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Top 10 Logistics Risks in the Spirit of David Letterman
The document outlines a webinar on logistics risk management presented by Thomas L. Tanel, focusing on the top 10 logistics risks facing supply chain executives, such as natural disasters and financial viability of third-party logistics providers. It discusses risk assessment methodologies, risk threat assessment, and various strategic responses to mitigate these risks. Key takeaways emphasize the importance of identifying, analyzing, and managing risks within increasingly complex global supply chains.
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Top 10 Logistics Risks in the Spirit of David Letterman
- 1. Top 10 LogisticsRisks (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 • RiskManagement 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 ExecutivesFace 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 LogisticsRisks 5
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- 9. #7 Supply Chain TalentBrain Drain
- 10. #6 Global Market Changes &Demand Shifts
- 11. #5 Financial Viability of3PLs and Carriers
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- 13. #3 Supply Chain Compression &Reliability
- 14. #2 Energy and FuelPrice Swings
- 15. #1 Natural Disasters, Weather,& Epidemics
- 16. Risk Assessment Methodology • Riskidentification 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 • Riskquantification 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 LO 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 LikelihoodCriteria— 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 ImpactCriteria— 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 toRisk Assessment Framework Risk Analysis Likelihood and Impact Source: Westec Advanced Productivity Exposition by Quality Plus Engineering 23
- 24. Risk Assessment toRisk 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 LogisticsRisks 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 • Thisis 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 ManagementResponse 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— LogisticalDangers Country Type Economic Capability Differences that Impact Logistic Risks
- 30. Risk Management Response— BullwhipEffect 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— Sensingand 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 LogisticsRisk Management Response Strategies • Speculative Strategy • Hedge Strategy • Flexible Strategy
- 35. Five Global LogisticsRisk Management Response Strategies • Avoidance Strategy • Postponement Strategy
- 36. Contingent Actions—Need fora 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 • Lackof ownership • ―Tower of Babel‖ problem • ―Functional Silo‖ organizational focus
- 38. Contingent Actions—Overcoming Organizational CulturalChallenges 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 ContinuityPlan (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 LogisticsRisk— 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 LogisticsRisk— 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 THANKSfor Taking The Risk © 2013 CATTAN Services Group, Inc. 42