Top 10 Logistics Risks in the Spirit of David Letterman


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The simple fact is that in today’s longer, more global supply chains, product moves over greater distances and across more multinational borders than in the more localized supply chains of the past. The coordination and execution required for international shipments has always been a challenge. But now we find that market conditions, security considerations, transportation versus inventory costs of ownership, increasing regulatory and political pressures, and even natural events (such as storms and earthquakes) with increasing frequency and havoc are converging in such a way that it makes the task even more daunting.

Proactive discovery and visibility of logistics risks is the key to the prevention and management of supply chain disruptions. And a key ingredient in managing supply chain disruptions is risk identification; so attend this valuable presentation to find out what the Top 10 Logistics Risks are (in the spirit of David Letterman) that you will be facing in the coming years. Donald Rumsfeld, former US Secretary of Defense quipped in 2002, “Reports that say that something hasn’t happened are always interesting to me, because, as we know, there are known knowns; there are things we know we know. We also know there are known unknowns; that is to say we know there are some things we do not know. But there are also unknown unknowns-—-the ones we don’t know we don’t know.”

General Gus Pagonis, in charge of logistics during the First Gulf War in 1991 describes it best in his own words, “Logisticians deal with unknowns. They attempt to eliminate unknowns, one by one, until they are confident that they have done away with the possibility of paralyzing surprises.” Are you equipped to succeed in a supply chain world of increasing difficulty and insecurity and multiple interconnected supply chains? Do you have the correct response to a supply disruption in the supply chain and the attendant Top 10 Logistics Risks?

Why is logistics risk management in the supply chain so important now? You’ve spent years streamlining operations, reengineering processes, integrating with partners, implementing purchasing, contract management and supply chain systems, and moving production to low-cost, offshore locations. You’ve done all of this in order to get a global supply chain that really works. Finally, you can take a deserved rest, right? Unfortunately, the answer is no-—-you must learn to continuously adapt to a volatile, uncertain, complex, and ambiguous logistics environment!

As noted by Charles Darwin, “It is not the strongest of the species that survives, or the most intelligent that survives. It is the one that is the most adaptable to change.”

Risk management is about having a systematic way of dealing with thin

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Top 10 Logistics Risks in the Spirit of David Letterman

  1. 1. Top 10 Logistics Risks (in the spirit of David Letterman) WEBINAR for ISM Supply Chain Risk Management Group presented by Thomas L. Tanel, C.P.M., CTL, CCA, CISCM President and CEO CATTAN Services Group, Inc. College Station, TX 979-212-8200 © 2013 CATTAN Services Group, Inc.
  2. 2. Today’s Agenda—Take Aways • Risk Management Concerns in Logistics • Top 10 Logistics Risks • Risk Assessment Methodology • Risk Threat Assessment and Mitigation • Five Logistics Risk Management Responses • Five Global Logistics Risk Management Response Strategies & Some Contingent Actions • Conclusion & Summary 2
  3. 3. Definitions of Risk • Risk—the probability of an unwanted event or outcome. Chartered Institute of Purchasing and Supply • Risk—the possibility that an event will occur and adversely affect the achievement of objectives. Enterprise Risk Management Framework • Risk—a situation or circumstance, which creates uncertainties about achieving program objectives. FAA Programmatic Risk Management • Risk—is a measure of future uncertainties in achieving program performance goals and objectives within defined cost, schedule and performance constraints. Risk Management Guide for DOD Acquisition 3
  4. 4. Supply Chain Executives Face Increasing Concerns about Mitigating Logistics Risk • The World Economic Forum Report Global Risks 2012 • According to ChainLink’s research for 2012, companies will increasingly turn to riskreduction approaches. • The New Supply Chain Advantage—Factory Mutual Global report says ―supply chains have been stretched farther than they have ever been stretched in the past.‖
  5. 5. Top 10 Logistics Risks 5
  6. 6. #10 Panama Canal Expansion
  7. 7. #9 Regulatory & Trade Environment
  8. 8. #8 Information & Communication Technology Change
  9. 9. #7 Supply Chain Talent Brain Drain
  10. 10. #6 Global Market Changes & Demand Shifts
  11. 11. #5 Financial Viability of 3PLs and Carriers
  12. 12. #4 Economic & Monetary Disruptions
  13. 13. #3 Supply Chain Compression & Reliability
  14. 14. #2 Energy and Fuel Price Swings
  15. 15. #1 Natural Disasters, Weather, & Epidemics
  16. 16. Risk Assessment Methodology • Risk identification and valuation. • Risk analysis, threat assessment, and vulnerability assessment. • Risk quantification of the likelihood of event occurrence and the severity of impact or consequence. 16
  17. 17. Risk Assessment Methodology • Risk quantification ranking and priorities. • Risk countermeasures and expected risk reduction. • Let’s look at employing this methodology in the following slides. 17
  18. 18. Risk Threat Assessment Guidelines • To what degree is the threat information CREDIBLE ? • To what degree is the threat information CORROBORATED ? • To what degree is the threat SPECIFIC or IMMINENT ? • HOW GRAVE are the potential consequences of the threat? Source: CATTAN Services Group, Inc. 18
  19. 19. Risk Assessment Quadrant Continuum HIGH L O i c k c e u l o r i f r h e o n o c d e High Likelihood Low Severity 2 Low Likelihood Low Severity 1 LOW High Likelihood High Severity 4 Low Likelihood High Severity 3 Severity of Consequence or Impact Source: CATTAN Services Group, Inc. HIGH 19
  20. 20. Risk Analysis and Assessment • Risk has two critical elements: – Likelihood of occurrence (probability) and – Severity of impact or consequence (magnitude). • The level and type of consequences of each risk are established utilizing criteria such as those described in the following slides. 20
  21. 21. Levels of Likelihood Criteria— Example Descriptor Probability Rank Value Highly Probable >75% High 5 Probable >50%--<75% Medium High 4 Occasional >25%--<50% Medium 3 Remote >10%--<25% Medium Low 2 Improbable <10% Low 1 21
  22. 22. Severity of Impact Criteria— Example Descriptor Rank Value Catastrophic High 5 Critical Medium High 4 Serious Medium 3 Marginal Medium Low 2 Negligible Low 1 22
  23. 23. Risk Identification to Risk Assessment Framework Risk Analysis Likelihood and Impact Source: Westec Advanced Productivity Exposition by Quality Plus Engineering 23
  24. 24. Risk Assessment to Risk Mitigation Risk Analysis Likelihood and Impact Framework Source: Westec Advanced Productivity Exposition by Quality Plus Engineering 24
  25. 25. Risk Mitigation Planning • The intent of risk mitigation planning is to answer the question ―what is our approach for addressing this potential unfavorable consequence?‖ – Avoiding risk by eliminating the root cause and/or consequence – Controlling the cause or consequence – Transferring the risk, and/or – Assuming the level of risk and continuing on the SCCP “There is nothing more deceptive than an obvious fact” Sherlock Holmes 25
  26. 26. Top Ten Logistics Risks and Their Threat Characteristics UnknownUnknown U n k n o w n / K n o w n Uncontrollable 1. Natural Disasters, Weather, & Epidemics 2. Energy and Fuel Price Swings 3. Supply Chain Compression & Reliability 4. Economic & Monetary Disruptions 5. Financial Viability of 3PLs & Carriers 6. Global Market Changes & Demand Shifts 7. Supply Chain Talent Brain Drain 8. Information & Communication Technology Change 9. Regulatory & Trade Environment 10. Panama Canal Expansion KnownKnown Controllable
  27. 27. Risk Mitigation Planning • This is the activity that identifies, evaluates, and selects response options, strategies, and contingencies to set risk at acceptable levels. • It includes the specifics of: – – – – What should be done? When it should be accomplished? Who is responsible? What will it cost to implement the risk mitigation plan? 27
  28. 28. Five Logistics Risk Management Response Options 1. Infer logistical differences in a country’s economic capability 2. Understand the bullwhip effect 3. Invest in redundancy 4. Increase velocity in sensing and responding 5. Create an adaptive supply chain community
  29. 29. Risk Management Response— Logistical Dangers Country Type Economic Capability Differences that Impact Logistic Risks
  30. 30. Risk Management Response— Bullwhip Effect Wholesale Distributors Time Time Consumers Retailers Sales Sales Sales Manufacturer Sales Multi-tier Suppliers Time Bullwhip Effect—Supply Chain Management and Uncertainty Time
  31. 31. Risk Management Response— Redundancy • Respond to unforeseen events • Careful analysis of supply chain trade-offs • Example
  32. 32. Risk Management Response— Sensing and Responding • Speed in sensing and responding can help the firm overcome unexpected supply problems. • Failure to sense could lead to… • Example
  33. 33. Risk Management Response— Adaptability • The most difficult risk management method to implement effectively. • Requires all supply chain elements to share the same culture, work towards the same objectives and benefit from financial gains. • Example
  34. 34. Five Global Logistics Risk Management Response Strategies • Speculative Strategy • Hedge Strategy • Flexible Strategy
  35. 35. Five Global Logistics Risk Management Response Strategies • Avoidance Strategy • Postponement Strategy
  36. 36. Contingent Actions—Need for a C-Level Strategic Visionary • Supply chain professionals must act quickly to develop a dialogue with the C-Level strategic visionary and understand their goals for SCM & logistics. • The visionary needs to ―see the light‖ and doesn’t need to be convinced of the SCM & logistics value proposition.
  37. 37. Contingent Actions—Organizational Cultural Challenges • Lack of ownership • ―Tower of Babel‖ problem • ―Functional Silo‖ organizational focus
  38. 38. Contingent Actions—Overcoming Organizational Cultural Challenges and Conflicting Goals Purchasing Manufacturing Distribution Customer Service/ Sales Low purchase price Few changeovers Low inventories High inventories Low freight High service levels Multiple suppliers Lower cycle times SOURCE Stable schedules Long run lengths MAKE More storage sites DELIVER Cost-toServe VMI SELL
  39. 39. Supply Chain Continuity Plan (SCCP) • Increasing globalization is forcing organizations to get a better handle on the risks and interdependencies in the supply chain. • Increasing velocity and length of global supply chains has left many with more questions than answers. • Does your organization have the wherewithal to implement a robust Supply Chain Risk Management 39 (SCRM) strategy?
  40. 40. Thinking Through Logistics Risk— Due Diligence • Effective risk management includes activities for risk identification, risk analysis, risk handling, and risk monitoring. • Supply chain managers will often observe that common risks were effectively managed; it was the unexpected risks that caused the biggest problems. Source: Manage Your Supply Chain Risk-Society of Manufacturing Engineers 40
  41. 41. Thinking Through Logistics Risk— Avoid Surprises “Surprise pursues us relentlessly because we can never have all the information we need for a correct forecast every time.” says Peter Bernstein of the Risk Analysis Center. 41
  42. 42. Questions and Answers THANKS for Taking The Risk © 2013 CATTAN Services Group, Inc. 42