ERM In Logistics and supply chain

Carl LeemanChief Risk OfficerKatoen Natie 1

Risk Management

can only be efficient if it is

Enterprise wide

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ERM what’s in the nameERM what’s in the name

• A methodology to ,as good as possible, realize the goals set by a company, and to continue doing so.

• A culture of which the company, and thus all its employees have to be committed to .

• A strategy is easy to copy, a culture is very difficult to copy .

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Business Unit structureBusiness Unit structure

Katoen Natie HQ

Corporate ServicesCorporate ServicesIT Engineering Finance Risk

Specialty Chemicals

General Cargo & Commodities

Petrochemicals

Projects & Engineering

Consumer Goods & Industry

Liquids

Process Technology

Port Operations

Budget

KTNKTN Risk Management VisionRisk Management Vision

Corporate Objectives

BU Objectives Strategy & operational planning

Action plan

(Internal) Reporting & Communication

Risk identification

Risk evaluation

Identification ofexisting controls

Risk response

Avoid

Share

Reduce

Accept

degree of risk

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Business ApproachBusiness Approach

Risks Resources

Return

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THE RISKS OF DOING BUSINESSTHE RISKS OF DOING BUSINESS

1. COUNTRY RISKS

2. CLIENT RISKS

3. PRODUCT RISKS

4. CONTRACT NEGOTIATION RISKS

5. SUPPLIER RISKS

6. RISKS OF PERFORMANCE DIFFICULTIES

7. BRANDNAME / REPUTATION RISKS

8. RISKS OF DAMAGES

9. ENVIRONMENTAL RISKS

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EU laws on RMEU laws on RM

-In most EU countries we see a lot of rules and regulations on RM for Banks and other financial institutions (Insurers).

-We see very few- to none, for non-financial institutions.

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ERM, how to proceed ERM, how to proceed ::

1.Identification

2.Evaluation

3.Handling

-It will be impossible to handle all risks detected.

-One will have to make (difficult) choices and/or set priorities.

-It is always better to make the wrong choice than no choice !

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RISK RISK MAPPINGMAPPING

• Financial impacts (quantitative) & non financial impacts– Financial metric : EBITDA, Result, assets, …– Non financial metrics : victims, reputation, legal disputes, …

• Period of assessment : choose a significant period according to risks

likelihood

Imp

act

Risk MATRIX

Quantitative scale

Qualitative Scale

Likelihood scale

Severity =

Level of Impact + Level of likelihood

Level of impact x Level of likelihood

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The (new) Bermuda TriangleThe (new) Bermuda Triangle

ComplexityTime Pressure

Risk Averse Society

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Why expanding outside of Europe ?Why expanding outside of Europe ?

By 2030, 93 per cent of the world’s middle class will live in what is currently termed emerging markets.

For big expansion we have no choice than to look for new business outside Europe

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Headline Risks (International Headline Risks (International expansion) expansion)

Currency and pricing

Supplier/Customer insolvency (1)

Pandemics

Cyber risk / IT failure (3)

Forecasting / demand risk

Political Instability

Climate change

Single sourcing

Strikes / Disputes (2)

Natural catastrophes

Brand Reputation damage

Intellectual property

All can impact the supply chain in different ways

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Do not forget to, amongst others :Do not forget to, amongst others :

• Identify key points in your supply chain that control flows of information, physical goods or money so that risk & audit attention can be focused on these areas

• Try to identify what can be controlled, what can be influenced and what can only be monitored.

• Allow scenario planning and stress testing by taking out elements and disrupting flows.

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Supply Chain Risks, the challengesSupply Chain Risks, the challenges

• understanding your supply chain

• Assessing the risk

• Mapping the interdependencies

• Developing solutions

• The increase in outsourcing to suppliers in more remote / exotic locations, combined with an increasing time and rate pressure is probably the main change in supply chain over the last 10 year

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Analysis of supplier locations

Analysis of supplier locations

Earthquake

Analysis of supplier locations

Earthquakealysis of supplier locationsFlood

Analysis of supplier locations

Analysis of supplier locations

Earthquake

Flood

Storm

Problem is often elswhereProblem is often elswhere

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Out of 327 Incidents that disrupted the supply chain

60 % happened at a tier 1 supplier

30 % at tier 2 supplier

10 % at tier 3 or further

(Survey from the Business continuity Institute (USA)

Some importants elements in your Risk Some importants elements in your Risk Management Management

• Contracts / General conditions

• Compliance

• Crisis communicatie

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Essence of contract’sEssence of contract’s

• Client gives an order

• We execute the order

• The client has to pay for what we did.

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Important elements in our contracts Important elements in our contracts

• Scoop of the contract

• Term of the contract

• Rate & Payment Terms

• Limitations & Exclusions of liability

• (KPI’s)

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But sometimes things go wrongBut sometimes things go wrong

• Instructions from client are vague.

• Parties may have different understandings about the same item.

• No traces of verbal agreements

• Sometime, in order to please the client, we put ourselves in trouble.

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Typical issues with Supply chain contractsTypical issues with Supply chain contracts

• We often start to work without written instructions or clear agreements

Client changes his mind …….!

• Make sure to have clear instructions and to explain them to operational or administrative people.

• Follow up if you are paid in time for everything you did

in some cases 20% of what was done was not invoiced On average clients exceed payment terms by 30%

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Corruption & Bribery Rules & Corruption & Bribery Rules & RegulationsRegulations

1 ) US Foreign Corruption Practices Act (FCPA)

•Exists more than 30years but increased dramatically the last 6 years•Only a minor US connection is sufficient for US authorities to enforce FCPA rules•The FCPA prohibits US companies & individuals from bribing non US officials.•Wide variety of industries investigated (oil & gas, Healthcare, pharmaceuticals, transportation, etc. .)

•8 out of 10 largest FCPA enforcements involved non US companies & citizens

•Reality : - Siemens paid 800 million USD to settle US anti corruption charges

(on top of same amount to German authorities)

- FCPA : 2009 : 641 Million USD penalties

2010 : 1,8 Billion USD in fines

• •

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Corruption & Bribery Corruption & Bribery Rules & Regulations Rules & Regulations IIII

2) UK Bribery Act

• Effective since July 1st 2011

• Regarded as gold standard in anti-corruption laws

Due to Extra –territotial application & aggressive enforcement

• Includes strict criminal liabilities for corporate offence of failing to prevent bribery

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Corruption & Bribery Corruption & Bribery Rules & Rules & Regulations IIIRegulations III

3) International Anti Bribery Conventions

•- UN convention against corruption (2005)

•- OECD convention on combating Bribery

(34 members including Brazil, Argentina, South Africa)

•- ………..

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Anti Corruption & Bribery To DoAnti Corruption & Bribery To Do’’ss

• Educate employees & management

• Basic rules & standards (Compliance Program / code of conduct)

• Companies fundamental values and principles

• Policy & Procedure (e.g. (financial) reporting, authority & accountability, Hotline (?))

• In M&A’s asset deal instead of share deals can avoid a lot of (liability) problems

To leak (info) or not to leak ?

• Clause in contract with suppliers on bribery : No involvement & Hold harmless

• Remember the “non, or controlled, subcontracting clause” in suppliers contract

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Perception Perception ≠ Fact≠ Fact’’ss

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CONTINGENCY PLAN

BeforeBefore DuringDuring AfterAfter

Putting in Place & Testing

Talk to local authoritiescfr. Crisis center

Up to date on a yearly basis

Alarm

Start up contingency plan

Evacuation

Fire fighting

Inform : Clients

Authorities

Fire fighters

Neighbors

Social media

1)Repair/ Rebuild

warehouse & equipment

2) Support to clients

3) Handle third party

claimsInform People

Check if things are in place as it should be

Crisis communicationCrisis communicationFacingFacing the media Radio / TV I the media Radio / TV I

• All declarations, and or external communications should be coordinated

internally in order to have one message towards clients,authorities, employees,

and other third parties.

(What about : subsidiaries versus HQ in different time zones?)

• Do not forget:

- to have one spokesman

- to provide all your own employees with the same information.

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FacingFacing the media : Radio / TV 2 the media : Radio / TV 2

• 1) NEVER TELL A LIE.

Do not try to hide info, everything does surface sooner or later.

• 2) HAVE ONLY ONE SPOKESMAN.

Journalists just love to hear contradictory statements; be aware. It is also very

important to provide your own employees with identical information, so that only

one identical version is communicated ‘to the outside world’. (Use also your

WEBSITE / INTRANET to provide that same info to anyone wishing to know it).

• 3) IF THERE ARE CASUALTIES, ALWAYS SHOW COMPASSION.

• 4) BE PREPARED FOR THE 3 CLASSIC QUESTIONS:

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FacingFacing the media : Radio / TV 3 the media : Radio / TV 3

• -WHAT HAPPENED?• -WHY DID IT HAPPEN? • -WHAT ARE YOU GOING TO DO TO PREVENT THIS FROM HAPPENING AGAIN?

It is highly likely that you will not know the answers at that particular moment, and that is no problem as long as you show that you were prepared for the situation, say that these issues are still under investigation, will inform them as soon as you have any news, show them

that you are open and that there are no secrets to hide. 

• 5) NEVER EVER MAKE ANY SPECULATIONS IN FRONT OF THE MEDIA.

If you are not sure about something, then do not say so! “We think that it must have been this or that” = SUICIDE. 

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FacingFacing the media : Radio / TV 4 the media : Radio / TV 4

• 6) ALWAYS SHOW THEM THAT YOU ARE IN CONTROL OF THE SITUATION.

“We are going to do this, this and that”.

This will show them that you are well prepared and that you know exactly what to do. 

• 7) TELL THEM WHEN YOU WILL MEET OR INFORM THEM AGAIN.

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But, The Most important But, The Most important is to : is to :

Make sure all you calculations are Make sure all you calculations are correctcorrect

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Otherwise this Can Happen!Otherwise this Can Happen!

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J.I.M J.I.M PrinciplePrinciple

• Avoid Jail

• Be aware of your Image

• Continue to make Money

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Thank you for your attention

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