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ERM In Logistics and supply chain Carl Leeman Chief Risk Officer Katoen Natie 1.

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Presentation on theme: "ERM In Logistics and supply chain Carl Leeman Chief Risk Officer Katoen Natie 1."— Presentation transcript:

1 ERM In Logistics and supply chain Carl Leeman Chief Risk Officer Katoen Natie 1

2 Risk Management can only be efficient if it is Enterprise wide 2

3 ERM 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. 3

4 Business Unit structure Katoen Natie HQ Corporate Services ITEngineeringFinanceRisk Specialty Chemicals General Cargo & Commodities Petrochemicals Projects & Engineering Consumer Goods & Industry Liquids Process Technology Port Operations

5 Budget KTN Risk Management Vision KTN Risk Management Vision Corporate Objectives BU ObjectivesStrategy & operational planning Action plan (Internal) Reporting & Communication Risk identification Risk evaluation Identification of existing controls Risk response degree of risk 5

6 Business Approach Risks Resources Return 6

7 THE 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 7

8 EU 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. 8

9 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 ! 9

10 RISK MAPPING RISK MAPPING 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 Impact Risk MATRIX Quantitative scale Qualitative Scale Likelihood scale Severity = Level of Impact + Level of likelihoodLevel of impact x Level of likelihoodSeverity = Level of Impact + Level of likelihoodLevel of impact x Level of likelihood 10

11 The (new) Bermuda Triangle The (new) Bermuda Triangle Complexity Time Pressure Risk Averse Society 11

12 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 12

13 Headline Risks (International 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 13

14 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. 14

15 Supply 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 15

16 Analysis of supplier locations

17 Earthquake

18 Analysis of supplier locations Earthquake alysis of supplier locations Flood Analysis of supplier locations

19 Earthquake Flood Storm

20 Problem is often elswhere 20 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 )

21 Some importants elements in your Risk Management Contracts / General conditions Compliance Crisis communicatie 21

22 Algemene voorwaarden Tracht gebruik te maken van sectorvoorwaarden eerder dan eigen voorwaarden Zorg dat uw algemene voorwaarden rechtsgeldig zijn, dwz : 1 Klant moet ze gekregen hebben voor aanvang van de samenwerking 2 Klant moet de volledige tekst gekregen hebben 3 Klant moet in de mogelijkheid geweest zijn ze af te wijzen. Zorg dat U met alle klanten & leveranciers duidelijke afspraken hebt. (liefst op papier en getekend) (pas op met AV & ondertekening) 22

23 Essence of contract’s Client gives an order We execute the order The client has to pay for what we did. 23

24 Important elements in our contracts Scoop of the contract Term of the contract Rate & Payment Terms Limitations & Exclusions of liability (KPI’s) 24

25 Contracten Zorg dat je zelf een contractvoorstel hebt dat rekening houd met de specificiteit van je activiteiten, en de regio waar je opereert. Tracht steeds te vertrekken van jouw tekst. Durf contracten / business te weigeren als er totaal geen evenwicht is tussen (potentiele) opbrengst en de te nemen risico’s. Commerciëlen die (vooral) op commissie werken durven hier makkelijke tegen zondigen. 25

26 But 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. 26

27 Typical 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% 27

28 Compliance Wat is dit : Voldoen aan alle wettelijke verplichtingen waaraan U met uw bedrijf en haar type activiteit moet aan voldoen. vb : Explotatie vergunningen, bouw vergunningen, Milieu vergunningen Verplichte verzekeringen (BA auto, AO, OA Brand…….) Administratie personeel (contracten, kwalificaties, keuringen,….) Wettelijke keuringen (machines, hefwerktuigen, installaties,…..) Andere Nationale, Europese of internationale wetten en regelgeving Maar er is meer : - Corporate Social responsibility - Business Ethic’s - Verantwoord ondernemen - Corruption & Bribery regulations (UK Bribery Act, US FCPA) In de praktijk is één en ander niet eenvoudig zijn. Ook hier zal men prioriteiten moeten stellen na (grondige) analyse 28

29 Corruption & Bribery Rules & Regulations 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 29

30 Corruption & Bribery Rules & Regulations II 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 30

31 Corruption & Bribery Rules & Regulations III 3) International Anti Bribery Conventions - UN convention against corruption (2005) - OECD convention on combating Bribery (34 members including Brazil, Argentina, South Africa) - ……….. 31

32 Anti Corruption & Bribery To Do’s 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 32

33 Perception ≠ Fact’s 33

34 CONTINGENCY PLAN Before During After Putting in Place & Testing Talk to local authorities cfr. 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 claims Inform People Check if things are in place as it should be

35 Crisis communication Facing 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. 35

36 Facing 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: 36

37 Facing 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. 37

38 Facing 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. 38

39 But, The Most important is to :

40 Make sure all you calculations are correct 40

41 Otherwise this Can Happen! 41

42 J.I.M Principle Avoid Jail Be aware of your Image Continue to make Money 42

43 Thank you for your attention 43


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