Mann

Supply Chain Management:

µ, σ, κ

implica'ons for the Americas 2014?

Catherine L. Mann

Rosenberg Professor of Global Finance International Business School Brandeis University www.CLMann.com @CLMannEcon

Southwest Economic Summit: The Americas 2014 Phoenix, Arizona February 24, 2014 Global Interdependence Center

EvaluaFng Supply Chain Performance •

• • •

Mean: µ Variability: σ Greatest concerns?

MiFgaFon strategies?

Tradeoffs?

Risk: κ

Supply Chain Costs: µ,

σ

µ σ -5

-4

-3

-2

-1

0

N(0,1)

1

2

3

4

5

σ, κ

Supply Chain Costs: µ,

’rare’ events ….not so rare

µ

κ σ -5

-4

-3

-2

-1

Prob. density

0

1

N(0,1)

2

3

4

5

Firm Objectives/Concerns

mean Âľ reduce costs push to suppliers single source for EOS single source for IT labor costs

95% 84% 76% 59% 26%

Firm Objectives/Concerns

mean Âľ reduce costs push to suppliers single source for EOS single source for IT labor costs

95% 84% 76% 59% 26%

Variability ! complexity 82% input prices 53% currency 47% demand 41%

Risk ! corruption cyber IT reputation natural disaster geopolitical supplier bankruptcy

mean Âľ reduce costs push to suppliers single source for EOS single source for IT labor costs

95% 84% 76% 59% 26%

now near 69% 46% 77% 38% 50% 34% 22% 33% 22% 43% Variability ! complexity 82% input prices 53% currency 47% demand 41%

Risk κ corruption cyber IT reputation natural disaster geopolitical supplier bankruptcy

now soon 69% 46% 77% 38% 50% 34% 22% 33% 22% 43%

Mitigate by multiple sourcing monitoring hedging buffer stock Mean µ near sourcing reduce costs push to suppliers single source for EOS single source for IT labor costs

95% 84% 76% 59% 26%

70% 62% 60% 59% 54%Variability σ complexity input prices currency demand

82% 53% 47% 41%

Tradeoffs to Mitigating Risk?

• • • •

Raise mean cost?

Affect variability?

How to implement?

How much does implementation cost?

Mitigating Risk: percent of firms that experience 3 or more incidents with 3% or more impact

superior supply chain and corporate performance 90 80 70

leaders in risk management laggards

60 50 40 30 20 10 0 loss in market value total supply chain cost

PWC-­‐MIT Forum for Supply Chain InnovaFon, 2013

total supply chain total supply chain lead 4me lead 4me variabiilty

Implications for Americas 2014 Risk k Corruption/FCPA cyber IT reputation natural disaster geopolitical supplier bankruptcy Mitigate by multiple sourcing monitoring hedging buffer stock near sourcing

now soon Advantage the Americas?

69% Lower 46% 77% ??

38% 50% better 34% ??

22% 33% better 22% 43% ??

70% 62% 60% 59% 54%

Advantage the Americas? yes beWer ?? ??

BeWer

References • PWC and MIT Forum for Supply Chain Innovation (2013), Making the right risk decisions to strengthen operations performance.

• Accenture and RBC Dexia (2/2011), Outsourcing opportunities and strategies Global Fund Manager Survey Report.

• World Economic Forum (1/2013), Building Resilience in Supply Chains.

• BVL International (2013), Trends and Strategies in Logistics and Supply Chain Management Embracing Global Logistics Complexity to Drive Market Advantage.

• PWC (2013), Next-Generation supply chains Efficient, fast, and tailored.

• Baker & McKenzie (2013), The companies you keep Global Supply Chain Management: Five Steps to Managing Third-Party Risk.

• Global Supply Chain Institute at University of Tennessee (2013), Game Changing Trends in Supply Chain.

• KPMG (2013), Astrus Insights KPMG’s Analysis of Third-Party Integrity Risks, edition 1 • Boston Consulting Group (2013), Made in America Again Behind the American Export Surge.