Due to the complex market and business environment, undesirable disruptions in logistics can affect enterprises and weaken its business strength. Risk Management has become the key in avoiding business losses. Logistics interruption can come from an unforeseen exogenous event such as an earthquake or from an endogenous event, like the Toyota Quality recalls in 2010 that interrupted enterprise logistic operations and degraded its performance (Trkman & McCormack, 2009). In this chapter, the risk management in logistics is studied from the process flow perspective. The topics discussed consist of logistics processes, risk management strategy, risk management process in logistic, and enterprise performance evaluation. Several risk management theories and framework from the literature are presented in the chapter. The aim is to provide valuable insights for enterprises through understanding the essential risk management concepts in logistics. Handling logistics processes efficiently is vital to a successful business administration. However, managing inventory, warehousing, transportation schedules and all the other aspects of your supply chain requires professional skills, especially when it comes to creating a risk management process.
It doesn’t matter what industry you operate in, the simple fact of relying on a supply chain to function already exposes your business to several risks. And the best way to avoid being strongly affected by any of these risks is coming up with ways to minimize their impacts and recover quickly if an incident does occur. See the most common problems in logistics and supply chain! This is exactly the purpose of a risk management process: identifying your business’ risks and developing the most adequate strategy to manage each one, providing a safe and productive workplace – even in the worst case scenarios. Read on to find out how to create an effective plan and ensure your business is prepared to avoid anything that could harm its supply chain’s performance.
Steps to create a logistics risk management process
Identify risks to your supply chain
The first step to prepare a risk management plan is to identify all the factors that could affect your logistics processes. Knowing the real scope of problems that would potentially harm your supply chain will help you develop realistic and cost-effective strategies for avoiding and dealing with them. Remember to think broadly when considering your risks. After all, besides operational issues, there are also many external factors that could present a risk to your logistics processes. A good strategy to identify risks is assessing your supply chain and all the critical activities for it to function well, including your key services, suppliers and staff. Then, you can think about things that could affect the development of these activities, such as trucking accidents, workers’ strike, poor quality of logistics providers, etc.
Analyze and evaluate the impact of each risk
Once you have identified the risks to your logistics process, it is time to assess the potential impact of those risks. When building a risk management process, it is important to work with priorities. But how to define which risks deserve more attention and preparing? By analyzing the level of the risk. In other words, you need to define the likelihood of each problem and how big of an impact it would have on your supply chain. This will allow you to separate minor risks that may be acceptable from major risks that require immediate assessing. To evaluate the level of a risk, you can use the following formula:
level of risk = consequence x likelihood
For the likelihood, consider how often this risk could happen in your business. The consequence, on the other hand, should be defined by how much of a financial loss each risk could cause to your business.
Treat risks to your business
After knowing your risks and the impact each one would cause to your supply chain, it is time to know define what kind of treatment you will give to each one. When developing a plan to treat your logistics processes main risks, consider the following factors:
- method of treatment
- people in charge of treatment
- costs involved
- benefits of treatment
- likelihood of solving the issue successfully
- strategies to evaluate the success of treatments
More importantly, at this stage, you should also define what actions can be taken in order to avoid each issue to arise in the first place. Some ways to do this are implementing quality control processes, training your staff appropriately, doing constant maintenance in your equipment/vehicles and choosing your logistics suppliers well. Additionally, it is key to ensure your business will be able to count on adequate insurance coverage in the occurrence of an incident.
Constantly review and update your risk management process
Lastly, make sure to regularly evaluate your risk management process and check whether or not it has been contributing to the performance of your supply chain – you can do so by using some KPI’s. The logistics scenario is constantly changing and it is possible that measures that used to work will become obsolete with time. Therefore, try to always review and update your plan so it is as effective as possible!
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Courtesy: Best logistics company in Karachi
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