Imagine if you had a psychic personal assistant that also doubled up as your bodyguard. This person, would be able to use their clairvoyance to predict which street you should avoid on your route home, because a mugger was lying in wait for your precious Samsung S4 or Sony Ericsson Xperia Z and recommend that you not lend that “long lost cousin” that inappropriate amount he needs to “start his business”. We’re sure you would be first in line to register for one of these miracle persons.

As regards this psychic bodyguard phenomenon, we have both good news and bad news: the bad being that not all supply chain managers are psychic, and the good being that the logistics industry already has something similar to the aforementioned miracle bodyguard: risk management officers.

Photo Credit: Cynergistek.com

In general, risk management involves identifying threats to a firm, its profitability, its goods or service delivery or the industry within which it operates. They then provide recommendations for how best to handle these situations, to the benefit of the logistics firm.

Risk, as defined, has different origins within the supply chain management process, which can be classified into three major groupings. The first and most obvious is risk caused by human error.

Human errors in the logistics industry begin within logistics firms themselves, with employee errors. Employee negligence or forgetfulness can result in catastrophic disruptions of service delivery. If, for example, an employee wrongly sets a thermostat for climate controlled cargo such as perishable foodstuffs, the cargo delivered at its destination would be unusable, resulting in major losses.

Employee error may also be willful, in the case of fraud within a given supply chain management firm, where errors are made to facilitate or cover up questionable transactions, resulting in misleading records, such as for pilfered inventory.

Human error also manifests externally, with suppliers to a specific logistics firm. Delivery of services can be disrupted by unprofessional behavior of externally contracted drivers, resulting in arrests or hefty fines. Likewise major corporate issues on the supplier’s end can be detrimental to freighting of cargo, such as unforeseen bankruptcy or mergers which require halting of business.

Clients themselves may unintentionally hinder the completion of freighting processes through human error. A client may provide incorrect information regarding the cargo or its destination, resulting in delays or even total failure of delivery. Clients may also fail to disclose all pertinent cargo information, such as not properly labeling fragile items, which may then be destroyed in transit.

A close second to human error would be mechanical failure. This is where the equipment and systems we rely on to facilitate the logistics process are unable to deliver as is expected of them. Physical equipment can malfunction or fail, causing certain supply chain functions to stall, such as if cranes in a shipping yard cease to operate, meaning shipping crates cannot be moved as quickly as needed or at all.

Vehicles in a delivery fleet may also experience technical difficulties that are costly to repair and affect the efficiency of delivery when the fleet is less by one car.

Mechanical failure also applies to systems that support freighting and the processes aligned to it. These can include software meant to keep track of inventory developing glitches, or communications systems between the firm and clients or suppliers breaking down.

These cost companies precious time, leading to missed delivery deadlines and loss of customer trust. The effects of such hitches will often linger, with the loss of vital information regarding travel schedules, routes and the like lost to the wastelands of malfunctioning technology, as well as important client or payment records and the like.

By far the most unpredictable source of risk, however, is the environment in which the logistics industry exists. Some deliveries may require forays into dangerous areas plagued with theft and violence, resulting in theft of cargo, vandalism of cars and equipment, or worse, harm coming to employees involved in the delivery.

The same applies to areas with politically charged tensions or plagued by internal conflict of whatever origin. Regions prone to extreme weather events, such Australian brushfires, also pose a serious risk to the carrying out of logistics functions.

The legal environment of an area is also taken into consideration when assessing risk. Laws put in place to protect the environment may be a hindrance for logistics firms, which may be barred from installing underground pipelines, or be fined for pollution from exhaust fumes from tankers and trucks in transit.

In other places, such as parts of Kenya, there may be laws regulating hygiene in the transportation of specific goods, such as a ban on freighting foodstuffs in open containers.

With these and more considerations in mind, supply chain managers can go about managing the risks involved with each one. The best approach for this is threefold: first, identify the sources of risk, and determine what specific aspect is likely to manifest during logistical functions, e.g. identify the economic environment as a risk, and then distill a more specific threat, such as currency fluctuations that may interfere with imports or exports by the firm.

Next, the impact of the risk must be estimated, with facilities to recover lost value being assigned, for instance, back up fleets in case disastrous infrastructure damages vehicles en route to delivery. Accountability in case of the worst must also be established, with specific individuals tapped either to prevent the risk from affecting the business or plug the leak in case the worst comes to the worst. From here, the risk officer carefully monitors the situation, ensuring that a quick decision will be made to salvage the situation if needed.

Thus, while only a select few risk management officers have the ability to see the future, they are proficient in foreseeing and neutralizing risks to businesses, making them an essential part of the logistics industry, and most other sectors as well.