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14
Learning from Risk
Management Leaders
Although most companies have a way to go before they can brag about
their risk management prowess, some companies have achieved distinc-
tion, at least in some aspect of risk management. is chapter highlights a
variety of companies that have demonstrated their commitment and skills
when pursuing supply chain risk management (SCRM): Boston Scientic,
Boeing, IBM, Cisco, Delphi, and a major defense contractor. e pur-
pose of this chapter is to appreciate what leading companies are doing to
become risk management leaders. We also highlight a company that oers
risk- related lessons learned the hard way.
MAKING RISK MANAGEMENT A PRIORITY
AT BOSTON SCIENTIFIC
A company that is widely recognized at being at the top of its risk man-
agement game is Boston Scientic Corporation (BSC), a company started
in 1979 with 38 employees and $2 million in sales.
1
Today, with a world-
wide workforce of 24,000 employees, more than $7 billion in sales from
more than 100 countries, and a product portfolio containing 15,000
products, it is not surprising that a company this complex continuously
faces uncertainty.
Even before the 2008 economic downturn BSC had taken a heightened
interest in the impact of supplier risk on the company’s operations. In this
regard the company is an early risk management adopter. e company
created a detailed Supplier Risk Management program to help prepare for
268 • Supply Chain Risk Management: An Emerging Discipline
any anticipated and unanticipated risks they may face. BSC denes supplier
risk management as a proactive and systematic process for cost- eectively
identifying and reducing the frequency and severity of unwanted events in
the supply chain that have an adverse eect on the business.
e primary goal of BSC’s program is to move from being a reactive
risk taker to being proactive toward risk, thereby allowing the company
to reduce its overall risk exposure. e company divides this goal into
four specic objectives—gain visibility to high- risk suppliers that require
attention, identify and understand the specic drivers that increase sup-
plier risk, proactively manage and mitigate supply chain risk, and measure
risk mitigation and its impact.
BSC followed a three- step process when designing its risk management
program. e rst step, information acquisition, required BSC to gather
and access information from the external environment, suppliers, and the
analysis of dierent parts and components. e second step involved com-
piling this information using basic risk management systems and tools. e
nal step involved communicating this information to dierent Boston
Scientic business units and plants as well as to suppliers.
Having the Right Tools
Aer its initial analysis, Boston Scientic designed a formalized process
to manage supplier risk. is process includes (1) identifying risk areas,
(2) analyzing and prioritizing these risks, (3) developing risk mitigation
plans to address high- risk areas, and (4) tracking high- risk areas.
To support this process the company has developed a primary risk tool
it calls the Supplier Risk Wheel. Each supplier has its own wheel. e pur-
pose of this tool is to identify high- risk events and risk categories that
require action. e Supplier Risk Wheel starts with data and survey inputs
to identify specic risk events, which create the outer ring of the wheel.
Risk categories that contain these identied risk events comprise the
middle circle of the wheel. Each risk item (outer ring) and risk category
(middle ring) is assigned a color based on the level of risk it involves (red =
very high risk, light red = high risk, yellow = medium risk, light green = low
risk, dark green = very low risk), and each level aects the next. Finally, the
risk categories are used to calculate the overall supplier Risk Probability
Index (RPI), which is the center circle of the wheel.
BSC has developed other tools, including a Risk Distribution Matrix and
a Supplier Comparison Report, to provide further risk insight. e Risk
Learning from Risk Management Leaders • 269
Distribution Matrix is a mapping tool with an x- and y- axis. e x- axis
represents the supplier’s Risk Probability Index from the Risk Wheel and
the y- axis represents the potential revenue impact presented by the sup-
plier. e matrix uses red, yellow, and green zone designations.
A Supplier Comparison Report allows the comparison of the highest
and lowest indicators or ratings in various areas between suppliers. is
approach also relies on a color- coded scheme and considers factors such as
the supplier’s percentage of revenue from medical devices, quality, align-
ment with BSC, accreditation, delivery, capacity utilization, plant size, and
service support. Another tool is a comprehensive risk template that details
the kinds of actions taken to prevent or mitigate risk in the case of a risk
event. Boston Scientic uses all of this information to determine the best
ways to eliminate or manage supplier risk.
Boston Scientic has also created a Risk Alert and Communications
System. is system relies on a variety of data sources in four catego-
ries (nancial, governmental, disasters, and market dynamics) to gain
insight into potential risk events. Examples of data sources supporting the
alert system include Dun & Bradstreet information, U.S. Environmental
Protection Agency (EPA) e- newsletter, regulatory updates, U.S. Food and
Drug Administration (FDA) updates, weather updates, commodity analy-
ses, supplier communications, foreign travel warnings, and state depart-
ment fact sheets. Finally, the company actively benchmarks and compares
its risk management capabilities against other best- in- class companies.
Is all this work worth it to Boston Scientic? e company has developed
three sophisticated metrics for evaluating its risk standing—cross prod-
uct, which is a measure of overall BSC supply risk in dollars; the standard
deviation of revenue at risk; and the average supplier RPI by quarter. All
three indicators reveal the company is trending in the right direction.
Boston Scientic understands that being a supply chain risk manage-
ment leader requires the development of the right kinds of tools and tech-
niques to support their journey.
NAVIGATING THREATS AT BOEING
Global companies know that at any moment unpredictable events can
happen anywhere in the world. ese events become worse when a com-
pany is unable to determine its risk exposure. And probably no company
270 • Supply Chain Risk Management: An Emerging Discipline
appreciates this more than Boeing, a company with 170,000 employees in
50 U.S. states and 70 countries, and with thousands of suppliers, partners,
and customers located in 150 countries. With people and operations in
this many locations being aected by tornadoes, hurricanes, earthquakes,
pandemics, civil unrest or terrorism, or catastrophic product failures that
are major news events is not only a possibility, it is a certainty. e ques-
tion becomes how severe a risk event will be and its eect on the company
and its stakeholders.
Boeing created a system called reatNavigator to monitor diverse loca-
tions and potential risks. is system, the brainchild of several Boeing
emergency management professionals, allows managers to quickly com-
prehend a complex situation and monitor it in real time. ese personnel
also envisioned a system that could track and contact Boeing employees,
including those who are traveling.
An in- house team created reatNavigator using web technology. is
tool combines internal and external information and displays it visually in
a Google Maps format. External data feeds come from sources such as NC4
(a commercial information service described in Chapter12) as well as the
National Weather Service. Icons show the type of incident and use color
codes to indicate the elapsed time since an incident occurred. Alerts are
also sent to system users via e- mail so they can be kept up- to- date on a situ-
ation. Before the development of reatNavigator, alerts and information
from many sources were sent to emergency responders, something that
took hours to accumulate and analyze. And it doesn’t take a Boeing rocket
scientist to gure out that hours in an emergency represent an eternity.
reatNavigator, which came online in 2012, has already been used
numerous times. It was rst used to monitor a NATO summit hosted
in Chicago to follow the actions of protestors who vowed to shut Boeing
down due to the company’s military support of NATO. It was also used to
monitor areas aected by Hurricane Sandy during October 2012. e sys-
tem also helped determine if evacuations were necessary during Colorado
wildres as well as during civil unrest in Cairo. And risk managers used
reatNavigator to monitor the Oklahoma City area aer a massive tor-
nado hit the area as well as the aermath of bombings at the 2013 Boston
Marathon. is system also tracks medical emergencies or events at com-
pany sites daily, something that shows the system’s versatility.
Other systems support reatNavigator. ese include the DENS
(Desktop Emergency Notication System), which delivers computer alerts to
Learning from Risk Management Leaders • 271
employees about emergencies; the DAN (Dialogic Automated Notication)
system, which sends messages globally through an automated phone noti-
cation system; the BEACON (Boeing Employee Accountability Network)
system, which accounts for the location and well- being of employees if a
site evacuation is required; the TRIS (Travel Risk Intelligence Service) sys-
tem, which monitors Boeing employees when they travel and what health
and safety threats might be nearby; and other systems including an emer-
gency 800 number and an emergency website.
ese systems help keep the company and its vast network of employ-
ees safe in an unsafe world. ey allow critical business operations to be
maintained wherever possible during a crisis or event. By being able to
react quickly to events, Boeing is at the forefront of risk mitigation, creat-
ing a condence within the company that it will be able to deal with risk
events better than ever before.
SUPPLIER RISK ASSESSMENT AT IBM
It should come as no surprise that a company known for developing inno-
vative products and solutions for its customers would develop an innova-
tive approach for managing supply chain risk. To grasp the importance
of the supply chain to IBM, consider that the company has more than
1,800 rst- tier suppliers, contractors, and manufacturing sites and more
than 25,000 professionals working in its Integrated Supply Chain group.
e hardware group alone at IBM buys $12 billion of production materials
per year from suppliers. And the company is increasingly relying on sup-
pliers in India, China, other Southeast Asian countries, Eastern Europe,
and South American countries. As its electronics supply chain becomes
increasingly complex, so too have the risks the company faces. Needless to
say, the IBM of today faces more risks than the IBM of just a few years ago.
Several years ago IBM began a review of its approach to supplier risk
assessment. An initiative to improve IBM’s risk assessment ability started
as part of an overall corporate strategy built around enterprise risk man-
agement (ERM). As part of that eort, IBM looked more closely at its risk
management approaches in its supply management group. And not sur-
prisingly, given the global nature of IBM’s business, the company found
opportunities for improvement.
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