top 10 logistics risks in the spirit of david letterman
DESCRIPTION
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 thinTRANSCRIPT
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
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
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.”
Top 10 Logistics Risks
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#10Panama Canal Expansion
#9Regulatory & Trade
Environment
#8Information & Communication
Technology Change
#7Supply Chain Talent Brain Drain
#6Global Market Changes
& Demand Shifts
#5Financial Viability of 3PLs and
Carriers
#4Economic & Monetary
Disruptions
#3Supply Chain Compression
& Reliability
#2Energy and Fuel Price
Swings
#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
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.
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
Risk Management Response—Logistical Dangers
Country Type Economic Capability Differences that
Impact Logistic Risks
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
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 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.
Contingent Actions—Organizational Cultural
Challenges
• Lack of ownership
• “Tower of Babel” problem
• “Functional Silo” organizational focus
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
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