Certainty of chance
Although shipping can be a risky business, companies can adopt a number of different measures to keep their operations safe from harm, explains Andrew Saliba, director of consultancy firm LOGIC.
What is LOGIC and what services do you offer in the Middle East?
LOGIC is an international consultancy and training firm specialising in logistics and supply chain management. I am a member of the Supply Chain and Logistics Group (SCLG) in Dubai and I regularly give lectures on various aspects of the supply chain.
I held a presentation on the issue of risk at the SCLG conference in June and in the discussion afterwards it became clear that that supply chain practitioners from the audience lacked even a very basic risk-assessment awareness within their organisation.
The general impression was that risk assessment was the duty of management and CEOs, to the extent that attendees went out of their way to avoid even mentioning it. As a result, I wanted to talk about this issue more than anything to highlight its importance.
What are the main risks faced in the supply chain?
One of the first things that you need in order to manage risk is an awareness that it exists. There are many risks currently being faced by supply chain practitioners but we can divide these into several main categories.
These risks can take the form of strikes, which jeopardise the movement of materials through a supply chain. There could also be risk with regards to weather conditions; for instance, if your supply chain passes through an area prone to hurricanes or earthquakes.
What kind of risks stem from inventory levels?
Added risk is also present through a reduction in inventory. If you do not have enough stock as a result of wanting to save on warehouse space, that could well be a risk if your deliveries turn out to be delayed.
There are also problems associated with excess capacity, especially with regard to grocery stock where your goods can pass their use-by date all too quickly.
How can reducing your supplier base generate risks?
If you reduce your supplier base that could mean that you are putting all your eggs in one basket. For instance, if you only have one supplier, that could also put you at risk, because something may happen to that supplier.
If he becomes bankrupt, you then lose the supply of your components. Most people are now reducing their suppliers as it can reduce complications and it can also lower your costs as you consolidate your purchasing. But if anything goes wrong, it could be catastrophic for your business.
What practical steps can be taken to manage risks?
After developing risk awareness, a practical assessment of internal and external operations needs to be carried out. The way to manage risk is not by taking out insurance but looking at the processes your supply chain goes through. For instance, you can easily review risk through modelling and simulating steps in your supply chain mechanisms.
How can you remove the risks that surround inventory issues?
One important way of reducing the risk associated with excessive inventory is by improving visibility in your stock. Disproportionate inventory levels stem from a lack of information; for instance, some firms stockpile goods because they are unsure as to the level of demand. Information systems available today can replace inventory.
For example, you can invest in a sales-forecasting tool such as SAP. The more you know about how goods are moving, the less you need to rely on inventory.
How can you balance removing risks while reducing your supplier base?
Although your target should be to reduce your supplier base, even if you have a reliable partner you must still ensure you have a contingency plan. It's important that you know your suppliers inside out. At least try and balance this out by keeping some suppliers who can support you if something goes wrong.
You can also have a hybrid solution where you have a reliable alternative supplier if something does occur that interferes with your supply chain. This is a relationship you must keep strong even in good economic times.
It can be more costly to maintain, but you must balance cost against potential savings in case anything goes wrong. How you manage a problem always depends innately on how you manage the risk.