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.