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Case 7 Email Exercise- Instructor Guide
Golden Elephant risk assessment.
So now we have gone through all of the different components of supplier risk. Further, we have
identified the method of identifying the revenue impact. Based on this information, you are now
ready to perform a supply risk evaluation. This means going through and conducting a thorough
evaluation on all forms of supply risk for a particular supplier, and mapping that risk relative to the
financial impact associated with that risk.
Consider the following email that was sent to you by a Global Procurement Office representative
from you satellite office located in New Delhi, who is passing on information he has received on
shipping conditions in a major shipping channel. Based on the facts provided by this individual,
complete a supply risk evaluation, and estimate the dollar impact associated with this supplier. If
there is no information available for a particular variable in the model, enter a “1”, meaning that it
does not pose a significant risk.
Victor,
I was following up on your request to explore sourcing from a castings supplier located in India. I
have identified a suitable candidate, the Golden Elephant castings company. As you stated, this is an
important decision, as this supplier will be a single source providing castings for your entire new line
of product in the C-series. As you know, the C-series forecast is $50M in revenue during the first
year, and growing to $75 M in the second year. Based on your process specifications, this is the only
available castings supplier in our supply base with the required heat treat ovens capable of meeting
your specifications as well as the cost and price targets you specified. Essentially, this supplier has
the lock on this business for the C-series. He seems to know this.
We visited the supplier’s location, and were greeted by the company’s owner. He was very pleased
with the results that our negotiating team came to terms with, and afterwards gloated with some
pleasure that this was going to be a very profitable business deal for Golden Elephant. He noted that
the firm was under new management as of six months ago, and that he was taking over management
of the factory from the previous owner, who had sold out and gone into retirement. Upon taking a
tour of the facility, we found it was well-lit, and workers seemed to know what they were doing. In
private, the owner told us that he felt these workers were overpaid, but that he was trying to keep
labor costs below the average for New Delhi, and tried to keep his workers in the dark. We did not
see evidence of any statistical quality control charts but the owner assured us that workers were
well-trained in these methods. The owner also noted that they are anxious for this business, as this
will represent an order that will double their current business volume. We met with some of their
technical engineers, and they seemed very young. In fact, one of them shared with us that he had
just started the day before, and was replacing someone who had lasted only two months in that role.
We met with their purchasing group. Their offices was full of paper piled up high to the ceiling, and
they emphasized how busy they were processing PO’s with their vendors. When we asked who their
primary steel supplier were, we were told that they liked to shop around for the cheapest price, and
rarely bought any steel except at spot prices through intensive negotiations. They also noted that
there had been some problems in getting steel in some cases, due to the recent shortages being
driven by the high demand for steel.
We then identified how shipments would get to your factory location in Omaha, NE. Golden Elephant
will arrange for in-land transportation, as the owner’s brother-in-law has a trucking company. The
shipment would then go through the Indian port. There have been some rumors of union problems
with the dockworkers at this location, but our sources believe that this is only a rumor. Once the
shipment arrives in the port of Los Angeles, it will be unloaded, put onto a trailer, and driven the
Omaha location. We are still waiting on quotes for shipment times, as the recent hike in fuel prices
means the shipping companies will not commit to a firm trans-oceanic shipping cost. This is the
first time this supplier has exported product to the United States, but the owner has assured me
that his administrative assistant has worked on shipping documentation in her former job, so this
shouldn’t be a problem.
Anil
One possible set of evaluations is shown below. These evaluations might reflect a “typical”
set of scores associated with this scenario. There are clearly a number of significant risks associated
in working with this supplier.
Average Score 4
ABOVE BELOW
AVERAGE AVERAGE AVERAGE
Supply Disruption Risks 1 2 3 4 5
The supplier is subject to major
changes in the cost of their raw
materials in the market. 4
There is a high probability this
supplier may have a raw material
shortage resulting in a supply
disruption. 4
This supplier has a single source,
and is entirely dependent on this
source for a major raw material or
service. 2
There is a high probability this
supplier may experience a quality
problem resulting in a supply
disruption. 5
There is a high probability this
supplier may experience a capacity
problem resulting in a supply
disruption. 5
There is a high probability that this
supplier may experience a disaster-
related or other force majeure
disruption. 5
There is a high probability this
supplier may experience a shut-down
due to a government agency
regulation. 2
This supplier is in a geographic
region that is highly unstable and
may result in a supply disruption. 3
This supplier does NOT have a good
Risk Reduction and Business
Continuity Plan. 4
Average Score 3.77777778
ABOVE BELOW
AVERAGE AVERAGE AVERAGE
Financial Risk 1 2 3 4 5
The supplier's business rate of
growth is sustainable (not growing
too fast, nor shrinking too quickly). 4
The supplier's overall financial
performance and risk compared to
competitors. 5
The supplier's overall level of
customer satisfaction in the industry. 3
The supplier's level of profitability
compared to the industry. 4
The supplier's accounts receivable
are at a reasonable level compared
to the industry (e.g. less than 60
days). 2
The supplier's account payables are
at a reasonable level compared to
the industry (e.g. less than 60 days). 2 4
The supplier's level of debt is at a
level that is considered reasonable in
the industry. 2 5
Average Score 3.44444444
Next, we combine these assessments to develop a Risk Probability Score, as an input into a Supplier
Risk Matrix. The logic used to do so is shown below.
To illustrate, we use the evaluation of the Golden Elephant Castings company here:
Combining all of these factors, this supplier is likely to result in a severe supplier disruption of some
form. That is, the likelihood that one of these factors will result in an unexpected quality problem,
shipment delay, or cost overrun is high (probably on the order of almost 68%). This will occur at a
major bottleneck in the supply chain, with no alternative suppliers identified, which has the potential
to bring this organization’s entire new product line rollout to a screeching halt, and could result in up
to $50M in lost revenue for the new C-series product line.
Creating a Supplier Risk Matrix with Multiple Suppliers
The matrix shown is not all that meaningful however. Moreover, we applied a set of baseline
assumptions and estimates to derive a risk probability of 68%, which is probably not very precise.
However, as we noted earlier, the meaning of this score becomes much more apparent when it is
compared to other suppliers who are also part of a general category of products and services. In this
example, let’s look at all of the suppliers of castings and finished steel components that are currently
used by your organization. Then let’s assume that we have completed risk analyses on all of them,
which would lead us to the following supplier risk map:
Golden ElephantSumo Alchem Superior Minivan Locomotive Mynord Nexcor Ballinger Conchord
65% 55% 25% 88% 78% 18% 84% 61% 42% 92%
$50,000,000 $ 40,000,000 $ 20,000,000 $ 10,000,000 $ 4,000,000 $ 99,982,004 $ 83,222,998 $ 26,000,000 $ 22,000,000 $ 93,548,996
As shown in this risk map, Golden Elephant now falls into the “yellow category”, in that they are
clustered along with other suppliers who have a medium risk profile, but a sizable impact. Other
suppliers such as Locomotive have a high potential impact, but a low risk score (23%), so are a safer
bet. Others such as Superior and Minivan have a higher risk, but a lower impact. However, the
highest potential for disruption in this case is likely to come from a handful of suppliers. In this case,
Conchord has a 92% probability of a disruption, and could impact close to $94M in revenue.
Similarly, Mynord has an 84% risk probability with a $84M revenue impact.
This type of analysis then leads to the next logical discussion: what can your organization do to
mitigate or reduce risk?
SLIDE 31 – Factors that Can Reduce Supply Chain Risk and
Reduce the Impact of Disruptions
Once a supply management organizations has narrowed down their list of potential risk incident nodes
to a manageable set, the next task is to prioritize actions to mitigate and manage these risks. The
probability of disruptive events can be controlled for in some cases by remedies, but in other cases,
when significant amplifiers are present, may not be possible. Therefore, executives must seek to
reduce the impact through various approaches. This is shown in the second and third steps of our risk
mitigation process below.
3a. Excess
Resources
3b. SC
1. Map the Supply Chain & 2. Identify Risk Collaboration &
Measure the Risk Reduction Planning
of Critical Nodes in Mechanisms for
the Network High-Risk 3c. Invest in
Nodes Visibility
Systems
3d. Major
GOAL: Supply Chain
Resilient Redesign
Supply Chain
With On-going
Knowledge and
Risk Mitigation
A variety of different risk reduction mechanisms are employed by companies, to reduce the risk
probabilities of suppliers and supply chain nodes. A full list is shown in Table 3. These mechanisms
can be classified into several categories. To first understand these categories, consider the impact of a
disruption and the approach to deal with it is shown below.
Disruption Discovery
and Recovery time (B)
Disruption Discovery
and Recovery time (A)
Excess Resources
Impact(A)
Visibility Systems
Once they have identified “high risk” nodes, executives have several risk reduction strategies
they can use to eliminate the impact of disruptions on the end customer. The elements of risk
reduction are as follows:
1) Excess resources reduces the time between disruption discovery and recovery,
2) Supply Chain Planning and Collaboration ensures that the design of the supply chain is made
more robust to reduce the probability of these events occurring again.
3) Improved information visibility reduces the time between the disruption and its discovery,
and reduces the impact of the disruption.
4) Supply Chain Redesign involves a significant investment in product or process redesign to
reduce risk.
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again. Many who have at some time been numbered with the saints
have later, like Judas, turned out to be betrayers.
Benedict Arnold battled nobly for the American colonies, but he
blackened his fair name beyond the power of rehabilitation when he
plotted to secure and betray West Point. It is pathetic to read of his
last hours in London when he donned his old American uniform, put
on the insignia that Washington gave him after his victory at
Saratoga, and said: “Let me die in this old uniform in which I fought
my battles. May God forgive me for ever putting on any other.”
This reminds us of Esau’s remorse when he lost his chieftainship,
and the despair of Judas after selling his Master. Infidelity to trust is
an awful sin. Unfaithfulness is inexcusable and often brings with it
direst penalty. It is a gradually increasing sin. There is first a lack of
love to God. Then, like Peter on the sea and Elijah under the juniper
tree, disbelief creeps into the heart, earnestness is lost,
unwatchfulness results, joy vanishes and unholy living follows. In the
end, unless there is a returning to God like the prodigal son to his
father, death becomes sad and eternity awful.
It was about three hundred and fifty years ago that a martyrdom
took place, long considered legendary, but which was verified in
1853. An Arab baby was taken by Spanish soldiers and brought to
Oran to be sold as a slave. The good Vicar-general, Juan Caro,
bought him and named him Geronimo. When he was eight years of
age, some Arab slaves escaped from Oran, and, thinking to do the
boy a kindness, took him with them. For years he lived with his
people as a Mahometan, but the holy faith which through Juan Caro
had been planted in the boy’s heart had taken firm root and could
not be destroyed. For twenty-five years he remained with them and
then ran away and returned to the Vicar-general. “Because I wished
to live henceforth in the faith of the Divine Saviour,” he said, “I
returned to you.” Juan Caro was delighted. He received the young
Arab as a lost child.
Soon after he entered the Spanish Guard as a soldier and after
performing many brave acts received a high military position. He
married and for ten years nothing but happiness shone into his life.
He won the respect and confidence of all. He was Juan Caro’s right
hand man, and his wife was a daughter to his adopted father. One
bright May day in 1569 news came to Oran that a small Arab
encampment was a short distance away. The rumor did not seem
important. A handful of Spaniards could easily manage the Arabs, at
least so thought Geronimo. Taking nine soldiers he manned a little
boat and rowed out of the safe harbor and along the blue sea past the
coral fishery of Mers-el-Kebir. Suddenly two Moorish brigantines
which had been lying in wait chased and ran them down. The nine
soldiers escaped but Geronimo, who was a marked man, was seized
and carried to Euldij Ali, the Calabrian renegade. A great cry spread
among the Arabs through Algeria that the apostate was captured.
The Moors who knew his history made a solemn vow that they would
restore him to his old religion. For this they sent Marabouts to
convert him with arguments and fair promises, but they returned
discomfited to Euldij Ali. Another method was now tried. Geronimo
was loaded with chains, treated with the utmost cruelty and when
faint from torture and scarcely able to speak, the Marabouts stood
around him offering him liberty, power, honor and riches. No offer,
however, made him deny his faith, no longing for freedom made him
forswear for one single moment his religion. Once, after some most
horrible threats, he raised his poor suffering head, and with a voice
so weak it could scarcely be heard, he said, “They think they will
make me a Mahometan, but that they shall never do, even if they kill
me.”
For four months Euldij Ali gloated over the daily tortures he was
inflicting on Geronimo. At last the sameness of cruelty palled upon
him, and he was determined to invent a new and more hideous
revenge for the stubbornness of his captive. One morning the desired
idea came to him. Examining the works of a fort by the gate of Bab-
el-Oned, he saw a block of beton standing by the great stones. This
block was a mould in the shape of the immense stones, filled with a
kind of concrete. When the concrete was sufficiently hardened, the
wall was to be built with it.
Here was the height of torture. Here was the most exquisitely
painful death man might devise! The dog of a slave should be laid in
a similar mould, the liquid plaster poured over him, and the
renegade, built alive into the wall, should be converted into stone.
Calling a mason he said: “Michel, you see this empty mould of beton?
For the present leave it. I have a mind to make beton of that dog of
Oran who refuses to come back to the faith of Islam.”
The poor mason finished his day’s work with a sad heart. As soon
as he entered the prison where Geronimo was a captive he informed
him of Euldij Ali’s intention. Geronimo calmly answered, “God’s holy
will be done. Let not those miserable men think they will frighten me
out of the faith of Christ by the idea of this cruel death. May my
blessed Saviour only pardon my sins, and preserve my soul.”
The whole of that night the brave young Arab spent in prayer and
preparation for the tortures which he knew were awaiting him.
Between two and three o’clock the next morning a guard summoned
him to the Pasha’s presence, where stood a great multitude of Turks
and Arabs in their gorgeous robes. He was then dragged to the gate
of Bab-el-Oned, being beaten all the way. Euldij Ali addressed him
slowly and clearly. He pointed out every detail of the fearful death,
showed him the block of beton, and then said: “Do you still refuse to
return to the faith of Islam?” “I am a Christian, and as a Christian I
will die,” was Geronimo’s answer. “As you will,” replied the Pasha.
Pointing to the beton, he said, “Then here shall you be buried alive.”
“Do your will. Death shall not make me abandon my faith.” The
Pasha raised his hand. The soldiers stepped forward and removed
the chain from the prisoner’s leg. His hands were bound behind his
back, his legs crossed and tied together. Then, lifting the poor man,
they laid him face downward in the mould. A renegade Spaniard
named Tamango, desiring to show what a fervent Mahometan he
was, jumped on Geronimo’s body and broke his ribs. This act so
pleased Euldij Ali that others followed his example. The plaster was
then poured over him, and the brave Christian was suffocated.
Three hundred years later the noble Arab’s martyrdom was
brought to light and the story verified. In the museum of Algiers is
the cast. It shows a slight figure, a face with veins all swollen, a poor
mouth closed with a patient determined expression, hands tied, legs
swollen, even the broken ribs are distinguished. He was “faithful
unto death.”
REWARD OF FAITHFULNESS.
“My Pledge.”
I WILL
Keep to the right as the law directs,
Keep from the world my friends’ defects.
Keep all my thoughts on the purest themes,
Keep from my eyes the motes and beams.
Keep true my deeds, my honor bright,
Keep firm my faith in God and right.
Keep free from every sin and stain,
Keep from the ways that bring me pain.
Keep free my tongue from words of ill,
Keep right my aim, and good my will.
Keep all my acts from passion free,
Keep strong my hope, no envy see.
Keep watchful care o’er tongue and hand.
Keep firm my feet, by justice stand.
Keep true my word, a sacred thing,
Keep from the snares the tempters bring.
Keep faith with each I call a friend,
Keep full in view the final end.
Keep firm my courage, bold and strong,
Keep up the right and down the wrong.
Keep well the words of wisdom’s school,
Keep warm by night, by day keep cool.
My Symphony.
“To live content with small means, to seek elegance rather than
luxury, and refinement rather than fashion; to be worthy, not
respectable, and wealthy, not rich; to study hard, think quietly, talk
gently, act frankly, to listen to stars and birds, to babes and sages,
with open heart; to bear all cheerfully, do all bravely, await
occasions, hurry never;—in a word, to let the spiritual, unbidden and
unconscious, grow up through the common. This is to be my
symphony.”
William Henry Channing.
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