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

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
cattan@cattan.com 979-212-8200
© 2013 CATTAN Services Group, Inc.

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. 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. 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. Top 10 Logistics Risks
5

6. #10
Panama Canal Expansion

7. #9
Regulatory & Trade
Environment

8. #8
Information & Communication
Technology Change

9. #7
Supply Chain Talent Brain Drain

10. #6
Global Market Changes
& Demand Shifts

11. #5
Financial Viability of 3PLs and
Carriers

12. #4
Economic & Monetary
Disruptions

13. #3
Supply Chain Compression
& Reliability

14. #2
Energy and Fuel Price Swings

15. #1
Natural Disasters, Weather, &
Epidemics

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. 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. 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. 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. 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. 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. 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. Risk Identification to Risk
Assessment Framework
Risk Analysis Likelihood and Impact
Source: Westec Advanced Productivity Exposition by Quality Plus Engineering
23

24. Risk Assessment to Risk
Mitigation
Risk Analysis Likelihood and Impact Framework
Source: Westec Advanced Productivity Exposition by Quality Plus Engineering
24

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. 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. 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. 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. Risk Management Response—
Logistical Dangers
Country Type Economic Capability
Differences that Impact Logistic
Risks

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. Risk Management Response—
Redundancy
• Respond to unforeseen events
• Careful analysis of supply chain
trade-offs
• Example

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. 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. Five Global Logistics Risk
Management Response Strategies
• Speculative
Strategy
• Hedge Strategy
• Flexible Strategy

35. Five Global Logistics Risk
Management Response Strategies
• Avoidance Strategy
• Postponement
Strategy

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. Contingent Actions—Organizational
Cultural Challenges
•
Lack of ownership
•
―Tower of Babel‖ problem
•
―Functional Silo‖ organizational
focus

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. 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. 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. 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. Questions and Answers
THANKS for Taking The Risk
© 2013 CATTAN Services Group, Inc.
42