Even the smoothest-running logistics organization faces threats to its business, whether it’s natural disasters that can strike without warning, slower moving political changes that can impact regulatory compliance at home or abroad, labor shortages and even common threats like physical security, theft or loss. Recent research indicates that in 2015 alone, the cost of these supply chain threats exceeded $56 billion.
Risk and security are especially critical in the financial supply chain, where the nature of the shipments themselves is so sensitive. Cash shipments are subject to regulations that can change when the political environment changes, plus the risk of theft or loss is one that keeps many logistics managers up nights. Customer expectations are also changing as a result of the “Amazonification” of logistics, such that customers expect shipments to be inexpensive, accurate, predictable and trackable.
It’s clear that your financial logistics and supply chain faces significant risk. So how do you reduce the risk and improve the security of your logistics operation? Here are a few tips:
Assess Your Current State
To understand the risks you face and determine how to mitigate them, you first need to analyze and assess how you’re currently doing business. You’ll need to discover what works well and what doesn’t work so well. Even when your processes are working well, there are still risks because your business environment can change. Technology evolves and the competitive landscape can change; your business needs to keep up with that.
To accurately assess your current state, you need global, system-wide visibility into your logistics-related business processes throughout your entire supply chain. It’s very difficult to gain the kind of global understanding you need to really reduce risk in a complex supply chain without a system that can deliver insight into what your current state actually is.
Identify Your Risk
After assessing your current processes, you’ll need to find ways to identify and reduce your risk. A thorough assessment of risk means considering risk from several angles. These risks may include:
- Competitive pressure – What is your competition doing or promising? Are you able to compete?
- Customer satisfaction – Customer satisfaction encompasses speed and timeliness of delivery, as well as cost. Can you deliver on the promises you make to the customer?
- Regulatory compliance – The regulatory landscape is changing. After decades of globalizing pressure and moves toward more uniform cross-border regulations based on free trade zones, the pendulum now may be swinging the other direction. Anti-free trade movements like Brexit mean that regulations in the Eurozone will be subject to change. Changes to trade agreements like NAFTA could also mean disruptions to your business in North America due to changing regulations. Supply chains will have to be nimble to keep up with these changes.
- Changing markets – The global cash logistics market is expanding at about 8% a year and is expected to continue growing over the next five years as adoption and availability of ATM’s globally expands the need to move cash. Long term, there may be less need given the proliferation of plastic money and mobile wallets. Financial logistics organizations must be agile to manage fluctuations in demand for cash.
- Physical security, theft and loss – Nearly a third of the cost of logistics disruptions, or more than $22 billion, is due to actual physical loss or theft. Money shipments are high-risk targets, so this is a constant threat for banking and financial security firms.
Reducing your risk means thoroughly understanding the threats your organization faces in all these areas and considering how these threats may change over time.
Know Your Limits
Even within a highly regulated industry like financial services, every logistics organization is unique. There may be similarities, but two different financial services companies could be shipping different types of packages, via different methods, to different places. Over time, this leads most logistics organizations to develop expertise in specific areas that relate to the majority of their business.
The risk this creates comes when your needs change and you are faced with managing requirements outside your area of expertise. When this happens, it’s important to make sure that you recognize your limitations and either devote resources to developing or acquiring the expertise you need, or to work with others – such as a logistics outsourcing or third party provider – that can deliver the needed expertise.
An example would be entering new markets where you lack in-country expertise. There are many countries where carriers can only provide limited service, or only serve certain regions. Risk of crime also varies by country, as well as region-by-region. Working with in-country or even regional experts can reduce risk in countries where you lack this kind of needed expertise.
Maintaining status quo may seem like a way to avoid risk, but it actually puts you at risk as the business environment and technology evolve. Plus, if you don’t consider alternatives you’ll never know if there might be ways to improve.
That’s why it’s a good practice to regularly consider different alternatives for handling your logistics needs, depending on what you need to ship, and where it needs to go. For instance, if you ship parcels, you have more alternatives available than global parcel shippers like UPS, Fedex or DHL. You might also consider smaller regional or national carriers. For larger shipments, you might consider alternatives such as LTL or TL carriers.
For shipping internationally, developing relationships with freight brokerages and expeditors are alternatives to consider. And for moving cash, there are global cash-in-transit firms like Loomis, Brinks and Prosegur as well as regional cash movement firms that may be able to meet your needs.
The key is not to wait until you have a shipping problem that you need to solve, but rather to build and maintain your understanding of the alternatives and develop the necessary relationships now, so that you’ll be prepared when things change.
Plan for the Inevitable
From the risk of natural disasters to human factors such as loss or theft, supply chain risk is nearly inevitable. However, with proper planning you can mitigate those risks. The key is to separate predictable and unpredictable risks.
To do this, you’ll want to gather business intelligence about your logistics performance and try to identify patterns. You’ll likely discover that some of the risks your business faces are predictable, such as seasonal “rushes” or slow periods. Even some “unpredictable” natural disasters – such as weather – may not be predictable but they do have a seasonal and regional component.
Even in terms of physical loss and theft, it may be difficult to determine which specific loads may become targets, but usually you can identify specific routes or regions where theft is a bigger concern.
By studying the intelligence that’s available to you in this way, you’ll gain a better understanding of the risks your financial logistics operation faces, and be able to identify those areas where you can make improvements that can reduce the risk to your global financial supply chain.