CHAPTER 9 Transportation Risk Management 1 Transportation: A Global Supply Chain Perspective (8e) Coyle, Novack, and Gibson © 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Discussion Outline The nature of transportation risk and disruptions The concept of risk management Transportation risk management process and techniques Key transportation security regulations and initiatives © 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 2 Transportation Risk and Disruption © 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 3 Concept of Risk Management © 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 4 Transportation Risk Management Process & Techniques Risk Management Process © 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 6 Step 1: Risk Identification © 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 7 Step 1: Risk Identification Risk Categories, Part 1 Product loss includes any type of action or negligence that leads to product not reaching the intended buyer. © 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 8 Step 1: Risk Identification Risk Categories, Part 2 Product damage can result from a wide array of actions or inactions on the part of equipment operators and freight handlers. © 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 9 Step 1: Risk Identification Risk Categories, Part 3 A particular risk to food, pharmaceutical goods, and other consumables that increases along with trip distance and time in transit. © 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 10 Step 1: Risk Identification Risk Categories, Part 4 Companies that rely upon just-in-time delivery of inventory, or sourcing goods from low-cost manufacturers in the Far East are at high risks if delivery delay occurs. © 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 11 Step 1: Risk Identification Risk Categories, Part 5 Supply chain interruptions caused by poor execution of day-to-day operations, and trans ...

1. CHAPTER 9
Transportation Risk Management
1
Transportation: A Global Supply Chain Perspective (8e)
Coyle, Novack, and Gibson
© 2015 Cengage Learning. All Rights Reserved.
May not be scanned, copied or duplicated, or posted to a
publicly accessible website, in whole or in part.
Discussion Outline
The nature of transportation risk and disruptions
The concept of risk management
Transportation risk management process and techniques
Key transportation security regulations and initiatives
© 2015 Cengage Learning. All Rights Reserved. May not be
scanned, copied or duplicated, or posted to a publicly
accessible website, in whole or in part.
2
Transportation Risk and Disruption
© 2015 Cengage Learning. All Rights Reserved. May not be
scanned, copied or duplicated, or posted to a publicly
accessible website, in whole or in part.
3
Concept of Risk Management

2. © 2015 Cengage Learning. All Rights Reserved. May not be
scanned, copied or duplicated, or posted to a publicly
accessible website, in whole or in part.
4
Transportation Risk Management Process & Techniques
Risk Management Process
© 2015 Cengage Learning. All Rights Reserved. May not be
scanned, copied or duplicated, or posted to a publicly
accessible website, in whole or in part.
6
Step 1: Risk Identification
© 2015 Cengage Learning. All Rights Reserved. May not be
scanned, copied or duplicated, or posted to a publicly
accessible website, in whole or in part.
7
Step 1: Risk Identification
Risk Categories, Part 1
Product loss includes any type of action or negligence that leads
to product not reaching the intended buyer.
© 2015 Cengage Learning. All Rights Reserved. May not be
scanned, copied or duplicated, or posted to a publicly

3. accessible website, in whole or in part.
8
Step 1: Risk Identification
Risk Categories, Part 2
Product damage can result from a wide array of actions or
inactions on the part of equipment operators and freight
handlers.
© 2015 Cengage Learning. All Rights Reserved. May not be
scanned, copied or duplicated, or posted to a publicly
accessible website, in whole or in part.
9
Step 1: Risk Identification
Risk Categories, Part 3
A particular risk to food, pharmaceutical goods, and other
consumables that increases along with trip distance and time in
transit.
© 2015 Cengage Learning. All Rights Reserved. May not be
scanned, copied or duplicated, or posted to a publicly
accessible website, in whole or in part.
10
Step 1: Risk Identification
Risk Categories, Part 4
Companies that rely upon just-in-time delivery of inventory, or

4. sourcing goods from low-cost manufacturers in the Far East are
at high risks if delivery delay occurs.
© 2015 Cengage Learning. All Rights Reserved. May not be
scanned, copied or duplicated, or posted to a publicly
accessible website, in whole or in part.
11
Step 1: Risk Identification
Risk Categories, Part 5
Supply chain interruptions caused by poor execution of day-to-
day operations, and transport-related forces outside the control
of the company.
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scanned, copied or duplicated, or posted to a publicly
accessible website, in whole or in part.
12
Step 1: Risk Identification
Risk Categories, Part 6
Failures to protect freight in-transit against terrorist attacks,
organized crime activity, and illegal immigration lead to time-
consuming freight inspections and costly countermeasures.
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scanned, copied or duplicated, or posted to a publicly
accessible website, in whole or in part.
13

5. Step 2: Risk Assessment
Objectives
To evaluate the seriousness of each risk identified in step 1.
To focus resources on relevant risk management and mitigation
strategies.
Assessment parameters
Probability—the likelihood of the risk occurring
Impact—the consequences if the risk does occur
Proximity—the anticipated timing of the risk
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scanned, copied or duplicated, or posted to a publicly
accessible website, in whole or in part.
14
Step 2: Risk Assessment
Qualitative and Quantitative Analysis
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accessible website, in whole or in part.
15
Step 2: Risk Assessment
Qualitative Analysis – Risk Assessment Matrix
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scanned, copied or duplicated, or posted to a publicly
accessible website, in whole or in part.

6. 16
Step 3: Risk Management Strategy Development
Mitigation Strategy Objective: To create a coherent strategy to
lower the probability of risk occurrence and/or minimize the
negative impact if the risk occurs.
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scanned, copied or duplicated, or posted to a publicly
accessible website, in whole or in part.
17
Step 3: Risk Management Strategy Development
Action Plan Techniques, Part 1
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accessible website, in whole or in part.
18
Step 3: Risk Management Strategy Development
Action Plan Techniques, Part 2
TABLE 9-1
Transportation Risk Reduction StrategiesRISK
CATEGORYSPECIFIC RISKSREDUCTION
STRATEGIESANTICIPATED OUTCOMESProduct LossTheft
and pilferage
Piracy and hijacking
Cargo jettisonUse generic packaging & descriptions
Avoid lawless hot spots

7. Strategic routingMitigate risk of financial loss, reduce customer
delivery delays, and avoid replacement shipment
expenses.Product DamageOperator accident
Poor freight handling methods
Improper equipment loadingUse protective packaging
Establish training programs
Monitor carrier performance Enhance freight safety, reduce
freight claims administration, and profit margin
protection.Product ContaminationTemperature control failure
Product tampering
Exposure to hazardous materialsSecure freight/lock containers
Isolate dangerous freight
Leverage pervasive automationSafeguard brand equity, decrease
potential for product liability lawsuits, and trim product recalls
and inventory replacement costs.
© 2015 Cengage Learning. All Rights Reserved. May not be
scanned, copied or duplicated, or posted to a publicly
accessible website, in whole or in part.
19
Step 3: Risk Management Strategy Development
Action Plan Techniques, Part 3
TABLE 9-1
Transportation Risk Reduction StrategiesRISK
CATEGORYSPECIFIC RISKSREDUCTION
STRATEGIESANTICIPATED OUTCOMESDelivery Delay
Congestion
Poor weather
Equipment malfunctionUse event management software
Employ dynamic re-routing tools
Avoid ill-equipped and congested portsMitigate risk of financial
loss, reduce customer delivery delays, and avoid replacement
shipment expenses.Supply Chain InterruptionCapacity shortage
Carrier bankruptcy

8. Labor disruptions and strikes Contract with quality carriers
Monitor carrier finances
Secure backup capacity
Identify alternate ports and service providers Enhance freight
safety, reduce freight claims administration, and profit margin
protection.Security Breach Shipment control breakdown
Unprotected transfer facilities
Lax security processesEmploy cargo tracking technology
Screen & evaluate vulnerabilities
Participate in C-TPAT and FASTSafeguard brand equity,
decrease potential for product liability lawsuits, and trim
product recalls and inventory replacement costs.
© 2015 Cengage Learning. All Rights Reserved. May not be
scanned, copied or duplicated, or posted to a publicly
accessible website, in whole or in part.
20
Step 4: Risk Review and Monitoring
Risk environment is not static, requiring regular review of risks
and update of action plan. The goal is to establish a repeatable,
measurable, verifiable validation process.
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scanned, copied or duplicated, or posted to a publicly
accessible website, in whole or in part.
21
Transportation Security Regulations and Initiatives
Global Supply Chain RisksInherent Physical RisksHuman-
caused Security RisksGlobal supply chain is more susceptible to

9. loss, damage, and delay problems.
Longer distances
Greater product handling
Multiple border crossings
More intermediaries
Human-caused risks are motivated by political, ideological, or
criminal intent.
Theft
Nuclear, chemical, biological, radiological & high explosive
weapons
Illicit trade of drugs
Currency laundering
Illegal entry of stowaways
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scanned, copied or duplicated, or posted to a publi cly
accessible website, in whole or in part.
23
Enhanced Security Measures Post-9/11
Challenge of balancing trade efficiency and security
More complex US Customs clearance process
Increased cargo inspection
Greater paperwork requirements
Close scrutiny of shipment country of origin
Potential cause of delays and decreased efficiency
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accessible website, in whole or in part.
24

10. Transportation Security Regulations and Initiatives, Part 1
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scanned, copied or duplicated, or posted to a publicly
accessible website, in whole or in part.
25
Transportation Security Regulations and Initiatives, Part 2
Aviation and Transportation Security Act of 2001
ATSA established the Transportation Security Administration
(TSA).
TSA roles
Screening of all passengers and property to be carried aboard an
aircraft.
Screening of cargo carried aboard passenger aircraft
Certified cargo screening program
Explosive Trace Detection (ETD)
X-ray
Physical search
© 2015 Cengage Learning. All Rights Reserved. May not be
scanned, copied or duplicated, or posted to a publicly
accessible website, in whole or in part.
26
Transportation Security Regulations and Initiatives, Part 3
Maritime Security Act of 2002 (MTSA)
To protect US ports and waterways from terrorists attack.
Key MTSA provisions
Conducting vulnerability assessments for port facilities and
vessels

11. Developing security plans to mitigate identified risks
Developing the Transportation Worker Identification Credential
(TWIC)
Establishing of a process to assess foreign ports of US bound
vessels
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scanned, copied or duplicated, or posted to a publicly
accessible website, in whole or in part.
27
Transportation Security Regulations and Initiatives, Part 4
Security and Accountability for Every Port (SAFE Port) Act
To keep nuclear, chemical, and biological weapons out of
freight containers traveling to US ports.
Key provisions
Codified the Container Security Initiative (CSI) and the
Customs-Trade Partnership Against Terrorism (C-TPAT)
Required interagency operational centers to fit the security
needs
Set an implementation schedule and fee restrictions for TWIC
Required all containers entering high-volume US ports be
scanned for radiation sources
Required additional data be made available to administered by
US Customs and Border Protection (CBP) for targeting cargo
containers for inspection
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scanned, copied or duplicated, or posted to a publicly
accessible website, in whole or in part.
28

12. Transportation Security Regulations and Initiatives, Part 5
Container Security Initiative (CSI)
To identify and inspect all containers that pose a potential risk
for terrorism at foreign ports before they are placed on U.S.
bound vessels.
Operational at 58 ports in North America, Europe, Asia, Africa,
the Middle East, and Latin and Central America
Three core elements
Identify high-risk containers.
Prescreen and evaluate containers before they are shipped.
Use nonintrusive inspection technology to prescreen high-risk
containers so as not to slow down the movement of trade.
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scanned, copied or duplicated, or posted to a publicly
accessible website, in whole or in part.
29
Transportation Security Regulations and Initiatives, Part 6
Customs-Trade Partnership Against Terrorism (C-TPAT)
Improve international supply chain and U.S. border security
through voluntary government-business cooperative
relationships.
Participating businesses
Must ensure integrity their security practices
Must verify security guidelines of SC partners
Enjoy a more secure and faster supply chain
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scanned, copied or duplicated, or posted to a publicly
accessible website, in whole or in part.
30

13. Transportation Security Regulations and Initiatives, Part 7
Free and Secure Trade (FAST)
A commercial clearance program for known low-risk shipments
entering the United States from Canada and Mexico.
Combines common risk-management principles, security
practices, industry partnerships and IT
Allows expedited processing for land-based commercial carriers
who have completed background checks and fulfill certain
eligibility requirements
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scanned, copied or duplicated, or posted to a publicly
accessible website, in whole or in part.
31
Summary
Transportation risks are potentially disruptive events that
produce supply chain disorder.
Risk management is the process of identifying risk, its causes
and effects, and its ownership.
Risk mitigation options include risk avoidance, reduction,
transfer, or retention.
Risk is a never-ending challenge, requiring a repetitive,
measurable, verifiable risk monitoring process.
Security is not the responsibility or domain of a single group.
Government and industry must collaborate to secure global
supply chains.
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scanned, copied or duplicated, or posted to a publicly
accessible website, in whole or in part.
32

14. Module 6 DeliverablePersonal budgetAt the beginning of the
school year, Joe Student decided to prepare a cash budget for
the months of September, October, November, and December.
The budget must plan for enough cash on December 31 to pay
the spring semester tuition, which is the same as the fall tuition.
The following information relates to the budget:DATACash
balance, September 1 (from a summer job)$8,700Purchase
season football tickets in September170Additional
entertainment for each month270Pay fall semester tuition in
September4,500Pay rent at the beginning of each month650Pay
for food each month600Pay apartment deposit on September 2
(to be returned December 15)650Part-time job earnings each
month (net of taxes)1,300Prepare the cash budget for the
quarter of the year.Joe StudentCash BudgetFor the Four Months
Ending December
31SeptemberOctoberNovemberDecembera.Estimated cash
receipts from:Total cash receiptsLess estimated cash payments
for:Total cash paymentsCash increase (decrease)Beginning Cash
balanceCash balance at end of monthc .Budget surplus/shortage
at the end of DecemberProvide a 150-300 word statement as to
whether Joe will have enough money at the end of December to
cover the spring semester's tuition. Include figures and
shortage/overage amounts.2Flexible budget for selling and
administrative expenses for a service companyTax Services Inc.
(a fictitious company) uses flexible budgets that are based on
the following data:DATASales commissions6%of sales
Advertising expense16%of sales Miscellaneous administrative
expense$8,500per month plus4%of sales Office salaries
expense$54,000per month Customer support
expenses$17,000per month plus27%of sales Research and
development expense$73,000per month Select the
corresponding accounts. Using formulas and cell references,
perform the required analysis, and input your answers into the
green cells in the C, D, E, and F columns. Enter all amounts as
positive numbers. Tax Services Inc.Flexible Selling and

15. Administrative Expenses BudgetFor the Month Ending October
31Total sales$500,000$800,000$1,100,000Variable cost:Total
variable costFixed cost:Total fixed costTotal selling and
administrative expenses