Managing Risk in the Global Supply Chain

Managing Risk in
the Global Supply Chain
May 25, 2016
David Zamsky, Vice President of Marketing

Proprietary and Confidential: This presentation may not be used or disclosed to any person other than employees of customer, unless expressly authorized by UPS.
© 2015 United Parcel Service of America, Inc. UPS, UPS Capital, the UPS brandmark, and the color brown are trademarks of United Parcel Service of America, Inc. All rights reserved.
We operate in an increasingly globalized
supply chain ecosystem.
2

3
We rely on suppliers and buyers
across the globe, most of whom
we’ve never met.

4
There are multiple modes of transport,
across multiple borders, with different
currencies, laws, languages and carriers.

“I don’t worry much about
risk in our supply chain.
Nothing bad has ever
happened to us.”
5

76% of companies reported
at least one supply chain disruption
in the past 12 months.
That’s a lot.
SOURCE: Business Continuity Institute and Zurich Insurance Group, 2014 Supply Chain Resilience Survey
6

Sales declined
93%
and shareholder
returns were
lower
over a 3-yr. period
33-40%
Share price volatility
was higher13.5%
Operating income
declined 107%
114%
Return On Assets (ROA)
declined
For companies
that had a major
supply chain
disruption:
SOURCE:
The Global Supply Chain Institute, University of Tennessee; Managing Risk in the Global Supply Chain, Summer 2014.
Business Continuity Institute and Zurich Insurance Group, 2014 Supply Chain Resilience Survey
34.1% of respondents
experienced delayed cash
flow as a result of a supply
chain interruption
7
Major supply chain disruptions can result
in significant negative consequences

Risks come in all shapes and sizes
8
Natural disasters
Political unrest
Theft event
Safety problems
Buyer default
Customs issues

“What keeps me awake?”
9
On average,
invoices are
delinquent.
1 in 10
SOURCE: Euler Hermes
On average,
of a company’s assets
are in UNINSURED,
unpaid invoices.
40%

The National Cargo Security Council
$50
There’s an
estimated
billion in
annual global
financial
impact from
cargo loss.
© 2015 United Parcel Service of America, Inc. UPS, UPS Capital, the UPS brandmark, and the color brown are trademarks of United Parcel Service of America, Inc. All
rights reserved.

It would take $3,882,067 in new sales
to recover the cost of those goods
Assuming that a
company makes
a 6% profit margin
on its goods
$232,924
lost in a cargo theft incident
It can take a lot of new profit margin
to recover just one bottom-line loss.
11

The alarming state of supply chain risk management.
SOURCES:
Business Continuity Institute and Zurich Insurance Group, 2014 Supply Chain Resilience Survey
90% of firms do not quantify risk when
outsourcing production.
75% of a company’s supply chain is not assessed for risk.
66%
had risk managers in their firms, either in
Legal or Compliance, but virtually all of those
internal functions ignored supply chain risk.
100%
of executives acknowledge insurance as a highly
effective risk mitigation tool, but it’s either not on
their radar, or in their purview.
12

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Proper risk mitigation
involves three
essential steps.
identify your
risks.
Proactively
Prioritize
your risks.
Actively develop
mitigation
plans to address
your risks.
rights reserved. Insurance is underwritten by an authorized insurance company and issued through licensed insurance producers affiliated with UPS Capital Insurance
Agency, Inc., and other affiliates.

Identify Risks:
You can’t mitigate what you haven’t identified.
Risks to consider:
14
Not of the companies
surveyed used outside expertise in
assessing risk for their supply
chain.
one
soldier on doing the best93%
they can within their own departments.
• Laws and regulations
• Routine supply chain risks
• Customs and compliance
• Safety
• Natural disasters
• Price or currency change
• Quality
SOURCES:
The survey says:

Risk 1:
Quality issues
Risk 2:
Theft of goods in transit
Severity* (1-10) 9 6
Probability of occurrence (1-10)
High probability = 10
Low probability =1
4 7
Probability of early detection (1-10)
High probability = 1
Low probability =10
5 9
Probability index
(Multiply three items above)
180 378
Recommended action • Additional QA
• Rigorous supplier screening
• Reduce concentration per load
• Purchase cargo insurance
• Install tracking devices
within cargo
Responsibility Quality/Engineering
* Scores determined by group consensus
Prioritize Risks.
15

Mitigate Risks.
16
Proprietary and Confidential: This presentation may not be used or disclosed to any person other than employees of customer, unless
expressly authorized by UPS. © 2015 United Parcel Service of America, Inc. UPS, UPS Capital, the UPS brandmark, and the color brown
are trademarks of United Parcel Service of America, Inc. All rights reserved.
• Identify your top risks.
• Identify methods to significantly reduce
the probability of occurrence and/or
degree of impact.
• Document and test your plan.
16
Preventing issues they become a problem is essential
in every supply chain.
before
Consider
to mitigate in-transit or
receivables risks.
insurance

We wouldn’t think of going without insurance
for our homes, our cars or our health.
But too often, companies think they don’t need
to provide protection for their supply chains.
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Cargo Insurance
rights reserved.
Mail, parcel,
container.
Mode- and
carrier-agnostic.
Simple policies,
with annual billing.
Fast, easy
claims
processing.

Trade Credit Insurance
for what you sell.
Get paid
working capital,
so you can put it
to better use in
your business.
Free up
Some customers
report increasing
credit limits by
once their
policy is in place.
4x
rights reserved.
19

20Proprietary and Confidential: This presentation may not be used or disclosed to any person other than employees of customer, unless expressly authorized by UPS.
rights reserved.
Most days your supply chain is a well oiled
machine. Other days…it’s only human

statistic.
Don’t become
a
21Proprietary and Confidential: This presentation may not be used or disclosed to any person other than employees of customer, unless expressly authorized by UPS.
rights reserved.
Identify and
acknowledge
your risks.
Then take the
time to
your business,
your products
and your profit.
protect

22
Though you’ve probably
never thought of a UPS company*
for insurance services, our
of global supply chain expertise
uniquely positions us
to help protect companies
from risk in their
supply chains.
more than 100 years
*Insurance is underwritten by an authorized insurance company and issued through licensed insurance producers affiliated with UPS Capital Insurance Agency, Inc. or licensed international UPS Capital insurance brokerages. UPS Proactive
Response Secure is a product of United Parcel Service, Inc. and is administered by UPS Capital. All services in connection with the UPS Capital Merchant Services Program are provided by WorldPay US, Inc., a Registered ISO/MSP of
CitizensBank, N. A., Providence, RI.

Managing Risk in the Global Supply Chain

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