Risk Management in Logistics services
"Logistics" as we understand is that aspect of "supply chain" which translates the investments in business into tangible value-realizing-ones by playing the role of a connecting bridge between all the individual performing elements in the chain. It is that "agent" which by its own dynamic nature makes the supply chain perform its desired action in the most appropriate way and establishes the framework of operations visibility for business.
The current market situation being extremely demanding with a very high probability of occurrence of business uncertainties (in terms of price increases, capacity shortages etc.), the existing operating environment of the supply chain has become vulnerable in terms of its capacity of "risk resistance" and also has challenged its own ability to avoid such risks.
The primary reason for these risk parameters though linked to variability of demand; it however also assumes some relevance in terms of overall resilience of the entire process in terms of management of "service categories" that exists in the chain. For example, if during fixation of SLAs or setting of KPIs for performance, the system environmental factors - capacity issues, service continuity, supplier portfolio are not identified, the initial planning process and the delivery model assumptions continues to remain at risk which threatens the overall logistics.
The "Risk Management" principle assumes primary importance in this direction that helps provide a visibility towards the direction of these risks, the point from which they approach and also makes way to build an attitude internally to design a shock absorbing system to mitigate them.
An analysis of the whole ecosystem that accounts for the logistics systems to become prone to these risks can broadly be classified into two categories -
- the internal key factors which include : Sales price erosions, product life cycle management (phase in / out, lot size change etc.), Cross functional business strategies (manufacturing model, distribution model, Inbound / outbound channels, purchasing and sourcing strategy etc.), environmental focus and
- the external market factors that comprises : market consolidation (merger and acquisitions), capacity imbalances or limited transportation capacity, rising energy costs, market volatility (trade imbalances, seasonal pricing in pockets), technology investment costs and various labor and compliance laws.
Depending on the nature and applicability, by and large almost all enterprises go through these with some element of vulnerability that makes their supply chains prone to the risk of failures.
A properly planned "Risk Plan" during the Supply planning stage OR establishing a generic risk aversion model in the basic framework of the process with clear set of governing principles along with the possible roadmap of mitigation helps the process to become resilient by itself and builds in itself the capacity of necessary adjustments for resisting the risk events from its occurrence. Some of these generalized governing principles can be as follows:
Our life as we all know is not a bed of roses and likewise we can't expect our business to be a cakewalk. However it is this knowledge and the preparedness to face the thorns, which makes us able and capable to walk the path laid down before us. We need to inculcate the same philosophy in our businesses too to make them capable of cutting the thorns when they come in the path.