Transportation of goods, whether by air, sea, or land, can be risky. It may seem that transporting goods is simple: loading them onto vehicles and driving them to their destination. However, it can be fraught with many potential problems that, if not taken into account, can lead to delays, lost time, and even loss of money. This article provides an overview of identifying potential risks in your supply chain and how to mitigate these risks using several risk management tools, such as supplier selection and monitoring strategies.
Significance of Transportation Risk
Transportation risk is a broad term that encompasses both human error and mechanical failure. It can be caused by poorly trained employees or poor weather conditions, but it’s also a result of a company’s design and maintenance practices. In some cases, transportation risks are unavoidable; in others, they’re preventable.
Transportation risk leads to loss of time, money, and reputation for businesses. Risk management is a systematic process for identifying, assessing, prioritizing risks, and developing plans to address them. These plans include response procedures and preventive measures designed to reduce the likelihood that an incident will occur–or lessen its impact if one does happen (see below). Companies also use risk management tools to determine how much insurance coverage they need based on their exposure levels–and whether they’re getting enough value out of their existing policies (see above).
Transportation Risks Lead to Loss of Time and Money
With the ever-increasing complexity of supply chains, many factors can lead to transportation risks. Transportation can be affected by logistical inefficiencies, poor communication between logistics partners and external suppliers or vendors, inadequate resource planning, and insufficient staffing levels.
Transportation risks lead to loss of time and money as critical parts may need to be replaced or repaired before they reach their destination; this results in delays in production or delivery, which could seriously affect customer satisfaction.
For example, a truck driver gets lost on his way from a warehouse location to the airport due to inaccurate mapping software data. Thus, the shipment arrives late at its final destination, causing delays in your customer’s manufacturing process.
Risk Management Tools
Risk management tools are a key part of the risk management process, which we can generally divide into five steps:
- Risk assessment tools help you identify and prioritize risks by evaluating the likelihood and impact of each one.
- You can use risk management tools to determine your preventive measures’ effectiveness and evaluate alternatives for managing risks.
- Risk mitigation tools assist in preventing or minimizing negative consequences from occurring, such as implementing effective safety features on vehicles or equipment.
- Risk monitoring tools provide continual insight into how well your organization is managing its risks so that you can adjust accordingly. These may include regular performance reports and ongoing assessments of key metrics (such as incident rates).
- Finally, risk planning tools help ensure that your organization has planned effectively for potential hazards before they occur.
Supplier selection is the first step of any project. The choice of supplier will determine whether your project will succeed or fail.
The following steps explain how to select an appropriate supplier:
- Determine the need for a study (e.g., if you are about to begin a new project).
- Define your requirements and expectations for the supplier (e.g., quality, price, and availability).
- Validate that your requirements are realistic (e.g., if no suppliers meet them, reconsider your requirements). If one supplier meets all of them but has a bad reputation, consider working with another supplier who meets fewer criteria but has a better reputation in this area of expertise/experience). A good way to validate that your requirements are realistic is by asking other stakeholders their opinions on each requirement before making any related decisions or commitments.
Supplier Monitoring and Communication
Supplier monitoring and communication are key risk management tools. It is a means of ensuring that the supplier is performing as expected and helping to identify risks early. It will help identify problems early, which can help avoid delays in delivery or other issues that could impact your business objectives.
Supplier Performance Measurement
Supplier performance measurement is the process of measuring and analyzing the performance of your suppliers. It helps you to identify your suppliers and their performance. Supplier performance measurement helps you to improve your supplier performance.
In conclusion, it is important to understand that transportation risk management is a process and not just a tool. It requires both the right tools and strategies in order to be effective.