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Tuesday
Apr212015

Risk management and Supply Chain Sensitivity Analysis using TESS™ from Trade Extensions

Trade Extensions, CEO, Garry Mansell


Every buyer has to be aware of the risk that exists within the supply chain and a significant part of the role is to ensure contingency plans are in place should supply chains be disrupted. However, it is one thing having contingency plans in place and another thing understanding fully the consequences of implementing the plan. Considering implementing any contingency plan is likely to involve increased costs or supply disruptions (or both) it seems counter intuitive to suggest organisations don’t understand fully the implications of following these plans but unfortunately this is the case.

This is largely a result of traditional contingency planning which relies heavily on an individual’s experience and intuition meaning it is hard to have a truly accurate picture of where potential risk exists in the supply chain and the impact of implementing any contingency plan.   Accurate contingency planning needs accurate data and up until recently it has been impossible to collect and analyse meaningfully the data required.  TESS™ changes this.

Traditional contingency planning relies heavily on an individual’s experience and intuition meaning it is hard to have a truly accurate picture of where potential risk exists in the supply chain.

The TESS eSourcing and optimisation platform has been designed to make it easy to model numerous scenarios when choosing suppliers in major sourcing events so it is adept at handling large amounts of data.  Applying the same technology to risk management provides a platform for collecting and analysing data and when used in conjunction with Google Earth makes it possible to visualise the current supply chain, analyse supply risks and where necessary evaluate alternative supply chains.

Modelling the supply chain with TESS

To create a model of the supply chain an organisation extracts data from the General Ledger systems of its business or uses data acquired through online tenders using the TESS platform.  Either way, the data input is automated and doesn’t require extensive effort from the buyers to produce valuable, accurate supply chain visualisations. The benefit of using data collected during a TESS tender is that it is possible to see the financial consequences when testing the sensitivities of each component of the supply chain.

The models created in this manner can then be used to run multiple scenarios where the supply chain is challenged and the consequences of risk events displayed in easily understandable formats.

In order to achieve this a few simple steps must be followed using the TESS platform: 

  1. Each of your production sites, when entered into the TESS platform will be auto matched with a central database to produce a longitude and latitude that will be used in the interface to Google Earth. If these are known and available they can of course be entered directly.
  2. Each Supplier location is similarly entered into the platform and longitude and latitude are discovered automatically by the platform in a similar manner as before.  If this supplier data is being captured during a tender on the platform, suppliers are simply asked to provide the production location of any materials they are producing. 

By carrying out these simple steps you will have defined the essential components of your supply chain. 

Buyers and risk managers are then able to ask questions and use the TESS optimiser to analyse their supply chains and build alternate scenarios.  Typical questions could include: 

  • What are my alternate sources of materials if a supplier location becomes unavailable through a physical event e.g. earthquake or business event? How much will it cost to put this in place? And how long will it take?
  • If a political intervention is made and I am no longer able to source from a supplier what are my alternatives, costs and timescales?
  • What is the cost implication of switching to an alternate supply location, or a new supplier to reduce my sensitivity or exposure to natural disasters? 

In addition to the standard reporting tools within TESS, the platform interfaces seamlessly to Google Earth to allow scenarios to be viewed on maps.  This approach enables the buyer to understand example scenarios and quickly identify risk that may not be apparent using text data e.g. over- reliance on suppliers in earthquake zones.  It’s also very easy to answer specific questions for example: 

  • My supplier’s plant in Chicago has been destroyed by fire, what are my alternate sources of supply and how much will it cost?
  • One of my Global suppliers has ceased trading, what are my alternate sources and how much will it cost? 

Using TESS for supply chain risk analysis. The thickness of supply lines displayed are directly in proportion to the volumes of materials sourced from and delivered to your manufacturing plants making it easy to identify potential risk.

Using TESS for supply chain risk analysis. The thickness of supply lines displayed are directly in proportion to the volumes of materials sourced from and delivered to your manufacturing plants making it easy to identify potential risk.

The use of the TESS optimiser to evaluate and investigate multiple potential supply scenarios when coupled with tender data, or that data you can extract from your own General Ledger systems and examine via the Trade Extensions Spend Analysis module provides an incredibly powerful tool to evaluate and mitigate risk. It allows buyers to manage that risk and seek alternate sources of supply, often as part of a tender process. Risk managers are thus in a position where they can work with buyers looking at the total cost of ownership of any material, whilst at the same time evaluating the impact on insurance premiums and the cost or risks associated with business interruptions. 

If you would like to know more about using TESS for Supply Chain Sensitivity Analysis contact Trade Extensions – info@tradeext.com