Today’s supply chains are more vulnerable to risk than ever before, yet in many organizations the sources of critical risk remain unknown, ignored or viewed as permanent fixtures.In this article, we discuss our systematic approach to improving supply chain reliability. The objective: develop the capability to prevent failures through proactive actions and to quickly and smartly respond to any failures that do occur.

1. Eliminating Sources of
Catastrophic Risk
Your Shockproof Value
Chain

2. Scott is a seasoned management consultant with broad experience
in manufacturing, supply chain, finance and strategy functions. His
industry experience includes automotive, medical devices, oil & gas,
food & beverage, financial services and non-profit.
Bio: Scott Stallbaum
Scott has a strong analytical and strategic background and a history of successfully
addressing complex issues facing organizations and mitigating risk. He brings a unique
perspective to solving problems thanks to his experience in a variety of roles across
different industries.
Before entering the consulting industry, Scott led the manufacturing organization and
supported the CEO with projects focused on business process improvement and
corporate strategy. He also managed new vehicle launches at a major automotive firm.

3. Agenda
• Global trends
• The complex organization
• Moving beyond FMEAs
• High reliability organizations
• BP Deepwater Horizon
• Summary
• Q&A

4. Global Trends
• Modern Value Chain Trends
– Shift to value web/network
– Long, dispersed value chains
– Tight value chains
– SKU expansion
– Channel expansion
– Design & engineering outsourcing

5. Global Trends
• Additional trends
– Higher overall number of suppliers/customers
– Dispersed supplier/customer locations
– Supplier concentration
– Expanded and distributed inventory
– Increased coupling
– Increased complexity

6. Global Trends
• These trends and characteristics of modern
value chains increase the likelihood and
severity of failure
– Global operations are more vulnerable than ever
– Sources of critical risk are unknown, ignored or
viewed as permanent fixtures

7. Global Trends
• High profile operational failures
– Boeing 787 Dreamliner
– BP Deepwater Horizon
• Typically a lack of proactive risk management
capability…when we need it the most

8. The Complex Organization
• Why is risk management so
hard?
– Product complexity
• Number of products/services
offered
– Process complexity
• Number of
processes, steps, handoffs, etc.
– Organizational complexity
• Number of
facilities, assets, business units, etc.
Complexity results from a
large # of interconnected
“items”:
#Items #links
1 0
2 1
3 3
4 6
5 10
…
10 45

9. The Complex Organization
• Complexity exists along
the dimensions
– Can be good or bad
• Complexity costs exist on
the faces and within
– Result from interactions
between dimensions
– Grow geometricallyOrganization
Value add
Non-value add
Complexity Cube

10. The Complex Organization
• The typical process:
– Large number of handoffs, NVA steps, products
competing for resource capacity

11. The Complex Organization
• Even our organizations are more complex than
we realize
• Expand this further to our end-to-end
supply chains
We look like this on paper But operate like this

12. Moving Beyond FMEAs
• Traditional tools like FMEA are:
– Time & resource intensive
– Snap-shot views of risk
– Locally focused
• In today’s environment, need real-time issue
identification and prevention/reaction
• Deep understanding of processes, players and
relationships is needed to act quickly

13. High Reliability Organizations (HROs)
• Characteristics of HROs
– Preoccupation with failure
– Drive deeper than symptoms
– Sensitivity to operations
– Commitment to resilience
– Deference to expertise

14. High Reliability Organizations (HROs)
• Creating a learning culture is foundational to
developing an HRO
• Learning cultures:
– Build a system of dynamic discovery
– Solve problems as they arise and proactively
prevent reoccurrence
– Disseminate knowledge rapidly
– Develop managers who drive continuous
improvement

15. The Nuclear Navy & HROs
• US Nuclear Navy
– Operates more reactors than anyone else (150)
– Operates in remote, dynamic, harsh environments
– Young personnel with high turnover
• No accidents in 50 years (6000 reactor-years)
– Compare this to:
• Three Mile Island
• Loss of Space Shuttle Columbia
• USAF lapse in nuclear accountability

16. Nuclear Navy – Defense in depth
Robust Equipment
Rigorous Procedures
Well-Trained
Operators
Impossible to design equipment that
will never fail
Impossible to devise procedures to
cover all possibilities
Training operators to have
thorough understanding is the
only logical course
Defense in depth is the multilayered approach to
safety and operational performance:

17. 5 Pillars of High Reliability OrganizationsLEVELOFKNOWLEDGE
FORMALITY
QUESTIONINGATTITUDE
FORCEFULBACKUP
INTEGRITY
HRO 5 Pillars of HROs
•Level of knowledge
•Formality
•Questioning attitude
•Forceful backup
•Integrity

18. BP Deepwater Horizon
• April 20, 2010: explosion aboard BP
Deepwater Horizon drilling rig
• Seafloor oil gusher during capping phase
• 11 workers killed by explosion
• 4.9mm barrels of crude oil released
• Management visibility tour onboard that day

19. BP Deepwater Horizon
• VIP team arrive on rig
• Team attends safety orientation
• Follow-up to previous
safety improvement
recommendations
• Tour begins with visit to riser
skate to observe adoption of
lessons learned from another
rig – slip/trip
• Tour continues to Driller’s
control room
• One VIP notices “confusion”
• VIPs conduct “light-hearted” meeting
w/ personnel in galley
• Discuss safety goals, emphasizing
“hand safety” and “dropped objects”
campaigns
• VIP follows up with Rig Manager and
asks "Everything all right up on the rig
floor there? Get everything sorted
out?“
• Rig Manager responds with thumbs up
3 PM 4 PM 5 PM 6 PM 7 PM 8 PM 9 PM
• Rig staff misinterpreted results
of negative pressure test

20. BP Deepwater Horizon
• “Good” behaviors exhibited by VIPs
– Attended safety orientation
– Pointed out slip/fall, harness, etc. issues
– Shared lessons learned from other rigs
– Visible leadership

21. BP Deepwater Horizon
• Those good behaviors alone are not enough
– VIPs arrived w/o agenda or explicit purpose
– Focus on trips/falls, PPE, etc.
• Also need 5 Pillars of operational discipline:
– Drive deeper understanding of intent
– Provide direction for all actions
– Apply to all employees

22. BP Deepwater Horizon
• Impact 5 Pillars would have had on Deepwater
Horizon
– Level of knowledge
– Formality
– Questioning attitude
– Forceful back-up
– Integrity

23. Summary
• We operate in a very complex environment
• Catastrophic events are more likely, including:
– Events like Deepwater Horizon
– Supply chain disruptions like Toyota’s brake
pressure valve supplier fire
• Implementing 5-Pillars removes and
manages risk
– Builds an organizational culture that continually
refines its understanding, leading to reduced risk

24. Q&A

25. Contact
Scott Stallbaum
Consultant
Email: sstallbaum@wilsonperumal.com
Tel: +1 (734) 652-0543