Risk management, the dumbest link in the supply chain?

Have you ever thought about what will happen if the toll costs on European roads are drastically increased within the next three years? The states are broke and the growing environmental awareness would politically legitimize toll increases for trucks. In addition, the current toll does not even pay for the purely mechanical damage that trucks cause on our roads. Let’s face reality: we are socializing part of the transport costs in our society, charging them to the general public and not to those who cause them!

Today, transporting a container from Hamburg to Munich already costs about as much as the entire transport from China to Hamburg. Imagine if freight costs from Hamburg to Munich tripled: some transportation from China to Munich – or at least from Hamburg to Munich – would no longer pay off. And some transportation from Bulgaria, Romania or Russia to Germany by truck would no longer be profitable compared to sourcing from China.

These are serious risks that would not only affect freight forwarders, but all our companies. We might have to look for local suppliers again or even bring production closer to the consumer.

Compared to other risks in the supply chain, the only advantage of these serious changes, should they occur, would be that they take a certain amount of time and you could therefore react when they start and not have to proactively prepare for the situation.

Companies that were “paying attention” were able to recognize the longer transport times from China to Germany at the beginning of the economic crisis in 2009 (because the freighters were sailing more slowly to save expensive heavy oil and maintenance costs) just in time, but had to react immediately; most of them only noticed too late and experienced production and delivery difficulties.

Unfortunately, we are unable to react in good time to many risks in the supply chain, such as delivery difficulties on the part of a supplier or the failure of an important and irreplaceable production facility, once they have occurred. We have to prepare for these events in advance, prepare alternative courses of action, build up security or arm ourselves against them in terms of insurance.

We should all be paying close attention to the risks in our supply chains, yet we often pay too little attention to the risks that threaten our supply chains. In my experience, far too little attention is paid to this, especially in medium-sized companies, but not only there.
A study conducted by WHU Koblenz in 2012 [1] found that only 6% of industrial and retail companies calculate and use key figures to assess supply chain risk. None of the top 25 supply chain KPIs attempt to assess supply chain risks. This leads to the cautious assumption that the potential risks are also not regularly monitored.

Every chain and every network is as weak as its thinnest (dumbest) link – this also applies to the supply chain, which is actually a supply, production and distribution network. Supply chain risk management should not be the dumbest link in the supply chain!

[1] Jürgen Weber, Carl Marcus Wallenburg, Andreas Bühler, Maurizio Singh: Logistik-Controlling mit Kennzahlensystemen, Koblenz 2012.

Picture of Prof. Dr. Andreas Kemmner

Prof. Dr. Andreas Kemmner

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