Risk Management Disaster Avoidance Planning

1. Risk Management Disaster Avoidance Planning Managing Supply Chain Disruptions How You Manage Them Can Set You Apart Nigel Clark clarknj@novachem.com Global Logistics Director October 27, 2011

2. Overview • Keys to Success • Supply Chain Interdependence • Understand Uncertainty • Theory of Constraints • In Case of Emergency… • Establish a Protocol • Examples • Possible Actions • Summary • Appendix • Meeting Ground Rules • References

3. Keys to Success • To successfully manage supply chain disruptions you need to effectively: • Collaborate • Educate • Communicate • Measure your performance and variability • Recognize the “Flaw of Averages” Good DATA is Key to Success

4. Supply Chain Interdependence • Supply chain is interconnected • Problems may occur that back up along the supply chain • Consider inbound raw materials impacts as well as outbound finished goods • Meet with business to understand level of risk they are willing to take • Prioritize your risks • Review Risk Register and Scenario Planning

5. Understand Uncertainty • Use Monte Carlo simulation to model aspects of uncertainty in your supply chain • Fleet sizing or transit times • Consider reviewing Theory of Constraints – use of buffers Model Your Risk Along Supply Chain

6. Theory of Constraints Philosophy • Theory of Constraints (TOC) is an overall management philosophy • Geared to help organizations continually achieve their goal(s) • Any manageable system is limited in achieving more of its goal by a very small number of constraints • There is always at least one constraint • Seek and identify the constraint • Restructure & focus the rest of the organization Understand Your Constraints

7. Supply Chain Disruption Protocol During an “event” establish a protocol: • Overview of event • Past Experience/Lessons Learned • Communication Plan • Meeting Ground Rules • Identify Critical Needs • Understand Customer Impacts Where is Your Weakest Link?

8. Supply Chain Disruption Protocol • What are Constraints? • Constraints Timeline – See example • Rail Car Tracking Tool – See example • Identify Key Issues • Escalation process • Next Steps • Key Contact Info • Communicate • Blog, e-mail, VM, internet, distribution lists? • Capture Learnings “best advice to humanity” What Are Key Issues to be Managed?

9. Example Tool: Constraints Timeline Constraints can be internal or external to your systems. In this example, the available storage capacity for various products is plotted against timeassuming no railway service to our facilities in a rail strike. A B C D EF GH I J K Storage capacity Days to Full/Empty • Critical Constraint on Storage “B”, then “A” and “H” • What are contingency plans? • What are alternatives? Highlight Your Critical Constraints

10. Example Tool: Resource Tracking A single resource, empty railcars, in this example, are plotted against their expected ETA. Expected, optimistic and pessimistic ETA’s are modeledso plant production can be adjusted appropriately and scenarios considered. Storage capacity Days to Full/Empty Understand Level of Risk and Action Points

11. Possible Actions to Take • Set up Single Point of Contact • Establish meeting and update schedule, standing agenda • Monitor and update constraints • Validate storage capacity (Buffers) • Bring in extra raw materials? • Fleet Management • Add to fleet or pull cars from storage • Review sub-leasing of rail cars • Design appropriate fleet safety factors • Monitor ports and other service providers • Metrics? • Set up Google Alerts? • Unionized truck carriers may not cross rail picket lines Habit 1: Be Proactive

12. Possible Actions to Take • Shipments • Work with inventory planners to consider forward placement of inventory? • Consider alternate shipping arrangements • Watch order activity at month end • Should your customers move orders up outside of strike window? • First mile/last mile may be an issue • Understanding of embargoes and permits may help avoid costs and delays • Communication to key stakeholders • Draft letter to Federal Gov’t? • Outreach to Associations and Provincial counterparts Habit 2: Begin with the End in Mind

13. Summary • Plan, plan, plan • Collaborate with business partners • We are all in this together • Educate • Internal and external stakeholders • Communicate • Broadly and early • With challenges comes opportunity – prioritize! Habit 3: First Things First

14. Questions?APPENDIX

15. Establish Meeting Ground Rules • Come prepared for the meeting • Dial in on time • Keep updates concise and to the point • If you have a long or detailed update provide an e-mail to the notetaker • Limit discussion to those who need to be involved and meet off-line if necessary • Know your stakeholders and share meeting minutes – they may have input • Mute your phone until your turn to provide update • Don’t leave the meeting early unless absolutely necessary • Review meeting minutes to ensure accuracy and feedback to group if errors are noticed • Don’t contact carrier/supplier yourself – ensure you utilize designated single points of contact • Escalate if you feel sufficient action is not being taken • Stick to the facts and quash rumours Understand You Constraints

16. Resources • Monte Carlo Excel Add-Ins: • Jennifer Blackhurst’s paper, U. of Iowa • “A model for inbound supply chain risk analysis” • The Goal: by Dr. Eliyahu M. Goldratt • A Process of Ongoing Improvement • The Flaw of Averages: by Dr. Sam Savage • Why We Underestimate Risk in the Face of Uncertainty