SUPPLY CHAIN RISK - Corporate Executive Board

CFO EXECUTIVE BOARD OCTOBER 2008
www.cfo.executiveboard.com
RISK MANAGEMENT EPNGROUP DISCUSSION
SUPPLY CHAIN RISK
The CFO Executive Board is pleased to present the results from the Risk Management EPNGroup’s discussion around
Supply Chain Risk.
How Peer Groups Work: The Risk Management EPNGroup allows members to pose questions to their peers and
gain their peers' insights through a moderated, e-mail-based exchange. For each exchange "thread", members will
receive the initial question as well as a short series of aggregated responses. All questions and responses are posted
anonymously unless the contributor requests otherwise.
Please find the original questions, and the answers submitted by your peers below:
INITIAL REQUEST
This question comes from a Diversified Services Company:
a) How confident are you in your ability to sense and respond to supply chain risk, e.g., supplier solvency?
___ Not confident at all
___ Somewhat confident
___ Confident
___ Very confident
b) What measures have you taken or plan to take before the end of the year to:
___ Shore up your supply chain risk evaluation?
___ Mitigate supply chain risk?
If you would like to participate in this discussion thread or submit a unique question to your peers in the Risk
Management Peer Group, please email cfo_risk_management@updates.executiveboard.com
KEY TAKEAWAYS
A total of 8 companies responded to this question:
- A majority of the companies (6/8) are somewhat confident of their ability to sense and respond to supply chain risk.
- Common methods highlighted by companies to shore up their supply risk evaluation include:
- Evaluate suppliers on performance, exposure and mitigation planning – 4/8 companies
- Review and adjust supply contracts on volume basis to meet production schedule
- Allow shorter invoice terms to impacted suppliers
- Common methods implemented by companies to mitigate their supply chain risk include:
- Develop contingency plans to divert to alternative suppliers – 2/10 companies
- Create an internal reserve fund to assist critical suppliers
- Assess business continuity scenarios regarding bankruptcy of key suppliers and develop resiliency plans.
MEMBER RESPONSES
Response 1: Energy Company, $50 Billion+
a) In my product group a significant part of our supply is captive (i.e. from the refineries). Where we rely on third
parties we are "somewhat confident" about our ability to sense and respond to supply chain risks, incl. supplier
solvency.
b) Measure include, but are not limited to:
© 2008 Corporate Executive Board
CFORM291008

CFO EXECUTIVE BOARD PAGE 2
SUPPLY CHAIN RISK
MEMBER RESPONSES CONTINUED
• Key third party suppliers are being assessed in the same way we assess the credit worthiness of our
customers; this includes pro-active engagement
• Contingency plans are being developed to divert sourcing to alternative suppliers
Response 2: Consumer Products Company, $10-20 Billion
a) Confident - We utilize a combination of D&B (DNBi) and Open Rating Systems to monitor our supply base,
validate, identify & pre-qualify new suppliers. Both systems are web based and provide a supply risk solution
to monitor, assess and mitigate our supply chain.
b) Shore up your supply chain risk evaluation
• Suppliers that are likely to be impacted have been allowed to shorten terms in order to provide free
cash flow.
• We have been in contact with suppliers, identified and classified them and shortened invoice terms to
generate cash flow. Supply contracts have been reviewed on volume basis and forecasts adjusted to
meet production schedules in order to provide advance notice to suppliers in an effort to allow them to
adjust production runs and capacity.
Mitigate supply chain risk
• In many cases we have duel source suppliers. Where we have single critical source suppliers an
internal reserve fund has been established to assist suppliers during the current financial situation.
Response 3: Aerospace/Defense Company, Less than $5 Billion
a) Somewhat confident
b) Shore up your supply chain risk evaluation:
• We evaluate our suppliers on general categories: Performance, exposures and mitigation
planning. Within exposures we separately examine and rate the financial, natural disaster, obsolesce,
operational stability, allocation, and single source risks. For the financial element we use the
information available with D & B, Standard & Poors, Bloomberg's etc. Recently we have
supplemented these sources with a supplier survey that is structured to supply information that may
be leading indicators of financial problems.
Response 4: Consumer Products Company, Less than $5 Billion
a) Confident
b) Mitigate supply chain risk: Alternate suppliers for key materials
Response 5: Insurance Company, $20-50 Billion
a) Somewhat Confident
Response 6: Transportation Company, Less than $5 Billion
.
a) Somewhat confident
b) Shore up your supply chain risk evaluation:
• Obtain D&B reports and conduct reviews of all major suppliers to identify potential risks
Mitigate supply chain risk:
© 2008 Corporate Executive Board
CFORM291008

CFO EXECUTIVE BOARD PAGE 3
SUPPLY CHAIN RISK
MEMBER RESPONSES CONTINUED
• Assess business continuity scenarios regarding bankruptcy of key suppliers (services and
commodities) and develop resiliency plans to respond or address any control weaknesses which may
be identified.
Response 7: Financial Services Company, $10-20 Billion
a) Somewhat Confident
b) The steps we are taking are through a vendor risk assessment;
1. Reaching out to our top vendors by spend and business criticality
2. Having top vendors provide updated financials and business continuity plans
3. Having business units review their BCP plans in the event the vendor is no longer in business
4. Having business units reach out to their vendors to understand how they are dealing with this
economy
5. Our enterprise supply management group is looking at other vendors that could take over if a
specific vendor fails.
Response 8: Health Products and Services Company, $10-20 Billion
You have to go through the process of identifying the critical needs of your supply chain, then go through your
"suppliers" to identify the risks, and then see how you mitigate can mitigate that risk. E.g. if you have a critical
component and you have only one supplier, you need to assess if this supplier is strong, also how much of inventory is
needed to mitigate this risk, and also possibly develop a second source
© 2008 Corporate Executive Board
CFORM291008

CFO EXECUTIVE BOARD PAGE 4
SUPPLY CHAIN RISK
Additional Resources:
2008 Supply Risk Benchmarking Report:
https://www.cfo.executiveboard.com/Members/Benchmarking/Abstract.aspx?cid=100096461&fs=1&q=supply+chain+ri
sk&program=&ds=1
Collaborative Supplier Mitigation Planning (British Telecom):
https://www.cfo.executiveboard.com/Members/ResearchAndTools/Abstract.aspx?cid=100039708&fs=1&q=supply+cha
in+risk&program=&ds=1
Upcoming Teleconference: The New Risk Environment - Enterprise Risk Management Requirements for Non-
Financial Services Organizations
04 November 2008 04:00 - 05:00 PM (London)
Register Here: https://www.cfo.executiveboard.com/Members/Events/Abstract.aspx?cid=100092303
Get your user password here: https://www.cfo.executiveboard.com/Public/Register.aspx?pagesrc=Member
About CFO Executive Peer Discussion Groups:
Peer Groups allow members to pose questions to their peers and gain their peers' insights through a moderated, e-
mail-based exchange. For each exchange "thread", members will receive the initial question as well as a short series
of aggregated responses. All questions and responses will be posted anonymously unless the contributor requests
otherwise.
Other finance peer groups administered by the CFO Executive Board can be found on our website at:
https://www.cfo.executiveboard.com/Members/PeerGroups/Default.aspx
If you have any Finance Operations questions, or would like to join the group, please email
cfo_risk_management@updates.executiveboard.com
Professional Services Note
The CFO Executive Board has worked to ensure the accuracy of the information it provides to its members. This project relies
upon data obtained from many sources, however, and the CFO Executive Board cannot guarantee the accuracy of the information
or its analysis in all cases. Further, the CFO Executive Board is not engaged in rendering legal, accounting or other professional
services. Its projects should not be construed as professional advice on any particular set of facts or circumstances. Members
requiring such services are advised to consult an appropriate professional. Neither Corporate Executive Board nor its programs is
responsible for any claims or losses that may arise from any errors or omissions in their reports, whether caused by Corporate
Executive Board or its sources.
© 2008 Corporate Executive Board
CFORM291008