Abstract
Logistics is an essential component in global business because the process enables firms to source raw materials, manufacture goods, and sell products to consumers all over the world. Besides, effective logistics management is a critical component in the supply chain, as it facilitates the efficient flow of goods from the point of production to consumers. Evidence reveals that logistics management is subject to multiple risks related to transportation, stock management, customer service, warehouse, and purchasing management. Literature suggests that such risks can be mitigated using information technologies, including warehouse management systems, vehicle tracking systems, and electronic resource planning systems. Overall, security systems and employees’ training can significantly reduce logistics management risks.
Risks in Logistics Management and Strategies to Minimize Them
Organizations source raw materials from one country, assemble different inputs in another, and sell the product across the world, making logistics a vital process in the global business. Logistics is the “management of the flow of goods between the point of origin and the point of consumption to meet some requirements of customers and corporations” (Li 2014, p. 1). From this definition, logistics management can be described as a component of the supply chain that involves planning, controlling, and implementing the dynamic movement of goods and services from the point of origin to consumption. Several activities are operated in logistics processes, such as material handling, packaging, warehousing, and transportation, many of which are prone to a myriad of risks. Although various risks characterize the logistic process, the most common risks in logistics management involve transportation, stock management, customer service, warehouse, and purchasing management, which can be mitigated through information technology to help restore a firm’s performance.
Risks in Logistics Management
Several risks are evident at different stages of logistics management, among the most common being transportation risks. Studies reveal that the operational process of transportation is the most vulnerable to risks, with a 6 percent probability of occurring in logistics (Tekin & Sayin, 2017). Often, transportation risks may arise from both endogenous and exogenous events. For instance, exogenous circumstances such as natural disasters can disrupt air and road conditions and prevent the carriage of goods and services from the point of origin, such as the manufacturing plant, to the end-users. Such a phenomenon was evident between 2010-2011, during flooding events in Queensland, Australia, which disrupted the supply chains by inhibiting the supply of goods to many cities in the region (Wisetjindawat, Burke, & Fujita, 2017). Hence, such a case scenario reveals that exogenous events such as natural disasters can trigger transportation risks in logistics.
Apart from exogenous occurrences, transportation risks can also emerge from endogenous events, which mainly occur within the logistics management system. Studies reveal that almost every month, severe accidents in transportation are reported in the media (Choi, Chiu & Chan, 2016). While natural disasters may partly account for these accidents, personnel undertaking the transportation activity may trigger other risks. For instance, lack of adequate rest among drivers tasked with transportation activities can increase the probability of accidents induced by fatigue. Besides, other events such as burglary in loading and during the transit of goods are also primary causes of transportation risks. If left unmanaged, the exogenous events can significantly disrupt transportation and create considerable obstacles in the movement of products and services to the point of consumption.
Besides air and road transport, studies suggest that maritime logistics is susceptible to a multitude of risks. For example, scholars observe that maritime logistics is subject to various accidents such as ship collisions, oil spills, ship sinks, not to mention risks that arise from attacks by sea pirates (Cho, Lee & Moon 2018). Unfortunately, the majority of these risks have a significant impact on global economies, as the majority of the countries, and independent companies rely on sea transport for foreign and domestic trade. For example, 95% and 25% of the United States’ international and domestic trade depends on maritime transportation (Cho et al. 2018). As such, failure to effectively assess and manage maritime logistics risks leads to considerable losses in terms of global business and losses on firms that rely on sea transportation for the exchange of their goods and services.
Furthermore, studies reveal that logistics management is susceptible to stock management risks that constitute critical obstacles to effective business performance. Inventory management entails activities involved in developing and managing inventory levels of raw materials, semi-finished materials, and finished goods to ensure that adequate supplies are available and the costs of over and under stocks are low (Afolabi, Onifade & Olumide 2017). In essence, stock management enables firms to have a sustainable volume of stock while keeping the inventory holding cost at a minimum level. However, considerable research shows that inventory management may be subject to multiple risks, among them excess inventory investment (Tekin & Sayin, 2017). Firms may hold an excess capacity of inventory, leading to an increase in the investment made to finance the holding costs. While having an excess inventory may be beneficial when the demand keeps fluctuating, it poses significant risks in logistics management by increasing the amount of money a business spends on real estate costs. In turn, the high costs of holding excess inventory in warehouses translate to poor business performance in the long run.
Stock management risks can be caused by several factors, both internal and external, in the logistics system, including incompetent staff, natural disasters, and demand fluctuations. Employees with inadequate skills in stock management may overestimate the amount of inventory required in the manufacturing of final goods, leading to excess inventory investment. Besides, natural disasters can pose a significant threat to stock management. For instance, in the event of floods, firms may encounter difficulties in managing inventory levels of raw materials that facilitate the fulfillment of adequate supplies due to challenges in accessing key inputs from suppliers. In addition, demand fluctuations can also contribute to stock management risks, especially when proper demand forecasts techniques are not adopted. For example, the failure of a firm to monitor and respond to changes in demand for goods and services can lead to the unavailability of supplies required to fulfill customer needs. The highlighted factors can expose firms to stock management risks in logistics management and translate to poor business performance.
Apart from transport and stock management risks, warehouse management risks are also considerable threats to effective logistics management that can significantly affect business performance. As observed by Elbarky and Morssi (2016), warehouses add value to the supply chain by ensuring the availability of the right goods at the right time and in the right place. Unfortunately, warehouse management is also subject to risks that can lead to the vulnerability of the supply chain.
Studies conducted among different industrial sectors reveal that warehousing risks vary from one industry to another, depending on the nature of goods and the type of warehouse in use. Nonetheless, eight case studies conducted in real-life context show that damage of goods, accidents, and fire, are the most common form of risk in warehouse management (Elbarky & Morssi 2016). For instance, it is estimated that the probability of fire, damage of goods, and accidents occurring in chemical, pharmaceutical, and petroleum industry is 4 in a risk value of 20 (Elbarky & Morssi 2016). Among the significant facilitators of risks in warehouses entail lack of proper equipment, which leads to damage of goods that require special handlings, such as glass and perishable commodities. Furthermore, improper storage of flammable material can be a risk factor in fires in a warehouse. The occurrence of the identified warehousing risks poses significant adversity in logistics management as they can lower the quality of goods supplied to consumers or limit the availability of such commodities, especially in the event of a fire or accidents that cause severe damages to the products.
Other than the three common forms of risks in warehouse management, scholars highlight the presence of other diverse risk factors in warehousing that firms should consider and take measures against to ensure adequate storage and movement of goods across the supply chain. Some of these risk factors include errors in the selection of the warehouse location (Tekin & Sayin, 2017). Arguably, locating a warehouse far from the consumers poses the risk of delay in the movement of goods to end-users, especially when the situation is coupled with transportation risks. Terkin and Sayin (2017) argue that incorrect and incomplete delivery documents pose considerable risk to effective warehousing and perfect transportation. For example, failure of the warehouse personnel to keep complete records of raw materials required in production can trigger incurrence of high transportation costs, as a firm may be forced to place several orders for the same commodity. Hence, improper warehouse location and management of documents are potential risk factors that can significantly affect the movement of goods and services from the point of origin to the point of consumption.
Another category of risks in logistics management entails customer service management risks. Scholars describe customer relationship management as the practice of trying to define the real need of the customer to enhance customer satisfaction and loyalty (Ibrahim & Hamid 2012). The inability of firms to manage consumer needs properly exposes their operations to logistics management risks. Therefore, firms may lack the accurate information required to ensure the timely movement of the right quantity and quality of goods and services across the supply chain.
Customer service management risks may arise from several factors, such as poor transfer of information across an organization. Tekin and Sayin (2017) observe that incomplete or lack of timely transfer of data between departments can negatively affect customer service management. For example, the failure of departments to share accurate information about customer demand can jeopardize the efficient transportation of finished goods to consumers, forcing firms to spend heavily on the activity. Besides, lack of timely dissemination of information across departments can cause a delay in product dispatch, leading to ineffective management of the flow of goods to the point of consumption when the need arises. From this information, it is evident that if an enterprise fails to maintain and share accurate consumer information between departments, the process can create significant obstacles in logistics and the overall business performance.
Furthermore, substantial evidence shows that the failure of a venture to conduct market research can pose a considerable risk to customer service management. As argued by Tekin and Sayin (2017), risks in customer service management can occur when survey studies are not conducted or when they are conducted erroneously. Notably, if a firm fails to conduct accurate surveys about consumer demand for a given product, it may be difficult to assess, plan, and manage the volume of goods that need to be transported to the consumption point. Besides, inaccurate surveys can also drive organizations to hold an excess capacity of inventory, leading to an increase in its costs of storage. Therefore, a market survey is a critical factor in customer service management, which, if overlooked, can primarily affect logistics management in an entity.
Purchasing management risks also rank among the most common threats in logistics management. This category of risks mainly occurs when goods have been transported from the manufacturing point and warehouses and are ready for distribution among consumers. According to Tekin and Sayin (2017), some of the risks that may arise in the purchasing activities include an excessive return of purchased products if they fail to conform to customers’ expectations or comply with the culture of the region. Excessive return of faulty goods has a tremendous effect on a company’s logistics management, as it not only increases the holding costs of the returned goods but also escalates a firm’s expenditure on transporting the products back and forth from the consumers to the assembly point for repair. Besides, firms may sometimes experience challenges when managing the flow of the returned goods from the point of repair to the consumers in instances, during which proper records are not maintained.
Ways to Mitigate the Logistics Management Risks
Based on an assessment of the identified risks, it is evident that the majority of such threats arise from human and natural factors. For instance, a significant fraction of stock management risks may result from human factors, such as failure of staff to forecast and monitor demand fluctuations accurately, leading to inefficient management of the flow of goods to the consumption point. Furthermore, natural disasters also account for almost all the risks that occur in logistics processes such as transportation and storage. For these reasons, the best strategies to mitigate logistics management risks are those that focus on eliminating or minimizing human and natural-related factors that create inefficiency in the planning, controlling, and implementation of operational movement of goods and services from the assembly point to consumers.
One of the primary ways of mitigating risks that arise in logistics management is through the adoption of information technologies such as warehouse management systems (WMS). Scholars describe WMS as a “database-driven computer application used to improve the efficiency of the warehouse by directing cutaways and maintaining accurate inventory by recording warehouse transactions” (Ramaa, Subramanya & Rangaswamy 2012, p. 14). This form of information technology is especially useful in mitigating warehouse management risks. Notably, through a WMS, a venture can adequately control the movement of goods in and out of the warehouse based on real-time data based on consumer demand. The use of WMS can also help firms reduce any excess inventory level, improve stock planning, and ensure accuracy in the inventories dispatched to consumers, as the database is automatically recorded in the system. The multiple functionalities provided by the WMS makes it an ideal instrument for mitigating logistics management risks in the area of warehouse management.
Additionally, vehicle-tracking systems can also be incorporated into a firm’s operations to help mitigate logistics management risks. Notably, the majority of the logistics risks are related to delays in the movement of goods and services. Often, inconveniences in the transportation of goods happen when either the firm or the consumer lacks accurate information about the status of the dispatched commodity. With a vehicle tracking system in place, firms can easily indulge in real-time monitoring and interaction with fleet vehicles to facilitate rapid response to customer needs (Vivaldini, Pires & Souza 2012). Besides, through the system, the management can adequately improve vehicle route planning by evaluating areas that are prone to traffic delays and identifying alternative routes that facilitate an increase in delivery speed. The ability of a vehicle tracking system to provide real-time information about the status of the dispatched goods makes it an ideal strategy for minimizing logistics management risks.
Furthermore, an electronic resource planning (ERP) system would also be an ideal instrument to help minimize risks that occur in the management of logistics. While no universally accepted definition of ERP is available, some scholars define it as an integrated enterprise computing system designed to automate the flow of goods, information, and financial resources among functions within an organization (Folinas & Daniel 2012). An ERP can help mitigate risks that arise in the planning and management of the flow of goods by ensuring that essential data is disseminated to the respective stakeholders. For instance, using an integrated ERP system, warehouse personnel, manufacturers, and distributors can have access to critical information required to make informed decisions about consumer demand. With the accessibility to the data, stakeholders can collaborate to improve the agility of the firm to respond to consumer needs.
Other than the adoption of information technologies, other essential strategies are available that ventures can implement at the various logistics processes to mitigate risks, such as establishing safety measures. As noted from multiple studies, some of the risks that occur in logistics arise from multiple activities undertaken in different processes of this vital component of the supply chain. For instance, damages, such as breakage, may occur during the handling of goods in the warehouses. Hence, firms can mitigate some of these damages by ensuring that proper equipment is purchased to facilitate the handling of products.
Apart from material handling equipment, entities can invest in the installation of proper security systems to mitigate thefts and internal disasters such as a fire. As research reveals, between 2009 and 2012, 588 cases of fires were reported in commercial warehouses, which led to a direct financial loss of around £230.2 million per year to businesses (“The financial and economic impact” 2014). Unfortunately, it is almost impossible for firms to predict the probability of fires occurring in the warehouses. However, entities have an opportunity to minimize the impact of the risk by installing security measures such as automatic fire sprinklers. In addition, logistics risks such as theft in warehouses can be combatted through the installation of technologies such as CCTVs and security alerts to help detect external attacks. While the suggested strategies are preventive measures, they can help minimize disruption of the flow of goods to consumers.
Furthermore, some of the risks that occur in logistics management can be mitigated through proper training of staff. Notably, some of the delays that arise in planning, controlling, and management of the flow of goods are caused by incompetence among employees, whereby some lack proper skills to adequately analyze and interpret data useful in the satisfaction of consumer needs. Firms can prevent such delays by investing in employee training to ensure that the workers are well-equipped to undertake logistics-related activities. Besides, it would be essential to train subordinates on the use of the suggested information technologies to enhance their ability to plan, control, and manage the flow of goods.
Besides, information technologies can also be instituted in maritime logistics to mitigate risks involved in sea transportation. As proposed by Cho et al. (2018), the Vessel Traffic System (VTS), Container Terminal Management System (CMS), and Automatic Identification System (AIS) can play a significant role in decreasing risks in the maritime industry. Notably, through the identified systems, logistics personnel can adequately control vessel movement to avoid collisions and monitor vessels through AIS to prevent attacks from pirates.
Conclusion
As is evident from the discussion, logistics management is a critical component of the supply chain, yet an element that is highly susceptible to multiple risks. Some of the significant risks that face logistics management include warehouse management, transportation, purchasing management, stock management, and customer service management risks. Based on the importance of logistics management in the supply chain, it is critical to ensure that the identified risks are mitigated to foster the efficient flow of goods and services to end-users. One of the primary ways to reduce the risks includes the adoption of information technologies, such as WMS, ERP, and vehicle tracking systems, to ensure that information is adequately disseminated across various functions. At the same time, customers’ needs should be met with agility. Furthermore, risks that occur within multiple processes of logistics can also be mitigated through the installation of security systems, training of employees, and the use of proper product handling equipment.
Reference List
Afolabi, OJ, Onifade, MK & Olumide, OF 2017, ‘Evaluation of the role of inventory management in logistics chain of an organization’, Scientific Journal on Transport and Logistics, vol. 8, no, 2, p. 1-11.
Cho, H.S, Lee, J.S., & Moon, H.C. 2018, ‘Maritime risk in seaport operation: A cross-country empirical analysis with theoretical foundations’, The Asian Journal of Shipping and Logistics, vol. 34, no. 3, pp. 240-247.
Choi, T, Chiu, C & Chan, H 2016, ‘Risk management of logistics systems’, Transportation Research Part E: Logistics and Transportation Review, vol, 90, no. 2016, pp.1-6.
Elbarky, S & Morssi, M 2016, ‘Warehousing risk management in different industrial sectors: 6th international conference on information systems, logistics and supply chain’, ILS, 2016 [online]. Available from <http://ils2016conference.com/wp-content/uploads/2015/03/ILS2016_SB04_3.pdf>. [9 May 2020].
Folinas, D & Daniel, E 2012, ‘Estimating the impact of ERP systems on logistics system’, International Journal of Enterprise Information Systems, vol. 8, no. 3, pp.1-14.
Ibrahim, SB & Hamid, AA 2012, ‘Supply chain management practices and supply chain performance effectiveness’, International Journal of Science and Research, vol. 3, no. 8, pp. 87-195.
Li, X 2014, ‘Operations management of logistics and supply chain: issues and directions’, Discrete Dynamics in Nature and Society, vol. 2014, no. 701938, pp.1-8.
Ramaa, A, Subramanya, KN & Rangaswamy, TM 2012, ‘Impact of warehouse management system in a supply chain’, International Journal of Computer Applications, vol. 54, no. 1, pp. 14-20.
Tekin, M & Sayin, A A 2017, ‘Risk management in logistics: sampling of risk components’, Conference Paper [online]. Available from: <https://www.researchgate.net/publication/321275275_RISK_MANAGEMENT_IN_LOGISTICS_SAMPLING_OF_RISK_COMPONENTS>. [9 May 2020].
The financial and economic impact of warehouse fires (2014). Business Sprinkler Alliance [online]. Available from: <https://www.business-sprinkler-alliance.org/wp-content/uploads/2014/01/Cebr-Report.pdf>. [9 May 2020].
Vivaldini, M, Pires, SRI & Souza, F.B 2012, ‘Improving logistics services through the technology used in fleet management’, Journal of Information Systems and Technology Management, vol. 9, no. 3, pp.541-562.
Wisetjindawat, W, Burke, MI & Fujita, M 2017, ‘Analyzing impacts of natural disasters on logistics activities: Flood risks and petroleum fuels in Queensland, Australia’, Transport Research Procedia, vol. 25, pp. 1198-1212.
Order an Essay Now & Get These Features For Free:
Turnitin Report
Formatting
Title Page
Citation
Outline
