Logistics is an inherently risky business. The market is constantly changing, and business is affected by everything from natural disasters to shifting consumer demand. Choosing the right supply chain providers becomes an important part of mitigating and navigating these risks in an industry this volatile.
While the dynamics of supply chain risk are constant, the landscape of risk specific to logistics and transportation is changing.Technology has affected the way everyone does business, offering companies new ways to manage risk. Still, the introduction of higher-tech solutions and other innovations does not eliminate the need for solid relationships. If anything, it emphasizes the need even more.
“Technology is involved in everything. You still need to have a plan in place to address risk, and you still need people equipped to execute the plan,” said JD Lewis, BlueGrace Logistics Director of Supply Chain Solutions. “Having a clear, risk-sharing plan in place with providers benefits both companies and allows you to execute quickly when necessary.”
The key to strong relationships can be augmented by finding companies willing to share in the inherent risks that come with moving inbound and outbound freight. Relationships and good risk management strategy do not exist to absolve one party of responsibility, shifting blame onto the other. Risk “sharing” is the basis of a new era in risk management.
“It is a relationship for a reason. The ones that don’t work are the one-sided relationships. Both parties have to take on risk. It’s not fair for one party to hold all the risk and essentially act as an insurance company for the other,” Lewis said. “Both companies should have a fair share of risk and be openly communicating business and market changes with each other.”
The strongest relationships are not immune to challenges, which makes open communication critically important. Plans and agreements provide a solid basis to operate, but business changes and market shifts inevitably require those arrangements be revisited from time to time. For example, a plan that seemed reasonable in December 2019 likely did not hold up completely as the world grappled with the coronavirus pandemic in April 2020.
Even the best-laid plans cannot address every future possibility. Strong relationships rooted in mutual understanding and clear expectations provide structure when renegotiations are necessary.
“When looking for an ideal provider, you have to define the most important priorities and understand you may not get it all,” Lewis said. “Have clear expectations of each other, and don’t rush in without knowing what those expectations are.”
Lewis underscored the fact that the future reins in unknowable events. Even with the most advanced technology, it is impossible to predict exactly when and how things like pandemics and hurricanes will affect the supply chain. Building a base of strong data and healthy relationships result in the best way companies can prepare for the unknown and increase success rates while mitigating risk.
