Top 10 Logistics Risks in the Spirit of David Letterman
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Transcript of Top 10 Logistics Risks in the Spirit of David Letterman
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Top 10 Logistics Risks (in the spirit of David
Letterman)
WEBINAR forISM Supply Chain Risk Management
Group
© 2013 CATTAN Services Group, Inc.
presented byThomas L. Tanel, C.P.M., CTL, CCA, CISCM
President and CEOCATTAN Services Group, Inc.
College Station, [email protected] 979-212-8200
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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
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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
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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 risk-reduction 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.”
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Top 10 Logistics Risks
5
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#10Panama Canal Expansion
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#9Regulatory & Trade
Environment
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#8Information & Communication
Technology Change
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#7Supply Chain Talent Brain Drain
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#6Global Market Changes
& Demand Shifts
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#5Financial Viability of 3PLs and
Carriers
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#4Economic & Monetary
Disruptions
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#3Supply Chain Compression
& Reliability
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#2Energy and Fuel Price
Swings
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#1Natural Disasters, Weather, &
Epidemics
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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.
• Let’s 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
L O i ck ce ul o ri f rh eo no cd e
Severity of Consequence or ImpactLOW
HIGH
HIGH
High Likelihood
Low Severity2
High Likelihood
High Severity4
Low Likelihood
Low Severity1
Low Likelihood
High Severity3
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
Rank Value
Highly Probable
>75% High 5
Probable >50%--<75% MediumHigh
4
Occasional >25%--<50% Medium 3
Remote >10%--<25% Medium Low
2
Improbable <10% Low 1
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Severity of Impact Criteria—Example
Descriptor Rank Value
Catastrophic High 5
Critical MediumHigh
4
Serious Medium 3
Marginal Medium Low 2
Negligible Low 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 MitigationRisk 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
1. Natural Disasters, Weather, & Epidemics2. Energy and Fuel Price Swings3. Supply Chain Compression & Reliability4. Economic & Monetary Disruptions5. Financial Viability of 3PLs & Carriers6. Global Market Changes & Demand Shifts7. Supply Chain Talent Brain Drain8. Information & Communication Technology Change9. Regulatory & Trade Environment10.Panama Canal Expansion
Unknown-Unknown
Known-Known
Uncontrollable
Controllable
Unknown/Known
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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?
• Let’s look at this activity in the following slides.
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Five Logistics Risk Management Response
Options1. Infer logistical differences in a
country’s economic capability2. Understand the bullwhip effect3. Invest in redundancy4. Increase velocity in sensing and
responding5. Create an adaptive supply chain
community
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Risk Management Response—Logistical Dangers
Country Type Economic Capability Differences that
Impact Logistic Risks
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Risk Management Response—Bullwhip Effect
ManufacturerWholesale
Distributors ConsumersMulti-tierSuppliers Retailers
Time
Sale
s
Sale
s
Time
Sale
s
Time
Sale
s
Time
Bullwhip Effect—Supply Chain Management and Uncertainty
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Risk Management Response—Redundancy
• Respond to unforeseen events
• Careful analysis of supply chain trade-offs
• Example
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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
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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
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Five Global Logistics Risk Management Response
Strategies
• Speculative Strategy
• Hedge Strategy
• Flexible Strategy
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Five Global Logistics Risk Management Response
Strategies
• Avoidance Strategy
• Postponement Strategy
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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.
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Contingent Actions—Organizational Cultural
Challenges
• Lack of ownership
• “Tower of Babel” problem
• “Functional Silo” organizational focus
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Contingent Actions—Overcoming Organizational
Cultural Challenges and Conflicting Goals
Purchasing Manufacturing Distribution Customer Service/Sales
Few changeov
ers
Stable schedules
Long run lengths
High inventori
es
High service levels
Cost-to-Serve
VMI
SOURCE MAKE DELIVER SELL
Low
purchase price
Multiple supplier
s
Lower cycle times
Low inventori
es
Low freight
More storage
sites
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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 (SCRM) strategy?
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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
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“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.
“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
© 2013 CATTAN Services Group, Inc.
THANKS for Taking The Risk