Risk Management in Freight Transportation in 2013

One of the 2013 trends identified in my last blog was the requirement for transportation professionals to ramp up their efforts at Risk Management.  In recent years we have seen a range of weather related natural disasters.   Of course, disruptions to supply chains can come from other sources such as terrorism, wars, accidents, the failure of various operating systems such as telephone and computer systems, quality control problems and export restrictions.  To make matters worse, most of these disruptions are unpredictable in timing and scope.

Supply chain risks can be categorized into five groups: operational, social, natural, economy and political/legal.  Each shipper has to make an assessment of the potential risks to their supply chains.  Supply chain risk management can be defined as attempts to identify risks and quantify their commercial financial exposures as well as mitigate potential disruptions at each node and lane in the supply chain.

Supply chain risk models can vary from the rudimentary to the sophisticated.  In the case of the latter, complex “what if” analyses can be performed.  These allow shippers to identify potential trouble spots and map out alternative supply chain strategies.  Historically, shippers have tended to focus on factors with the biggest impact on their supply chain, such as on-time performance, supplier lead time variability and carriers by origin or trade lane.

Based on the escalation of various risks in recent years, there is a need to take risk management to another level.  Shippers need to perform a probability analysis on the impacts of each potential disruption, with a particular focus on alternative vendors, manufacturing facilities, modes, carriers, origin points, ports, border crossings, distribution facilities and destination ports.

Looking ahead to 2013, there are some major (predictable) risks that could drive up supply chain and transportation costs.   These include the result of the ongoing debt discussions in the United States, the impact on fuel costs if there is more violence in the Middle East, a driver shortage if the economy rebounds faster than expected, the recession in Europe and other weather related problems.  In Canada there is a risk of a housing bubble which would have a major impact on its economy.  In addition, there are risks that cannot be predicted at this time.

Each company needs to assess the potential risks for each of the five elements outlined above.  As a minimum, shippers should be evaluating alternate modes and carriers to make sure they have a range of quality options in place.  It makes good business sense to seek out alternate sources of supply, near-sourcing opportunities in Mexico or Latin America, back-up computer systems and expanding the range of carriers in each company’s routing guide.  Motor carriers and logistics companies should have plans in place if a freight terminal or computer system goes down.  In addition, each of these options should be tested under “real world” circumstances with actual freight to see if they are viable and dependable in a time of need.

To learn more about this topic, here is a link to some very good articles that were recently published by Adrian Gonzalez and Tim Cummins. (http://campaign.r20.constantcontact.com/render?llr=bkiefwcab&v=001Odyl7ekdr1Y0hY6_1pu4SluP1VzX4EBZXXBQSIBKFz1mQV70lsSFWp9xjxR8kag7x9KopX36zVBSkG3wVHfrTr0WSTXZASY1qHYzbZHZhN03TsWgY9LmUWkYo3neOBernWXuWBlX-FSMXoqhr6sGZUBBklvooDpB7ig2qXCiMZc%3D, http://contract-matters.com/2013/01/03/tackling-supply-chain-risk/). 

Here are some publications that are worth reading:

Yossi Sheffi's "The Resilient Enterprise" and "Supply Chain Risk Management: A Compilation of Best Practices" published by the Supply Chain Risk Leadership Council.

What is your company doing in the area of Risk Management?  Please share some of your practices and procedures with the readers of this blog.