Risks are an important aspect to consider in warehousing and logistics. Identifying and categorizing risks is necessary for managing the flow of goods in a rented warehouse. According to Falkner and Hiebl (2015), companies that manage warehouses face related to market, technology, and finance. Identifying and understanding such risks are important for decision-making, since decisions reveal the mitigation models adopted by companies. Ho, Zheng, Yildiz, and Talluri (2015) indicate that risks occur at micro or macro levels of businesses. Micro risks can be categorized further into infrastructure, manufacturing, demand, and supply risks. I identified the risks by analyzing the macro and micro features of the business and its location. Understanding governance systems and regulatory and legal expectations not only assist in identifying industry risks and competitors’ positions, but also help in developing effective plans.
Every business sector faces various categories of risks. The logistics sector attracts several unique risks across the global continuum. Ho et al. (2015) illustrate that competitors in the supply chain sector are affected by macro and microeconomic risks. For instance, macro risks such as unfavorable weather conditions, and earthquakes and other disasters are important considerations for strategy development. Different categories of macro risks occur due to human beings, such as war, political instability, and terrorism (Ho et al., 2015). Outdoor Fun should anticipate macro risks to manage and mitigate underlying threats. Politically instable locations are more susceptible to political risks and terror activities. The risks in such places occur when citizens are disenfranchised and their democratic space becomes limited. Therefore, before making critical decisions, a business should carry situational analysis to ascertain its vulnerability in such locations.
Micro risks originate from business activities within the supply chain. Manufacturing challenges, such as the inability to produce quality products adversely affect enterprises and customer satisfaction. Furthermore, supply and demand risks are occasioned by up and downstream partnerships, which affect the supply chain by creating shortages in product delivery systems. Other micro risks in logistics include technological turbulence based on the nature of digital platforms (Ho et al., 2015). Such activities affect the logistics sector significantly and often lead to substantial losses.
Failure Mode and Effects Analysis (FMEA) is a quantitative approach that recognizes and evaluates the process failures of products (Ignáczová, 2016). The model establishes systems that identify product errors. FMEA is utilized in warehousing for identifying storage inaccuracies and analyzing how they affect products’ performances. Additionally, the process ranks the effects identified based on their levels of severity. This ranking helps in decision-making. Therefore, the model assists in developing safe and suitable methods that guarantee quality and stability in delivery logistics (Ignáczová, 2016). I have chosen the FMEA model for Outdoor Fun Company because the business utilizes e-commerce models and requires an operational product delivery process. Hence, analyzing the process and the possibilities and effects of its failure will enable the business to adopt sustainable delivery systems for various online products purchased by customers.
Risk Mitigation Strategy
Risk mitigation is an important factor in the management of business challenges. Adopting the right mitigation approaches can help businesses to manage operational turbulence and achieve stability. According to Abbasi, Wang, and Abbasi (2017), risk mitigation can be achieved through networking. Risks such as technological turbulence, operational threats, and financial limitations are manageable through collaboration with various stakeholders. Accordingly, Abbasi et al. (2017) state that assets securitization is an approach in risk management that allows a business to transfer liquidity, credit, and interest rate risks to other players in the market. Stergiopoulos, Kotzanikolaou, Theocharidou, and Gritzalis (2015) aver that interdependent infrastructures create failures in businesses. I intend to develop strategies such as networking with various delivery and logistics providers. I will also adopt various technologies, including the use of drones to manage city congestions. Mitigating such risks can enhance business operations, leading to growth.
Renting a warehouse comes with various risks to a business. Tenancy agreements usually state when they must be renewed. Such conditions may not favor a business, especially during off-peak seasons or turbulent economic times. Given that warehousing supports the flow of products into markets, competition is influenced by efficiency and reliability. Risks related to efficacy and dependability can be controlled through the use of technology, such as automation in warehousing (Davarzani and Norrman 2015). According to Davarzani and Norrman (2015), implementing models such as Warehouse Management Systems (WMS), or using voice sorting or picking and radio frequency identification devices can create efficiency in warehouse logistics. The authors state that warehouses link departments, including production and deliveries. To ensure the continuous running of risk management processes, I would develop and implement controls such as storage and shipment policies at all levels of operations.
This approach would provide a framework to manage long-term operational difficulties and limit susceptibility to risk. Bychkov et al. (2017) posit that digital strategies such as automation and simulation create value, enhance time management, and improve efficiency in operations. Therefore, risk control in a warehouse can be achieved through digitizing operations.
Warehouses play an important role in logistics. Rented warehouses face various threats, including those related to technologies, finances, and markets. However, managing risks successfully promotes business growth. It is imperative for businesses to analyze risk exposure and develop mitigation approaches to accept, defer, or cover risks. Additionally, analyzing business risks within an organization prepares it to overcome challenges. Although macro-economic risks such as natural disasters are difficult to project, susceptible areas are easy to identify. Thus, mitigation strategies can be successfully developed.
As an enterprise that seeks to operate on a virtual platform, Outdoor Fun should mitigate risks by employing digital approaches such as warehouse automation. Investing in picking, voice sorting, and radio frequency identification devices will improve efficiency of warehouse operations and enhance the delivery experiences of customers. Furthermore, to manage challenges in a rented warehouse, the company should opt for long-term contracting and initiate negotiations of payment based on the strength of its business.
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Davarzani, H., & Norrman, A. (2015). Toward a relevant agenda for warehousing research: literature review and practitioners’ input. Logistics Research, 8(1), 1-18. doi:10.1007/s12159-014-0120-1
Falkner, E. M., & Hiebl, M. R. (2015). Risk management in SMEs: a systematic review of available evidence. The Journal of Risk Finance, 16(2), 122-144.
Ho, W., Zheng, T., Yildiz, H., & Talluri, S. (2015). Supply chain risk management: A literature review. International Journal of Production Research, 53(16), 5031-5069.
Ignáczová, K. (2016). FMEA (failure mode and effects analysis) and proposal of risk minimizing in storage processes for automotive client. Acta Logistica, 3(1), 15-18.
Stergiopoulos, G., Kotzanikolaou, P., Theocharidou, M., & Gritzalis, D. (2015). Risk mitigation strategies for critical infrastructures based on graph centrality analysis. International Journal of Critical Infrastructure Protection, 10, 34-44. doi:10.1016/j.ijcip.2015.05.003