International Logistics

Posted: January 5th, 2023

International Logistics

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International Logistics

As companies expand their operational area, so does the level of risk escalate. Risk management in business includes identifying, assessing, and controlling threats to an organization’s capital and earnings. The risk management process follows a series of steps for the various risks early in advance and improvising the precautionary measures in curbing the dangers involved (Kwak et al. 2018). For international logistics companies such as China Logistics Company limited, the threats arise from vast external business operations in addition to domestic threats hence the complexity of the risk management process. Since the sources for the risks are extensive, various barriers in the international logistics risk management call for strategic management to curb the threats, as illustrated by China logistics limited company design.

Risk Management Process

The risk management process follows a specific procedure to form a framework for the various actions that need to be taken to mitigate the risks. These steps include identifying the chance that a business is exposed to within a business environment, analyzing the risk, evaluating, treating the risk, and monitoring and reviewing the risk (Kwak et al. 2018). At first, the various risks that threaten the business are identified and posted in the risk management solution system to which every stakeholder can access. The identified risks are analyzed, and their scope is determined concerning the link between risks and different factors within the organization (Kwak et al. 2018). This second step is crucial as it identifies the severity of the risk if affected and the various parts of the business that are affected since some risks can lead to the halting of the whole business. Since the chances are mapped to the company’s different policies and procedures, it forms an accessible mode of evaluating the risks and identifying each identified risk’s effects.

After the evaluation of the risks, the risks are ranked according to their severity. The dangers that cause more minor inconveniences are rated lowly, while those likely to ignite catastrophic risks are ranked the highest. The ranking enables the organization to formulate an overview of the business’s risk exposure where the low-level chances are less prioritized than the highest-rated risks, which inflict a devastating effect, hence commanding immediate attention (Kwak et al. 2018). The fourth process of risk management process entails the treatment of the risks according to their severity. This success of this process results from connecting the experts to the specific area in which the risk belongs. Manually, the various stakeholders are called upon to discuss the different concerns (Kwak et al. 2018). Through notification to the multiple stakeholders, they are granted the opportunity to suggest the solutions to such a threat as the top management of the institution monitors the recommendations being presented. The updates on the risk management process are usually available from within the risk management solution rather than contacting each other on the progress.

Since it is impossible to eliminate all the risks, some risks are always present within the business, such as market and environmental risks hence call for continuous monitoring and review. For the manual environment, this occurs through acquiring diligent employees to do the monitoring and assessment. Digital risk management entails the risk management system monitoring the company’s entire risk framework (Kwak et al. 2018). The various risk factor changes are evident to all individuals within the organization by logging in to the system. Computerized systems have, however, been proven to be effective in monitoring risks than people. Therefore, through the monitoring of risks, the business is guaranteed continuity as the various risks are mitigated early.

Figure 1.1 Risk management process. Adopted from world health organization (2020)

Risks in International Logistics Networks

Types of Risks

As the company strives to achieve its business operations’ success, it is likely to experience various types of risks, namely, business risk, non-business risk, and financial risks. Business risks are those activities that a firm ventures in a bid to increase its shareholders and profits (Hosseini and Ivanov 2020). This is illustrated in the business, risking specific capital in launching a new product or new service delivery system in the market, hoping to increase their incomes. The non-business classified risks those risks that are not under the control of the firm. These risks arise from various external environments such as political and economic imbalances, classified as non-business risks.

Financial risks are generally those risks that translate to financial loss to the firm. These types of risks result from instability and losses in the financial market, which is inflicted through the movement in stock prices, currencies, and interest rates. The financial risks can also be caused by the organization’s various internal factors (Hosseini and Ivanov 2020). The various financial risks are also classified into market risk, credit risk, liquidity risks, legal as well as operational risks. Market risks are those risks that occur following movement in prices of financial instruments. There are directional risks due to the direction in stock price, while non-directional risks are associated with volatility risks. Credit risk occurs as a result of defaulting in fulfillment of the obligations towards one’s counterparties.

Sources of Risks

The various risks within the business are attributed to multiple sources, external or internal. Political and government changes have always significantly impacted business operations both in domestic operations and in international operations. For instance, Brexit exposes various logistic organizations to adverse effects due to volatility and the British pounds weakening (Govindan and Bouzon 2018). The changing political affiliations and governing parties in the different countries further exert much threat.

Govindan and Bouzon (2018) attest that economic instability threatens the global trade, as illustrated in South Korea’s Hanjin shipping company, which had undergone bankruptcy, leading to reduced global supply chain shipping capacity. Extreme weather patterns present a threat in the international shipping companies which are involved in ocean freight. Depending on the route followed, tropical storms exert significant threats to the freight shipping logistics, which is further escalated by the global climate, which has led to the melting of ice. Shipper, therefore, reevaluate the oceanic route before deciding the increment of shipping operations. This thus allows the flexibility to scale back operations in extreme periods.

The environmental factors also increase the various risks to shipping logistics. The ecological responsibility and sustainable practices often inflict different social burdens and the various constant laws being enacted to control the freight carriers. Catastrophes include the various artificial and natural disasters that are less categorized in a weather-related category, such as earthquake and famine (Govindan and Bouzon 2018). Earthquake, for instance, is a significant threat to the ships across the ocean, like in the Mariana trench categorized with extreme earthquake frequencies. Cyber attacks are also a significant threat to modern logistics and supply chain management using the online management system. The various malicious indenting individuals are highly likely to sabotage supply chain management, forcing freight rates to skyrocket. Online terrorism is increasing at a relatively higher rate hence threatening the success of the business.

Barriers in International Logistics Risk Management

As the business strives to manage the various threats and risks in logistics operations, multiple barriers come along the way, such as the non-alignment of performance measures to rewards. Performance measures have been disintegrated with the supply chain but fail to align with the right amount of incentives. Hence, the misaligned incentives translate to the induced suboptimal decisions in a single firm even when the various firms are aware of. This can be illustrated in situations where buyers place large order sizes to gain economic incentives while the warehouse managers strive to reduce inventory holding costs (Ghadge et al. 2020).  Since performance metric constitutes the basis of the integrated work management, lack of the appropriate performance metrics translate to conflicts to the various shipping logistics partners since the collaborated partners are more focused on improving the performance metrics as opposed to the progress of the whole supply and logistics operations.

Some individual partners are unwilling to share with the rest of their risk-related information hence deterring the supply chain risks management. The inability to share information on the risks leads to a negative effect on the cooperation as the collaborators no longer trust themselves (Ghadge et al. 2020). This is attributed to the fact the risk and reward sharing are vital for long-term operations. However, some individuals within the cooperation fear sharing the information related to the various risks due to the perception that they will get penalized for leaking the information.

The inflexible organization systems and processes translate to the delay in responding to the disruptions, some of which could consider a considerable risk to the company. The disturbances at any link within the logistics propagate to the supply chain hence calling for immediate action (Islam et al. 2020). The inflexible operations consequently lead to delay in instituting the mitigation measures. Although the various business modeling process can improve the situations, multiple individuals within the organization have diverse opinions on the business process, hence a challenge in achieving the company’s success in logistics operations.

The non-alignment of the strategies with the operations further represents a barrier to managing the risks in the international logistics networks. The various supply chain management process is concerned with integrating and coordinating the suppliers with the customers (Islam et al. 2020). The inter-firm rivalry acts as a barrier in integrating firms with external firms in logistics operations. The decreased level of cooperation and strategic planning among the various partners within the logistics illustrates the obstacles to managing the international logistics network’s risks.

Strategies for Management of Risks

Since organizations face various risks, they have devised different strategies to mitigate the challenges that come with it. The individual risk analysis approach is a strategy that has been designed to minimize the operational level risks (Kwak et al. 2018). Therefore, this approach stresses the identification and measurement of the individual riks, hence translating to the generation of the direct solutions rather than overarching the corporate strategies. This approach focuses on providing a list of the tactics that are not possible to implement at the same periods (Baştuğ and Yercan 2021). The systematic risk analysis approach, on the other hand, focuses on sourcing the cause of the risks, the type of loss inflicted as well as a root cause which may translate to risk management at the strategic levels. The supply chain management theory approach is improvised to mitigate the risks at the strategic levels.

China Logistics Company Limited Global Logistics Design

China Logistics Company limited is one of the companies involved with the various logistics operations in the society. The organization has developed different logistic designs to mitigate the multiple risks to increase their incomes and functions (Jahre 2017). Due to the increased globalization, the company has instituted digitization techniques where it is able to track down the various operations within the logistics (Wan et al. 2018).  The digitization of the different processes helps counter the various financial threats and easing the communication of the multiple threats in the risk management to the various stakeholders—the digitization of the active threats aids in monitoring the multiple risks and monitoring the logistics operations.

China Logistics Company has also improvised operational buffers along the supply chain, such as backup sourcing, productive capacity, and multiple sourcing. Subramanian and Abdulrahman (2017) attest that the company has also confronted the risk by introducing contingency plans that are activated upon the occurrence of adverse events. For instance, the methods and actions that provide the alternative modes of operations for the activities interrupted might attract a devastating effect.

In conclusion, as the business operations increase within the different companies, so does the risk occur, especially those involving international operations. The threats management process follows a series of steps to mitigate the risks; risk identification, analyzing of the risks, evaluation, treatment of the risks, as well as the monitoring and regular reviews. International logistic operations are faced with various risks such as financial risks, business risks, and non-business risks. These risks are attributed to multiple sources such as environmental factors, cyber-attacks, economic instability, and political interference. Unwillingness to share information on risks leads to a lack of trust, forming the barriers to logistics risk management. In addition, non-alignment of performance measures to rewards, inflexible organization system, and processes and non-alignment of strategies with operations represent the risks in the international logistics risk management. The various logistics have improvised multiple approaches in managing risks, such as individual risk analysis approach and systematic analysis risk approach. China Logistics Company limited has devised digitization to counter the various threats it faces in the logistic operations.

References

Baştuğ, S., & Yercan, F. (2021). An explanatory approach to assess resilience: An evaluation of competitive priorities for logistics organizations. Transport Policy, 103, 156-166.

Ghadge, A., Wurtmann, H., & Seuring, S. (2020). Managing climate change risks in global supply chains: a review and research agenda. International Journal of Production Research, 58(1), 44-64.

Govindan, K., & Bouzon, M. (2018). From a literature review to a multi-perspective framework for reverse logistics barriers and drivers. Journal of Cleaner Production, 187, 318-337.

Hosseini, S., & Ivanov, D. (2020). Bayesian networks for supply chain risk, resilience and ripple effect analysis: A literature review. Expert systems with applications, 161, 113649.

Islam, M. S., Moeinzadeh, S., Tseng, M. L., & Tan, K. (2020). A literature review on environmental concerns in logistics: trends and future challenges. International Journal of Logistics Research and Applications, 1-26.

Jahre, M. (2017). Humanitarian supply chain strategies–a review of how actors mitigate supply chain risks. Journal of Humanitarian Logistics and Supply Chain Management.

Kwak, D. W., Rodrigues, V. S., Mason, R., Pettit, S., & Beresford, A. (2018). Risk interaction identification in international supply chain logistics. International Journal of Operations & Production Management.

Kwak, D. W., Seo, Y. J., & Mason, R. (2018). Investigating the relationship between supply chain innovation, risk management capabilities, and competitive advantage in global supply chains. International Journal of Operations & Production Management.

Subramanian, N., & Abdulrahman, M. D. (2017). Logistics and cloud computing service providers’ cooperation: a resilience perspective. Production Planning & Control, 28(11-12), 919-928.

Wan, C., Yang, Z., Zhang, D., Yan, X., & Fan, S. (2018). Resilience in transportation systems: a systematic review and future directions. Transport Reviews, 38(4), 479-498.

World Health Organization. (2020). Risk assessment.