Posted: March 24th, 2023

How to Identify and Categorize Risks in Warehousing and Logistics

Risk Identification

It is critical to consider risks in warehousing and logistics. Identifying and categorizing risks in a rented warehouse is significant when managing the flow of goods. According to Falkner and Hiebl (2015), companies that manage warehouse face market, technology, and finance-oriented risks. Identifying such risks and how they occur is important for decision-making. Such decisions reveal the mitigation models to adopt during planning. Ho, Zheng, Yildiz, and Talluri (2015) indicate that risks occur in micro or macro levels of business. Micro risks can be categorized further into infrastructure, manufacturing, demand, and supply risks. As a player in the logistics sector, I would identify risks by analyzing the macro and micro features of the business and location. Understanding the governance systems, regulatory and legal expectations would assist in identifying industry risks and the competitors’ positioning, and hence develop an effective plan.

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Risk Analysis

Every business sector faces various categories of risks. The logistics sector attracts several risks unique to the specific segment and across the global continuum. Ho et al. (2015) illustrate that competitors in the supply chain sector are affected by macro and microeconomic risks. For instance, macro risks, such as unfavorable weather conditions, earthquakes, and other disasters, are important considerations for strategy development. Different categories of macro risks are orchestrated by human beings, such as war, political instability, and terrorism (Ho et al., 2015). Outdoor Fun should anticipate macro risks to manage and mitigate underlying threats. Locations with recurrent political instability and dictatorial government are more susceptible to political risks and the likelihood of terror activities. The risks in such setups occur when citizens are disenfranchised and democratic space is limited. Therefore, a business should conduct situational analysis to ascertain vulnerability in such locations before making critical decisions.

Micro risks originate from business activities within the supply chain. Manufacturing challenges, such as the inability to produce quality products, affect enterprises, and reduce customer satisfaction. Furthermore, supply and demand risks are occasioned by up and downstream partnerships, which affect the supply chain by creating shortages in product delivery systems. Other micro risks in logistics include technological turbulence based on the nature of the digital platform (Ho et al., 2015). Such activities affect the logistics sector significantly and often lead to substantial losses.

Failure mode and effects analysis (FMEA) is a quantitative approach that recognizes and evaluates the process failures of products (Ignáczová, 2016). The model establishes systems that identify product errors. FMEA is utilized in warehousing by analyzing storage inaccuracies and how they affect product performance. The process also ranks the effects identified based on severity level to support decision-making. Therefore, the model focuses on safe and suitable methods that guarantee quality and stability in delivery logistics (Ignáczová, 2016). I select the FMEA model for Outdoor Fun Company because the business utilizes e-commerce models and requires an operational product delivery process. Hence, analyzing the process, possible failures, and their effects will enable the business to adopt sustainable delivery systems for various online products purchased by customers.

Risk Mitigation Strategy

Risk mitigation is an important factor when managing business challenges. Adopting mitigation approaches can support businesses in managing operational turbulence to achieve stability. According to Abbasi, Wang, and Abbasi (2017), networking can achieve risk mitigation. Risks, such as technological turbulence, operational threats, and financial limitations, are manageable through collaboration with various stakeholders. Accordingly, Abbasi et al. (2017) confirm that assets securitization is an approach in risk management that allows a business to transfer liquidity, credit, and interest rate risks to other players in the market. Stergiopoulos, Kotzanikolaou, Theocharidou, and Gritzalis (2015) aver that interdependent infrastructures create failures in business. I intend to develop strategies like networking with various delivery and logistics providers. I will also adopt technology, including the use of drones, to manage city congestions. Mitigating such risks can enhance business operations, leading to growth.

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Risk Control

Renting a warehouse comes with various risks to a business. Businesses tenancy agreements are defined within the specified timeline before renewals. Such conditions may not favor a business, especially during off-peak business seasons or during turbulent economic times. Given that warehousing support product flows into the market, competition is influenced by efficiency and reliability. Controlling risks related to efficacy and dependability can be managed through technology, such as automation in warehousing (Davarzani and Norrman 2015). According to Davarzani and Norrman (2015), implementing models, such as warehouse management systems (WMS), voice sorting or picking, and radio frequency identification devices, can create efficiency in warehouse logistics. The authors maintain that warehouses links departments, including production and deliveries. To ensure continuous risk management processes, I would develop controls, such as storage and shipment policies, implemented at all levels of operations. The approach would provide a framework to manage long-term operational difficulties and limit susceptibility to risk. Bychkov et al. (2017) posit that digital strategies, such as automation and simulation, create value, enhance time management, and improve efficiency in operations. Therefore, risk controls in a warehouse can be achieved through digitizing operations. 

Conclusion

Warehouses play an important role in logistics. Operating rented warehouses near customers have various threats, including technology, financial, and market risks. However, managing such risk promotes business growth. It is imperative for businesses to analyze risk exposure and develop mitigation approaches to accept, defer, or cover risks. Additionally, analyzing business risks within an entity prepares a firm to overcome the challenge. Although macro-economic risks, such as natural disaster, are difficult to project, areas with such susceptibility are easy to identify and hence, develop mitigation strategies.

Recommendations

As an enterprise that seeks to operate on the virtual platform, Outdoor Fun should develop strategies to mitigate risks by employing digital approaches such as warehouse automation within its operations. Investing in picking, voice sorting, and radio frequency identification devices will improve warehouse efficiency and enhance customer deliveries. Furthermore, to manage challenges in a rented warehouse, the company should adopt long-term contracting and initiate negotiations of payment based on the strength of a business.

 

References

Abbasi, W. A., Wang, Z., & Abbasi, D. A. (2017). Supply chain finance: Generation and growth of new financing approach. Journal of Finance, 5(2), 50-57.

Bychkov, I., Oparin, G., Tchernykh, A., Feoktistov, A., Bogdanova, V., Dyadkin, Y., …  Basharina, O. (2017). Simulation modeling in heterogeneous distributed computing environments to support decisions making in warehouse logistics. Procedia Engineering, 201, 524-533. doi:10.1016/j.proeng.2017.09.647

Davarzani, H., & Norrman, A. (2015). Toward a relevant agenda for warehousing research: literature review and practitioners’ input. Logistics Research, 8(1), 1-18. doi:10.1007/s12159-014-0120-1

Falkner, E. M., & Hiebl, M. R. (2015). Risk management in SMEs: a systematic review of available evidence. The Journal of Risk Finance, 16(2), 122-144.

Ho, W., Zheng, T., Yildiz, H., & Talluri, S. (2015). Supply chain risk management: A literature review. International Journal of Production Research, 53(16), 5031-5069.

Ignáczová, K. (2016). FMEA (failure mode and effects analysis) and proposal of risk minimizing in storage processes for automotive client. Acta Logistica, 3(1), 15-18.

Stergiopoulos, G., Kotzanikolaou, P., Theocharidou, M., & Gritzalis, D. (2015). Risk mitigation strategies for critical infrastructures based on graph centrality analysis. International Journal of Critical Infrastructure Protection, 10, 34-44. doi:10.1016/j.ijcip.2015.05.003

 

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