Logistics is often described as being a key component of your supply chain. But some say that if logistics is a daily part of your business processes, then you should consider them an operational risk. For those that don’t know, operations are your everyday activities that support processes. In other words, if a core process is delivering inventory to a distribution warehouse (like Amazon), then the loading, planning, maintenance of trucks and people as well as their skills are the operations. However, logistics involves delivering things and so does the maintenance of storage facilities like warehouses. So the question is, are the risks you face in logistics really just operational risks? How should we deal with them if so?
Do You Depend on Logistics?
The key to the grey area becoming a white or black area in this whole debate is, answering one further question. Do you rely on logistics? In other words, do you work in supply chains? Well, every business does to some degree, but does your business model rely on working in supply chains? Are you a downstream B2B company or upstream? These are the important things you need to think about, so you can categorize your risks in the right way.
The benefit of doing so will allow you to deal with risks properly. You won’t have resources on controls that fix risks that aren’t yours to fix, and nor will you waste time trying to improve things that your partners should be fixing. It’s crucial you understand this going forward so you can focus on the risks that are solely your responsibility.
Logistical Risks vs Operational Risks
If you’re unsure, let’s explore the types of risks in both categories so you can decide which ones are the most important to you i.e. principal risks.
- These involve geopolitical risks. Do economic ports matter to you? You want to be sure that you have access to unloading and loading ports, avoid political tensions and locations where ports might be seized by armed groups.
- Cargo shipping is a very substantial part of logistics. Millions of containers ship across the world every day. There could be anywhere between 5 million and 170 million at any given time. Do you use cargo ships to transport your goods? You want to avoid working with companies with a high loss record, use dangerous routes i.e. rough seas or pirate lanes.
- Raw material transport. If you need to transport such materials, are you aware of the hazardous material regulations in the various nations or states you are transporting to?
- Accidents on the road. If you need to transport goods to customers, then the most prominent threat is road accidents. And, of them all, truck accidents pose the biggest loss of goods threat. But, if you have trusted truck accident lawyers, you can always charge the trucking company for any losses, compensation for drivers and loss of commerce if goods are destroyed or damaged.
- People risks. Without a doubt, people are going to pose the biggest operational challenges. This involves accidents at work such as during the manufacturing process, warehouses, even the office. Not to mention, internal people risks such as insubordination, hacking, fraud, etc.
- Loss prevention. This is a big part of the field of operational risks. This could be something such as wasted time doing menial tasks, lack of cybersecurity, poor customer service, etc.
Can You Decide?
So if operational risks are more prevalent to your everyday business activities than logistics, then you shouldn’t try to merge the two. If they are a blend, however, then you should have an in-house risk function that can deal with both in a risk committee.
Line managers will report to the risk manager who chairs the committee, and this can help you to update your risk register of all the risks you face. If you do, however, have more logistical risks than operational risks, then you are more concerned about the supply chain which means you should focus on your downstream activities.
It’s a good idea to hire risk functions for both categories if you can’t decide, or at the very least, charge the risk team with the responsibility of representing differences and similarities of both, in their reports.
This debate has gone on for decades and chances are, you have probably been sucked into it. The key to managing both types of risks is to not separate them too much but not merge them either. A delicate approach is needed to understand and respond effectively.