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.

 Risk Management Concerns in Logistics

Todays AgendaTake Aways

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

Definitions of Risk
Riskthe probability of an unwanted event or outcome.
Chartered Institute of Purchasing and Supply

Riskthe possibility that an event will occur and adversely affect the achievement of objectives.
Enterprise Risk Management Framework

Riska situation or circumstance, which creates uncertainties about achieving program objectives.
FAA Programmatic Risk Management

Riskis 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
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Supply Chain Executives Face Increasing Concerns about Mitigating Logistics Risk
The World Economic Forum Report Global Risks 2012

According to ChainLinks research for 2012, companies will increasingly turn to risk-reduction approaches.

The New Supply Chain AdvantageFactory Mutual Global report says supply chains have been stretched farther than they have ever been stretched in the past.

Top 10 Logistics Risks

#10 Panama Canal Expansion

#9 Regulatory & Trade Environment

#8 Information & Communication Technology Change

#7 Supply Chain Talent Brain Drain

#6 Global Market Changes & Demand Shifts

#5 Financial Viability of 3PLs and Carriers

#4 Economic & Monetary Disruptions

#3 Supply Chain Compression & Reliability

#2 Energy and Fuel Price Swings

#1 Natural Disasters, Weather, & Epidemics

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.

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Risk Assessment Methodology

Risk quantification ranking and priorities.
Risk countermeasures and expected risk reduction. Lets look at employing this methodology in the following slides.

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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.
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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

LOW

High Likelihood Low Severity 2 Low Likelihood Low Severity 1

High Likelihood High Severity 4 Low Likelihood High Severity 3

Severity of Consequence or Impact

HIGH

Source: CATTAN Services Group, Inc.

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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.
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Levels of Likelihood Criteria Example

Descriptor Probability
Highly Probable
Probable Occasional Remote

Rank
High
Medium High Medium Medium Low

Value
5
4 3 2

>75%
>50%--<75% >25%--<50% >10%--<25%

Improbable

<10%

Low

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Severity of Impact Criteria Example

Descriptor
Catastrophic Critical Serious Marginal Negligible

Rank
High Medium High Medium Medium Low Low

Value
5 4 3 2 1

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Risk Identification to Risk Assessment Risk Analysis Likelihood and Impact Framework

Source: Westec Advanced Productivity Exposition by Quality Plus Engineering

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Risk Assessment to Risk Mitigation Risk Analysis Likelihood and Impact Framework

Source: Westec Advanced Productivity Exposition by Quality Plus Engineering

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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

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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

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?
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1. Infer logistical differences in a countrys 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

Five Logistics Risk Management Response Options

Risk Management Response Logistical Dangers

Country Type Economic Capability Differences that Impact Logistic Risks

Risk Management Response Bullwhip Effect

Multi-tier Suppliers Manufacturer Wholesale Distributors Retailers Consumers

Sales

Sales

Sales

Time

Time

Time

Sales Time

Bullwhip EffectSupply Chain Management and Uncertainty

Risk Management Response Redundancy

Respond to unforeseen events Careful analysis of supply chain trade-offs Example

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

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

Five Global Logistics Risk Management Response Strategies

Speculative Strategy Hedge Strategy Flexible Strategy

Five Global Logistics Risk Management Response Strategies Avoidance Strategy

Postponement Strategy

Contingent ActionsNeed 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 doesnt need to be convinced of the SCM & logistics value proposition.

Contingent ActionsOrganizational Cultural Challenges

Lack of ownership

Tower of Babel problem

Functional Silo organizational focus

Contingent ActionsOvercoming Organizational Cultural Challenges and Conflicting Goals

Purchasing Manufacturing Distribution Customer Service/ Sales High inventories High service levels Cost-toServe VMI SELL

Low purchase price Multiple suppliers Lower cycle times

Few changeovers Stable schedules Long run lengths

Low inventories

Low freight

More storage sites DELIVER

SOURCE

MAKE

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?

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

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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.

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Questions and Answers

THANKS for Taking The Risk

2013 CATTAN Services Group, Inc.
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