Question

Perry P. (the logistics manager for the Company PTP) is woken by a phone call in the middle of the night because one of the ships carrying 5 containers of light bulbs just sank after hitting some ice in the northern pacific ocean. The crew made it out alive in the new unsinkable life boats, and have been picked up by the Coast Guard. Talk about the risks that this points out. Talk about costs involved and by whom and how they are incurred. What kinds of reaction plans would you try to put in place after the fact, and what strategies would have helped before?

Value of inventory in a container= $500,000 =1,000,000 lightbulbs

5 containers per ship,

30 days of supply transit time.

Factory has 900 workers a day, at an average wage of $25 an hour.

Answer 1

The risks that are involved are as follows:

• Fatality: The crew and the other employees of the company PTP could have lost their lives leading to numerous fatalities putting the company in a bad light.
• Financial loss: The Company would have to incur a major financial loss. It would have to pay the inventory cost. The shipwreck is again a major cost to the Company PTP.
• Costly litigations: The litigations that would result after the accident are of huge amount. Logistic companies can be compelled to pay bills when ship gets into an accident and has little insurance cover.
• Damage to the brand image: The brand image is hampered and the reliability of the logistic company is damaged.
• Disruption of operations: An accident such as this has low probability of occurrence but has high consequences. It can disrupt the operations of the company in the long run.

A major strategy for the same is creating a good contract where all provisions are explicitly stated such as service commitments, payment terms, shipment loss and provisions for damage, limitations to file a claim and liability. Preparing a risk management plan proactively beforehand would have helped.