v
Contents
Preface ................................................................................................. xiii
About the Authors ...............................................................................xix
Chapter 1 Supply Chain Risk Management: Setting the Stage .........1
e Concept of Risk and Risk Management ...........................2
Dening Enterprise Risk Management ...............................3
Dening Supply Chain Risk Management .........................6
Why Focus on Supply Chain Risk Management? ...................7
Some SCRM Observations ..................................................10
Why Aren’t We Prepared for SCRM? ................................10
Some Important Risk Concepts ..............................................11
Risk Event ..............................................................................11
Risk Exposure and Vulnerability .......................................12
Risk Resilience ......................................................................13
Risk Appetite .........................................................................14
Risk Analysis or Assessment ...............................................15
Risk Response Plan ...............................................................15
Risk Compliance ................................................................... 15
Risk Governance ................................................................... 16
Categorizing Risk ......................................................................16
Other Ways to Look at Risk ................................................17
Generic Risk Management Approaches .................................18
Risk Mitigation .....................................................................18
Risk Avoidance ......................................................................19
Risk Prevention .....................................................................19
Risk Acceptance ................................................................... 20
Risk Sharing ......................................................................... 20
Prevention versus Responsiveness ......................................21
Concluding oughts ...............................................................21
Summary of Key Points .......................................................21
Endnotes .....................................................................................22
vi • Contents
Chapter 2 Supply Chain Risk Management: e As- Is Landscape ... 25
A Chronology of Supply Chain Risk Management ..............25
2009 ........................................................................................26
2010 .........................................................................................27
2011 ........................................................................................ 30
2012 .........................................................................................32
2013 ........................................................................................ 34
Four Pillars of Supply Chain Risk Management ...................36
Supply Risk ............................................................................37
Process Risk ...........................................................................37
Demand Risk .........................................................................37
Environmental Risk .............................................................37
e Supply Chain Risk Management Adoption....................39
SCRM Adoption .................................................................. 40
Concluding oughts ...............................................................41
Summary of Key Points ...................................................... 42
Endnotes .................................................................................... 43
Chapter 3 Building the Risk Management Foundation ..................45
Supply Chain Risk Management Enablers .............................45
A Supportive Organizational Design ................................ 46
Information Technology ...................................................... 51
Measurement Systems .......................................................... 53
Talent Management ............................................................. 54
Linking Supply Chain Risk Management and Supply
Chain Strategy .......................................................................... 56
Integrating Risk Management with Commodity
Strategy Development ..........................................................57
e Ultimate Risk—Improve or Else! .....................................59
Rallying around a Superordinate Measure ...................... 60
Reducing Supply Risk through a New Approach to
Contracting............................................................................61
Systems Contracting Benets .............................................62
Concluding oughts ...............................................................63
Summary of Key Chapter Points ....................................... 64
Endnotes .....................................................................................65
Contents • vii
Chapter 4 Strategic Risk ....................................................................67
What Is Strategic Risk? ............................................................ 68
Reducing Strategic Risk through Better Product
Development ..............................................................................69
New Product Development Best Practices ........................69
Bringing New Product Development and Risk
Management Together .........................................................73
e Art and Science of Not Getting Caught by Surprise .....74
Protecting Intellectual Property ..............................................79
When Strategic Risk Becomes Strategic Reality ...................82
Concluding oughts .............................................................. 84
Summary of Key Points .......................................................85
Endnotes .................................................................................... 86
Chapter 5 Hazard Risk ...................................................................... 87
e Traditional World of Hazard Risk and Insurance ........87
First- Party Commercial Property Insurance....................89
Cargo Insurance .................................................................. 90
Cyber Insurance ................................................................... 90
Business Interruption Insurance ....................................... 90
Contingent Business Interruption Insurance ...................91
Trade Disruption Insurance ................................................91
Global Logistics Insurance ..................................................92
Quantifying Traditional Hazard Risk Insurance
Requirements .............................................................................94
Looking at the ai Floods through a Risk
Quantication Prism ............................................................. 100
Concluding oughts .............................................................101
Summary of Key Points .....................................................102
Endnotes ...................................................................................102
Chapter 6 Financial Risk ................................................................. 103
Understanding Financial Risk ...............................................104
Supplier and Customer Financial Viability ....................104
Supply Market Volatility ....................................................105
A Case Study of Supply Market Volatility .......................106
viii • Contents
Getting Serious about Managing Financial Risk ................107
Supplier Financial Health Assessment through
Ratio Analysis .....................................................................108
Bankruptcy Predictors ....................................................... 111
Private Company ...........................................................112
Public Company ............................................................. 112
Qualitative Supplier Financial Risk Indicators ..............115
Assessment of Customer Creditworthiness .................... 116
Hedging ................................................................................118
Currency Risk Management Approaches ...................... 120
Concluding oughts ............................................................ 123
Summary of Key Points .................................................... 124
Endnotes .................................................................................. 124
Chapter 7 Operational Risk ............................................................ 127
Operational Risks ....................................................................127
Supply Risk ......................................................................... 128
Demand Risk ....................................................................... 131
Process Risk ........................................................................ 134
Environment/ Ecosystems Risk ......................................... 137
Business Continuity Planning ...............................................139
Business Continuity Planning Objective .............................140
e Business Continuity Life Cycle .................................141
BCP Exercises ......................................................................144
Concluding oughts .............................................................145
Summary of Key Points .....................................................145
Endnotes ...................................................................................146
Chapter 8 Supply Chain Fraud, Corruption, Counterfeiting,
and Theft ........................................................................ 147
Some Key Concepts ................................................................. 148
Bribery .................................................................................. 148
Counterfeiting .....................................................................149
Fraudulent, Corrupt, Coercive, and Collusive Practices ...150
Rules and Regulations ............................................................153
Consumer Financial Protection Bureau (CFPB) ............153
Customs Trade Partnership against Terrorism
(C- TPAT) ............................................................................. 154
Contents • ix
Dodd- Frank Wall Street Reform and Consumer
Protection Act .....................................................................155
Foreign Corrupt Practices Act ..........................................155
Tools, Best- in- Class Practices, and Countermeasures .......156
Fraud, Corruption, and e Tools .................................156
Supplier Co- Management .................................................158
Addressing Corruption with Best Practices ...................159
Counterfeit Countermeasures ..........................................161
Concluding oughts .............................................................162
Summary of Key Points .....................................................163
Endnotes ...................................................................................163
Chapter 9 Emerging Risk Management Frameworks for Success ... 165
What Is a Framework? ............................................................165
Frameworks Supporting the New Supply Chain Risk
Management Discipline ..........................................................166
Enterprise Risk Management (ERM) Framework .........166
COSO ERM Framework ....................................................167
ISO Standards .....................................................................168
Governance, Risk, and Compliance (GRC) ....................172
Risk Taxonomies—An Operational Framework For
SCRM ........................................................................................175
Leveraging ERM, GRC, and Risk Taxonomies ...................177
Benets of ERM and GRC Frameworks ...............................180
Concluding oughts .............................................................183
Summary of Key Points .....................................................183
Endnotes ...................................................................................184
Chapter 10 Using Probabilistic Models to Understand Risk .......... 185
Dening the Models................................................................185
Probabilistic versus Deterministic Modeling Tools ...........187
Risk Response Plans ................................................................ 191
Company Examples of Probabilistic Modeling...................192
Scenario Planning at DuPont............................................192
Stress Testing the Supply Chain at Bayer Material
Sciences ................................................................................194
Next- Generation S&OP at Huntsman .............................197
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