Have you factored warehousing into your operational risk assessment? Here’s how …

We all know the traditional areas of risk identified in warehousing: hazardous materials, lifting and movement issues, failure to manage stock control and failure to identify and pick and pack goods for onward delivery. Probably all managers also know what they should do about these risks in order of preference:


  • Remove hazards entirely
  • Substitute hazardous items and behaviours with something less risky
  • Establish procedures that separate the hazard from personnel
  • Reduce exposure to a risk or hazard by designing best practice warehousing operations
  • Issue personal protective equipment.


However these areas are often simply the baseline of operational risk that can challenge a company’s profitability and effectiveness. According to a recent American survey, manufacturing and distribution companies rank supply chain risks as their number one concern for the year ahead, and for industries as a whole, supply chain risks are only outranked by cyberthreats. Warehousing is a key component of supply chain risk, and UK companies need to reconsider warehouse operations in their risk assessment. Such challenges are going to continue for years and will impact major cost centres like insurance.warehousing risks


Major areas of risk in warehousing


  1. Training and culture


We all know that training is crucial to operating a safe (and cost-effective) warehouse space. The Amazon horror stories have become a kind of urban myth, but there’s no doubt that the world’s biggest warehouse user is also right up there in terms of high injury rates. It’s bad press and doesn’t help recruitment to be considered a bad employer – and if those aren’t good enough reasons to improve training and culture there’s a hard cash one: too many accidents or incidents and your business insurance premiums will increase.


Culture can also have a major impact on how much risk your warehousing operations are exposed to – and 2022 has shown us this very clearly. The Great Resignation has left many organisations struggling for staff; UK job vacancies reached a record high of nearly 1.3 million in June 2022. Understaffing is a major risk, hiring in agency staff is a major cost, both can be avoidable if risk assessment results in changes to organisational culture that allow you to recruit and retain employees. Fostering in-house talent can be a great way to start changing company culture, and given that warehouse space is often isolating, companies can use a range of tactics, from intranet to ‘break rewards’ (mini incentives that fit into a 15 or 30 minute break period) and away-days, to become a stronger employer with a high profile as a good place to work.


  1. Supply and demand risks


Supply risks always occur when working with others – and the definition of warehousing is working with others! Operational risks include:

  1. key suppliers going bankrupt/entering lockdown/suffering fire damage or theft
  2. suppliers failing to deliver on time or in good condition
  3. failure to establish the right KPIs with suppliers so logistics are disrupted.

Dealing with these risks includes doing risk assessment to ensure your exposure to key suppliers is limited, watching geo-political hot spots that might affect supply chains and finding ways to communicate clearly with suppliers and offer a blend of incentives and deterrents that will encourage them to align with your business goals.


Demand risks are similarly varied – losing a key customer can cause a cash-flow crisis, the economy can influence demand, and the bullwhip effect mans that a 5% fluctuation in point-of-sale demand can be reinterpreted by supply chain members by up to 40%. This means that just as a tiny wrist movement can cause a huge movement at the end of a whip, changes in customer demand can lead to overreactions and overcorrections at other points in the supply chain.

Recognising demand risk requires having scenarios for the loss of major customers, including a fallback plan of having affordable warehouse space for excess goods that result from the bullwhip effect.


  1. Key staff risks


Warehousing can often contain bottlenecks that are only understood when something happens to expose them. The UK has seen one such bottleneck play out over the past two years, as a shortage of delivery drivers has substantially impacted both goods inward and goods outward. In almost every warehouse space this has become a constant risk, but logistics are not the only area when key personnel can be crucial to smooth operations. Data entry is also important – and for stock control data has to be both accurate and up-to-date to enable maximum bargain to be obtained on every warehoused item.


Managing this operational risk may include looking at cost centres and costing for staff sickness and agency support, and risk can also be mitigated by giving warehouse personnel crossover training so that they can substitute for each other in an emergency, allowing the warehouse team to move between stations if required. Some warehousing operators use automation to reduce their exposure to risk in this area.


  1. Digital risk


Digital disruption is also a concern. In the UK, 81% of organisations experienced at least one cyber attack in 2021 compared to 71% in the previous year. While this sounds high, it includes all the minor threats such as receiving phishing emails, that most businesses have come to take for granted. Conducting a gap analysis can help ensure an organisation has adequate barriers to cybercrime. Cybercrime is not the only risk though. Digital disruption can occur through out-of-date or unharmonised software or hardware, operator error, or failure to encrypt data.


  1. Insurance risk


What should warehouse operators insure for? It’s a good question. Supply chain disruptions have become commonplace and some insurance companies will allow you insure against upstream disruption. Other organisations have chosen to actually buy out or buy controlling amounts of partner organisations that supply goods or handle logistics, to give more leverage – although this does, in turn increase exposure to other forms of operational risk, like over-investment, cash-flow problems, and adding staff to deal with more administration.


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