Thursday, June 5, 2008

Experts share risk strategies: Systems-based, life-cycle approaches turn risks into opportunities - SDM Pulse, Summer 2008

By Kathryn O’Neill, managing editor, SDM Pulse

In March, hundreds of senior executives converged for a 1-day conference at MIT to learn how to apply a systems-based approach to risk and opportunity. MIT professors and industry experts offered strategies and tactics for managing risk throughout the product life cycle—from design to disposal.

How can companies design products with a view to the uncertain future? They need to foster innovation throughout their domain, said keynote speaker Nicholas M. Donofrio, executive vice president for innovation and technology at IBM Corporation. “Your ability to change successfully and deal with its problems, its risks, will ultimately determine your success,” he said. And adapting to change requires innovation.

“Innovation could be in the product, the process, even the management system,” said Donofrio, who emphasized that IBM takes a global approach to innovation—even confronting the effects of global environmental problems. “We’re doing a major study this year on water. We’re mapping the fresh water supply of the globe,” he said, looking at the full life cycle. “We have enough water but it’s not in the right place at the right time.”

Velcro USA Inc. president Joan B. Cullinane, who also keynoted, described her innovative efforts to structure an organization that takes a life-cycle approach to risk management. Cullinane, who is also vice president of Velcro Group Corporation, integrated Six Sigma into the business operations to minimize risk. She also clarified employee interconnectedness with a giant organization chart in order to ensure strategies were aligned throughout the company. As a result, Velcro is thriving—running 24 hours a day in New Hampshire and expanding its manufacturing capabilities.

Often, innovation comes in the form of new technologies that need to be infused into existing products—a process that comes with its own risks, said Olivier de Weck, MIT associate professor of aeronautics and astronautics and engineering systems. Corporations often struggle to evaluate all the factors involved, so de Weck has created a technology infusion model to help decision makers see both the costs and benefits of potential product changes. “The question is, what is the value and what are the opportunities of new technologies? Technologies by themselves typically have no value—value only emerges once the technologies have been successfully integrated into a greater whole,” he said.

Stephen P. Hoover, vice president and center manager at the Xerox Research Center Webster, N.Y., suggested that innovation is partly about exploring potential risks at all stages of the life cycle—before you commit to a product.

“Look at market, technology, and value chain,” he said. “If you do the work early and quickly, you can save a lot of money on bad ideas.”

MIT Professor David Simchi-Levi of civil and environmental engineering and engineering systems and director for the Forum for Supply Chain Innovation, explained the advantages of redundancy, network planning, and risk pooling. He also discussed the modeling of a relatively new consideration for planners—the increasing demands to reduce a company’s carbon footprint.

Several presenters described the modeling and analytics they use to assess risk and prepare for uncertainty. Bindiya Vakil, program manager at Cisco, described the risk engine her company uses: “It generates thousands of scenarios. It bombards the supply chain with disasters and shows where risk lies, how much revenue is exposed.”

Vakil’s fellow presenter, Cisco director of supply chain risk management John O’Connor said, “These analytics really give us a picture of where to focus our energies.”

Jeffrey Tew, technical fellow and group manager Manufacturing Strategy and Planning Group for the Manufacturing Systems Research Lab at General Motors Research and Development, described how GM handles supply chain disruption and brand protection. The two are highly interrelated, he said. “There are 40,000 small-scale automotive counterfeiters in China,” he said—posing a major risk to the GM brand. Tew described how GM uses RFID tagging, text mining in foreign languages, and temporal database management to combat the problem.

As University of Michigan Professor Wallace J. Hopp said in his talk, “Supply chain disruptions can do more than just cost you money. They can cost you position in the market.” He illustrated his points with relevant case studies.

Another prominent concern in global product delivery is safety—an issue that must be addressed with a systems-based, life-cycle approach, according to MIT Professor Nancy Levenson of aeronautics and astronautics and engineering systems. Most accidents are not random; they result from complex interactions among system components, including organizational culture. The only way to ensure safety, Levenson said, is to enforce safety constraints in design, manufacturing, and operations at every step along the way.

That’s what the US Navy submarine safety program, SUBSAFE, has been doing for more than 40 years, explained Alfred H. Ford Jr., deputy director of submarine safety and quality assurance for the Naval Sea Systems Command. Set up in 1963 in response to the loss of the USS Thresher with all 129 people aboard, SUBSAFE is an organizational system specifically designed to minimize risk. SUBSAFE incorporates critical self-evaluation, attention to detail, continuous training, and an unrelenting pressure to meet standards, Ford said.

The conference also included a poster session featuring thesis projects by LFM and SDM students. Cosponsors were SDM, MIT's Leaders for Manufacturing Program, Industrial Liaison Program, and Forum for Supply Chain Innovation.

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