1. Stake holder influence
2. Relative power of suppliers/ Umeme/ NWSC
3. Threat of substitute products or service
4. Threat of new entrants to industry
5. Relative power of buyers
6. Intensity of current industry rivalry
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INTERNAL SOURCES OF RISKS
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INTERNAL SOURCES OF RISKS
• The internal sources of risk usually centre on
the staff within the organization upon which
reliance is placed to implement policies,
systems and procedures are designed to
achieve objectives.
• Within organizations, we are always somehow
part of a team, striving to complete objectives
as part of an organizational strategy.
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INTERNAL SOURCES OF RISKS Cont’d…
To analyze internal sources of risks, we shall use;
1.SWOT Analysis
2.Kirov Risk Register
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SWOT ANALYSIS
KIROV’S RISK REGISTER
Kirov’s Risk Register
Internal Enterprise Risks
1. Operational Risk
•Loss of Inventory (damage, obsolescence)
•Equipment loss, mechanical failures
•Process Issues
– Process reliability
– Process robustness
– Lead time variability
– Inflexible Production Capabilities (long set up
times, etc.)
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Kirov’s Risk Register
Internal Enterprise Risks
1. Operational Risk
•Poor Quality
•Defects in manufactured product
•Failure to maintain equipment
•Lack of training or knowledge
•Environmental performance to permits / other
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Kirov’s Risk Register
Internal Enterprise Risks
2. Government Compliance and Political Uncertainty
•Taxes, customs, and other regulations
•Currency fluctuations
•Political unrest
•Boycotts
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Kirov’s Risk Register
Internal Enterprise Risks
3. Demand Variability/Volatility
•Drawdown of the stockpile
•Exceeding maintenance replacement rate
•Shelf life expiration
•Surges exceed production, repair, or
distribution
•Shortfalls
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Kirov’s Risk Register
Internal Enterprise Risks
4. Personnel Availability/Skills Shortfalls
•Sufficient number
•Sufficient knowledge, skills, experience
•Union contract expiry
•High turnover rate
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Kirov’s Risk Register
Internal Enterprise Risks
5. Design Uncertainty
•Changes to requirements
•Lack of technical detail
•Lack of verification of product
•Changes to product configuration
•Poor specifications
•Reliability estimates of components
•Access to technical data
•Failure to meet design milestones
•Design for supply chain (e.g., obsolescence,
standardization, and commonality)
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Kirov’s Risk Register
Internal Enterprise Risks
5. Design Uncertainty
•Changes to requirements
•Lack of technical detail
•Lack of verification of product
•Changes to product configuration
•Poor specifications
•Reliability estimates of components
•Access to technical data
•Failure to meet design milestones
•Design for supply chain (e.g., obsolescence,
standardization, and commonality)
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Kirov’s Risk Register
Internal Enterprise Risks
6. Planning Failures
•Forecast reliability/schedule availability
•Planning data accuracy
•Global visibility of plans & inventory positions
•Competition/bid process
•Acquisition strategy
•Manufacturability of a design
•Program maturity
•Subcontracting agreements
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Kirov’s Risk Register
Internal Enterprise Risks
7. Financial Uncertainty/Losses
•Funding availability
•Work scope/plan creep
•Knowledge of supplier costs
•Strategic risk
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Kirov’s Risk Register
Internal Enterprise Risks
8. Facility Unavailability/Unreliability/ Capacity
•Facility breakdown
•Mechanical failures
•Sites located in high risk areas
•Adequate capacity
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Kirov’s Risk Register
Internal Enterprise Risks
9. Testing Unavailability / Inferiority / Capacity
•Unreliable test equipment
•Operational test qualifications
•Operational test schedule
•Integration testing
•Transition from first test to mass production
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Kirov’s Risk Register
Internal Enterprise Risks
10. Enterprise Underperformance/Lack of Value
•Customer satisfaction/loyalty
•Liability
•Cost/profit
•Customer demand
•Uniqueness
•Substitutability
•Systems integration
•Other application/product value
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Kirov’s Risk Register
Internal Enterprise Risks
11. Supplier Relationship Management (SRM) Use
•Contract/supplier management availability and
expertise
•In-house SRM expertise
•Lack of internal and external
communication/coordination
•Supplier development and continuous
improvement
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Causes of team conflict
• Lack of trust • Bad policies, stupid
• Unresolved roles, team procedures
division/ relationship • Bad leadership
issues • Mismatched rewards
• Anti team culture • Use of wrong tools,
• Personality conflicts personal exposure
• Confused goals (health, safety and
• Bad decision making security),
• Performance failure
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• Therefore the human resource function
should ensure that all these are adhered
to though it may be constrained by the
line managers.
• There is also need for good
communication strategies to have the
right interpretation of messages and
languages so as to remove noise from the
message.
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ALLOCATING RESOURCES TO RISK
MANAGEMENT AFTER IDENTIFYING
THE RISKS IS VERY IMPORTANT
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• : As Sun Tzu says in his “Art of war” a
Leader who uses his resources to the
challenge at hand will win, and do not
tackle difficult problems with inadequate
resources which illustrates the
importance of effective resource
allocation. Below are some of the tools
that will enable us allocate resources.
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The Boston Grid; Market Share and Market
Growth
• To understand the Boston Matrix, you need to
understand how market share and market growth
interrelate.
• Market share is the % of the total market that is being
serviced by your company, measured either in revenue
terms or unit volume terms. The higher your market
share, the higher the proportion of the market you
control.
• The question it asks is, "Should you be investing
additional resources into a particular product line just
because it is making you money?" The answer is, "not
necessarily."
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• This is where market growth comes into
play.
• Market growth is used as a measure of a
market's attractiveness.
– Markets experiencing high growth are ones
where the
– total market is expanding
– it’s relatively easy for businesses to grow
their profits
• even if their market share remains
stable.
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• By contrast, competition in low growth
markets is often bitter, and while you
might have high market share now, it
may be hard to retain that market share
without aggressive discounting. This
makes low growth markets less
attractive.
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• Dogs: Low Market Share / Low • Cash Cows; High Market Share
Market Growth / Low Market Growth
• In these areas, your • Here, you're well-
market presence is weak, established, so it's easier
so it's going to take a lot of to get attention and
hard work to get noticed.
You won't enjoy the scale exploit new
economies of the larger opportunities. However
players, so it's going to be it's only worth
difficult to make a profit. expending a certain
And because market amount of effort,
growth is low, it's going to because the market isn't
take a lot of hard work to growing, and your
improve the situation. opportunities are
limited.
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• Stars; High Market Share / • Question Marks ; Low Market
High Market Growth Share / High Market Growth
• These are the opportunities no
• Here you're well- one knows what to do with. They
aren't generating much revenue
established, and right now because you don't have
a large market share. But, they
growth is exciting! are in high growth markets so the
potential to make money is there.
There should be • It might become Stars & eventual
Cash Cows, but they could just as
some strong easily absorb effort with little
return. These opportunities need
opportunities here, serious thought as to whether
increased investment is
and you should work warranted.
hard to realize them.
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• This grid helps you manage the different
products within your portfolio; you can
now consider what resources to apply to
which products.
• Qn; In an organization like this, where
would you allocate resources to manage
risks and why?
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Assessing vulnerability
within the Supply Chains
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Pareto analysis i.e. 80/20 rule or ABC
analysis
• This identifies the major elements of any
business operation. 20% of the product lines
are responsible for 80% of the sales value,
thus it’s important that the 20% is identified
and concentrated on. 30% are responsible for
15% while 50% may contribute only 5% of
sales value. These are often uneconomical &
should be considered for rationalization
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• Segment the products by value and risk.
• Low value risk issues are delegated to
lower staff while the others are
dedicated to the best teams.
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Kraljic Portfolio Matrix
This is a purchasing approach to manage supplier
r/ships. It includes the construction of a portfolio matrix
that classifies products on the basis of two dimensions:
profit impact and supply risk ('low' and 'high'). The result
is a 2 x 2 matrix and a classification in four categories,
each with a distinctive approach:
• Bottleneck. These items cause significant problems and
risks. They should be handled by volume insurance,
vendor control, security of inventories and backup plans.
• Non-Critical. These items require efficient processing,
product standardization, order volume and inventory
optimization.
• Leverage. These items allow the buying company to fully
exploit its full purchasing power (tendering, target
pricing, product substitution).
• Strategic Items. These items require further analysis
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Supplier perception matrix
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Supplier chain mapping
• Supplier chain mapping which entails identifying every
single step in the process or product
Documentation
Authorization
Data entry
Data processing
Reporting
Packing movement
Inspection
Recycling
• Evaluation of each step can help identify key risk areas
for resource input.
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• A visual representation of goods,
information, processes, and money
flows that occur throughout a supply
chain, both upstream and downstream.
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Characteristics of Supply Chain Maps
• Can focus on:
*particular use or user
*processes, flows, facilities,
organizations, geographic relationships
• Easy to distribute
• Easy to Interpret
• Designed to support corporate strategy
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SC Mapping
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Software and design Apple USA
Assembly Foxconn?, Quanta, Unknown Taiwan
TFT-LCD Screen Sanyo Epson, Sharp, TMD Japan
Video processor chip Samsung Korea
Touch screen overlay Balda Germany
Bluetooth chip Cambridge Silicon Radio UK
Chip manufacture TSMC, UMC Taiwan
Baseband IC Infineon Technology Germany
WIFI Chip Marvell USA
Touch screen control chip Broadcom USA
CMOS chip Micron USA
NOR Flash ICs Intel, SST USA
Display Driver chip National Semi, Novatek US, TW
Case, Mechanical parts Catcher, Foxconn Tech Taiwan
Camera lens Largan Precision Taiwan
Camera module Altus-Tech, Primax, Lite On Taiwan
Battery Charger Delta Electronics Taiwan
Timing Crystal TXC Taiwan
Passive components Cyntec Taiwan
Connector and cables Cheng Uei, Entery Taiwan
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• What is most interesting is how far
Foxconn reached into the Supply chain.
Not only do they supply a number of the
critical components, but they are also the
final assembler.
• That’s right… the iPhone is Made in
China.. Shenzhen to be exact
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Assessing the vulnerability and
criticality within supply chains
• Supply chain involves the events that link initial
creation and production of an item through to
consumption by the end user meaning that it
involves several links.
• Therefore it’s important to think of a supply
chain as a network, as there will be processes
and data moving in different directions between
many players.
• Need to use the information available to identify
these risks
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Supply Chain Vulnerability
– What has disrupted operations in the past?
– What known weaknesses do we have?
– What ‘near misses’ have we experienced?
– What would be the effect of a key material
shortage?
– What would be the effect of the loss of a
distribution site?
– What would be the effect of the loss of a key
supplier or customer?
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Systematic supply chain disruptions
– Post-9/11 security concerns
– Hurricane Katrina
– Inadequate managerial controls
– Elections
– Walk to work
– Mitigating legislation
– Weather vagaries
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Why are today’s supply chains so
vulnerable?
● Widespread adoption of ‘lean’ practices
● The move to off-shore manufacturing and sourcing
● Out-sourcing and reduction in the supplier base
● Global consolidation of suppliers
● Centralised production and distribution
• All of which combine to make supply chains vulnerable to
disruption
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“A fire at a key Philips semiconductor factory
in 2000 caused a worldwide shortage of the
radio frequency chips used by both Nokia and
Ericsson. Nokia immediately lined up another
source and redesigned other chips so they
could be produced elsewhere. However,
Ericsson responded more slowly and lost an
estimated $400 million in mobile phone
handsets.”
MIT Sloan Management Review
Summer 2006
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“Yesterday it emerged that ice-cream supplies may
run short because Unilever’s only UK factory,
based in flood-stricken Gloucester, has been
closed for the past ten days.
The company usually manufacturers five million
ice-creams and lollipops a day at the plant. It has
stocks in freezers but it could be days before
normal production resumes. Industry insiders
predict that there will now be an ice-cream war as
rival brands attempt to exploit Unilever’s
predicament and gain market share.”
The Times, 31 July 2007
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