How robust is your supply chain? - Part 3: Risk mitigation

#industryinsights  #mitigaterisk  #freightprocurement  #freightanalytics 



There are a number of ways to do this when creating a freight tender. I’ve chosen to break down the most important ones into three main categories: 
1.    Proactive – Avoid failure
2.    Reactive – Minimize direct consequence after failure
3.    Compensatory – Govern risk sharing

Evaluate average delivery precision by lane
-    To be used in conjunction with estimated consequence (cost) to predict a total cost of: (direct shipping cost) + (estimated failure cost).
-    Use your collected historical data as baseline comparison. 
Evaluate carrier solidity & potential influence of external- and market factors
-    Especially important if you’re working with smaller local carriers. 
Sign back-up carriers for sensitive lanes
-    Similarly, if applicable, employ carriers of different alliances in order to spread your risks. 

Which supportive activities are in place?
-    How many tracking points? Easy to follow?
-    Personal service / active failure prevention?
Contingency plans
-    Is there a procedure in place for immediate correction of delivery failures?
-    How fast can an alternative solution be put in place?

Agreement structure
Bonus/malus structure
-    Implement a functionality in your agreement that makes sure that damages incurred by failures on the carriers’ part are fairly compensated. 
Conversely, a bonus could be implemented for when the carrier over achieves over time. 
-    Importantly, to account for freak accidents etc. it’s often wise to base bonus/malus on performance over an extended period of time. 

So, having evaluated your bids for lowest total transport cost and lead time, are you still sure your freight tender has led you to what is actually the most cost effective option?