Nishith Rastogi is a Founder & CEO of Locus, a leading-edge technology company helping 300+ global enterprises achieve last-mile excellence.
Who knew a simple phrase like “You’ve gotta risk it for a biscuit” could offer valuable insights into the world of supply chain and logistics? The makers of a muesli bar definitely didn’t when they first used it in a 1970s advertisement. Today, this catchy phrase has become the ultimate bumper sticker philosophy for last-mile delivery businesses. After all, when it comes to delivering on time, sometimes taking a calculated risk is the only way to get the biscuit!
That’s because in the fast-paced and variable world of last-mile delivery, businesses are often faced with large trade-offs between taking risks and achieving rewards. With my experience with last-mile logistics, I’m noticing that with the increasing demand for speedy and efficient delivery, companies need to consider their risk appetite to strike a balance between delivering on time and ensuring safety and security.
Understanding The Propensity For Risk
But what is “risk appetite”? Simply put, it’s a business’s willingness to take risks to pursue its goals and objectives. The term is flexible enough to apply across the organization while considering that the approach for various parts will differ. By focusing on the risks necessary to achieve long-term success through the pursuit of strategic goals, a healthy risk appetite can enable a business’s continued growth and prosperity.
It’s also common to see the terms “risk appetite” and “risk tolerance” used interchangeably, which can lead to confusion about their meanings. While these two concepts are related, they are distinct from one another. While the former refers to a business’s propensity to take risks, the latter refers to the level of risk an organization can withstand without compromising its objectives.
Understanding your organization’s risk appetite can be essential to making informed decisions about how much you can put at stake and how to mitigate potential risks. In this context, I believe that exploring the concept of risk appetite is crucial to optimize the last-mile delivery process and ensure customer satisfaction.
Typically, the concept of risk appetite is applied to financial and operational measures, focusing on compliance. However, in order to truly excel in applying risk appetite, businesses need to broaden their perspective and align it with overall performance expectations. Any kind of risk-taking must consider all stakeholders’ best interests and make it a part of the company’s culture. A company’s risk appetite can vary depending on the economic climate and business outlook. For instance, during good economic times, a business in its growth stage is more open to accepting downside risk, while in challenging times, it may choose to stay risk averse.
Risk And Reward: It’s All About Balance
In the year 2022 alone, e-commerce sales exceeded $1 trillion in 2022 worldwide. This rise has upended industries far and wide, putting the spotlight on last-mile delivery like never before. And let’s face it, this critical aspect of logistics fulfillment has always been challenging. It’s complex, costly and sometimes downright inefficient, especially in the world of e-commerce. But that’s not all—there’s the added risk of delivery failures that can derail even the best-laid plans. The last mile is fraught with potential hazards, including traffic congestion, weather disruptions, incorrect addresses, theft or damage, customer complaints and regulatory compliance.
So, what can you do for your business? For one, it’s crucial to prioritize risk management, be proactive in addressing potential risks and determine their likelihood and potential impact before they escalate into significant issues. This can include conducting comprehensive risk assessments, defining explicit policies and protocols, investing in employee training, nurturing a culture of safety and accountability, and forging partnerships and collaborations with relevant stakeholders. By undertaking these measures, your organizations can bolster its overall risk management strategy and effectively mitigate risks in the last mile.
Technology solutions can also help in achieving this goal (disclaimer: my company offers this solution). By providing end-to-end visibility and automated alerts and notifications, businesses can quickly identify and respond to potential risks, such as vehicle breakdowns or unforeseen route obstructions. By automating key processes in order fulfillment, businesses can reduce the risk of human error, which can negatively impact efficiency and lead to costly mistakes. Technology-driven risk management strategies can help organizations stay ahead of potential threats and maintain a competitive edge in today’s complex business landscape.
Organizations must also evaluate risk tolerance, considering financial stability, reputation, regulatory environment and competitive landscape. This can help determine the level of risk the organization is willing and able to accept. At my company, I had this realization after launching our network optimization tool, which we launched globally. While there was strong demand at the time and we had some notable wins in the early days, I recognized that over the long term, there would be a cap of its growth potential over the limitations posed by our available resources and the competitive landscape. As result, we made the decision to reevaluate our approach, and chose to concentrate on our core competencies: dispatch management and route optimization, with a specialized focus on serving the 3PL and retail industries. Businesses can evaluate their risk tolerance in the same way—by taking a good look at their approach and even homing in on what they are good at.
This is particularly relevant while considering scaling up operations. Striking a healthy balance between risk and reward is also vital, as is adopting an approach to the perspectives and needs of various stakeholders, such as customers, employees, shareholders and regulators.
This critical stage can make or break the success of a business. It demands a delicate balance between taking calculated risks and reaping the rewards. By clearly understanding your risk appetite and aligning it with overall performance expectations, your organization can set itself apart and create long-term value for their customers, employees and investors.
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