More than 90% of the logistics service providers and transport companies claim to be aware of their principal operational and strategic risks. However, only 61 percent have a Plan B in place in case of a major breakdown in their operations. Just under 50% of the companies express the business implications in monetary terms. The Transport and Logistics sector is on the right track; now they need to take the next step toward adopting a more mature approach to risk management. Companies should systematically map out risks that might affect their business objectives and formalise their control measures. This is the principal conclusion in the report entitled ‘Risicomanagement 2.0: uw nieuwe keurmerk in de kwaliteitsketen’ published earlier today by ABN AMRO in partnership with TLN, FENEX, Aon Risk Solutions and TVM verzekeringen.
Continuity in the supply chain: an often overlooked condition
In times of rapid change, risk management becomes correspondingly more important for setting up efficient supply chains, where it adds value to the both the quality and the continuity of logistics processes. Ongoing globalisation and a dependence on IT mean increasing complexity and vulnerability of the logistics supply chain. Transparency is also diminishing as logistics are outsourced and operators form partnerships. The result is an increased likelihood of breakdowns in the operations. Nevertheless, three quarters of the companies admit to not having sufficient safeguards in place; as a consequence they see continuity of the supply chain as one of the greatest challenges.
Risk management offers new opportunities
Organisations with a mature risk culture explicitly describe, share, discuss and quantify their risks. However, the survey reveals that only 11 percent of the companies have a mature risk management system. Companies that control their risks effectively and structurally have fewer unexpected costs, suffer less downtime from incidents, improve their competitiveness and are better able to make carefully considered decisions.
Their customers are also guaranteed a reliable supply chain. And besides protecting against financial and other setbacks, risk management also puts businesses in a better position to seize opportunities that present themselves. As such, ABN AMRO believes that a structured approach to risk management offers added value.
Risk management requires custom solutions
The survey reveals that 58 percent of the businesses are heading in the right direction. Yet there is still room for improvement: ‘Although these companies have formalised their risk management processes, they have yet to embed and systematically apply them throughout their organisations. They are struggling to make risk management part of the DNA of their workforce. Particularly in this day and age, where margins are under pressure and cost-cutting has become a strategic objective, risk management can be a tool that supports the decision-making process,’ explains Bart Banning, Sector Banker, Transport and Logistics at ABN AMRO. Every business requires its own customised risk management solution: the optimum set-up depends on the company’s scale and complexity and the scope of its logistics services.
By controlling the consequences of risks, risk management adds value to the company. It helps improve continuity and optimise operations. Operational breakdowns can be much more costly than preventive measures. "A logistics service provider or transport company that prepares for risks can not only limit its losses and damage and better weigh and seize opportunities, it also reinforces its reputation as a reliable logistics partner."