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In a previous blog post, we discussed the importance of being aware of the possible risks and alternative costs associated with delivery failures in order to arrive at the true total cost of any bid you have received during your freight tender.
But how would you do this in practice?
As we concluded in the last blog post, risk equals probability * consequence.
So, the first thing we need to do is to define our specific probability and consequence.
First of all – the foundation for your tender is created continuously. I order to evaluate risk, you need to know your current performance. Surprisingly often, shipper and carrier are equally unknowing of the delivery performance over the last year. So, be sure to implement a continuous follow-up plan for evaluating delivery performance.
This will not only allow you to take the bull by the horns and correct any imperfections when they start creeping up on you, but it will also serve as a basis for evaluation when it’s time to set up your next freight tender.
Secondly – you need to know what your potential consequences are – i.e. what are the costs associated with a missed delivery?
- Will your plant shut down?
- Will your customers be disappointed / spread a bad word about you?
- What will it cost you over time?
Once you have your probabilities and consequences down, it’s time to create a structure to mitigate the risk. And since the consequences are most often fixed, you will have to focus on minimizing the probability of your high consequence scenarios.
For further reading on how to do this, don’t miss the third and final part of this blog series.