Collaborative Networks in the Logistics Sector

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This entry is adapted from the peer-reviewed paper 10.3390/su14074329

Collaborative networks in the logistics sector have proven to be a solution that both meets environmental footprint reduction goals and addresses the impact of rising fuel prices on logistics companies, especially for small- and medium-sized enterprises. Despite these benefits, these collaborative networks have not received the desired amount of participation due to reputational risk.

sustainability collaborative networks logistics transportation sector risk assessment and management

1. Collaborative Networks

Collaborative networks are organizational systems capable of bringing together individuals and institutions in a participatory manner for related purposes. They are flexible structures and are horizontally structured ^[1]. Originally, they were created with the aim of reducing uncertainty and risk and organizing economic activities through coordination and cooperation between companies. The implementation of collaborative processes has accelerated in recent years due to new business challenges, rapid socioeconomic change, and new developments in information and communication technology ^[2].

There are different types of collaborative networks, the most common of which are social networks that focus on relationships between social entities; virtual organizations, which include a number of independent organizations that share resources and capabilities to achieve a common goal; virtual enterprises, which emerge from a temporary alliance of organizations that share capabilities and resources to respond more efficiently to market opportunities; agile enterprises, where the organization’s ability to continuously adapt in an environment of unpredictable change results from cooperative strategies; joint ventures, in which several companies temporarily combine into a single entity to jointly carry out an economic activity; and finally, the collaborative network of the cluster type, in which there is a geographical concentration of interrelated companies operating in the same sector and sharing not only the location but also the responsibility for the development of products and services ^[3].

For collaborative networks to be successful, they must meet a number of requirements to ensure network sustainability. In particular, the companies that are part of the network must be willing to share information, make synchronized decisions, promote the fair sharing of profits, update and share their capacities, have integration policies, align their goals with those of the other companies in the network, plan strategies and objectives together, foster trusting relationships, and maintain open and fair communication. All of these requirements have a certain level of risk that may negatively affect the companies that participate in the network ^[4].

On the other hand, there are a number of factors that can hinder the effective functioning of collaborative networks or jeopardize their sustainability, namely, lack of trust, impersonal and poor relationships, inconsistent business strategies, a mentality limited to processes without considering a holistic view, inaccurate information, and poor communication channels. Of these factors, a lack of trust has the greatest impact on the collaboration network, as it strongly encourages network collaborators to leave the network. In the majority of cases, this factor increases the sense of risk regarding the company’s participation in the network ^[5].

The benefits of membership in collaborative networks depend on the network’s area of activity. However, there are some benefits that can be considered universal and independent of the area of activity. For example, belonging to a collaborative network can increase the efficiency and effectiveness of the company, promote its expansion, improve its communication, increase the quality of its work processes, increase the reliability of the company’s operations, increase its creativity and productivity, and, most importantly, promote the financial profit of the company ^[6].

The literature is replete with work addressing the inherent risks of collaborative networks in a variety of domains, such as works promoting sustainable systems related to innovation in collaborative networks ^[7], modeling risks related to collaborative networks to determine the likelihood and impact of projects ^[8], modeling risks related to information sharing, information management, and knowledge ^[9], incorporating heuristic models to analyze and manage risks in collaborative networks ^[10], and identifying the benefits of applying risk models in collaborative networks ^[11]. Despite the extensive amount of work in the literature and to the best of the authors’ knowledge, no reputational risk model developed for collaborative networks in the logistics sector can be found in the literature. In this sense, the work developed in this study is innovative and fills a knowledge gap in risk assessment and management of collaborative networks.

2. Risk Assessment and Management

According to the International Organization for Standardization’s 31000 standard (ISO 31000), organizations of all types and sizes face internal and external factors that can jeopardize the achievement of their goals and expectations. These factors always have an associated level of uncertainty and impact, and their aggregate assessment represents the so-called risk that organizations face ^[12].

Risk assessment aims to support decision making in all activities of an organization. All activities involve a certain level of risk, and its management intends to control this level through logical and systematic treatment actions. Although the interpretation and management of risk is an intrinsic human capacity, it is limited when several risk factors are simultaneously involved in decision making, i.e., aggregate risk assessment requires the use of appropriate tools as well as a logical and systematic framework in order to make possible the correct interpretation of decision making.

Organizations benefit greatly from the application of risk analysis and management practices in their most varied activities. For example, it increases the likelihood of achieving their objectives, improves the identification of opportunities and threats, improves governance, increases confidence, minimizes losses, improves the efficiency of operations, and so on ^[13].

Despite the benefits inherent to risk analysis and management methods, their application to collaborative networks is somehow limited, especially for collaborative networks in logistics. In the literature, one can find a reasonable number of works related to collaborative networks in logistics, but there are few works that include collaborative risk analysis and management as an integral part of their model proposals; in this sense, there is limited knowledge in this area of investigation.

However, collaborative risk management has begun to gain a modest momentum in the literature. According to ^[14], in a time window of 21 years, from 1996 to 2017, 53 articles on collaborative risk management were published outside the scope of supply chain and operations management, and only 23 focused on this topic, demonstrating a modest growth trend. The most important research topics covered have been on sharing information, standardization procedures, decision synchronization, incentive alignment, supply chain and process integration, and collaborative system performance.

According to the same authors, and despite the inherent advantages of collaborative risk assessment and management, a clear and effective definition of collaborative risk management as well as a clear demonstration of its respective advantages is lacking in most of the works published in this time window; this fact may be at the origin of the trend found.

Another possible reason could be the fact that collaborative networks are complex systems whose risk is modeled through the selection of models that best suit the scenario, or a tailor-made approach. In this sense, there is no “one-size-fits-all” solution to assess the risk inherent to systems, and this fact may also be at the origin of the aforementioned trend.

In the literature, a wide range of risk assessment and management models can be found alongside strong evidence of their acceptance in academia ^[15]. These models can be divided into three broad categories, namely, quantitative models, qualitative models, and mixed models employing both qualitative and quantitative approaches. In practice, quantitative models are more appropriate for scenarios where it is not possible to have statistical data, while quantitative models need statistical data to be used. Mixed models take advantage of the inherent advantages of both approaches. The analysis and risk management of systems, due to its multidisciplinary nature, normally needs to use the three approaches to assess the aggregate risk, which increases the complexity of the problem ^[16].

The most well-known and used qualitative model in the industry is Failure Mode and Effects Analysis, or in short, FMEA. This model was developed by the US Army in the decade following World War II, the 1950s, and was first developed as a structured technique for failure analysis in order to increase the reliability of military equipment. Nowadays, its application is almost universal, verifying its applicability from the nuclear industry to health care. Despite this great success, this risk management method has many limitations inherent in its qualitative nature and inherent to its function of prioritizing failure modes, also known as the Risk Priority Number (RPN). Its success is due to its ease of being learned and applied to real cases, and many of the limitations pointed out in the literature are usually overcome through alternative methods ^[17]^[18]^[19].

On the opposite side, on the side of quantitative models, there is the Monte Carlo model, which is derived from Buffon’s needle problem as stated in the 18th century. In 1940, Stanislaw Ulam developed the modern version of the Monte Carlo method that makes use of random experiments to determine the parameters of the statistical distribution that models a given event ^[20]. The method, like the FMEA, is well known in the industry, with practical applications from finance to the nuclear industry. It has a slower learning curve and requires prior knowledge of statistics to be used, which is not the case with FMEA. However, this model makes it possible to assess the aggregate risk of a given system, regardless of its complexity.

Another quantitative model widely used in the assessment of aggregate risk is called Failure Tree Analysis (FTA) ^[21], a method invented in 1961 at Bell Laboratories. This model makes use of the reliability block theory to assess the aggregated probability of systems failure. In a similar way, Event Tree Analysis (ETA) ^[22], another quantitative method invented in 1974 during the WASH-1400 nuclear power plant safety study, assesses the probability of a given impact considering all possible paths that lead to that impact.

These models seem similar but have different paradigms: fault tree analysis characterizes the system from the perspective of preventing a given event from occurring, while event tree analysis characterizes the system from the perspective of avoiding impacts given that an event has already occurred.

In practice, these two methods have been used together as a way to assess the aggregate risk of systems through the Bowtie model ^[23]. This model is a diagram that establishes a relationship between basic events and the impacts of the respective top event. It takes into account prevention and mitigation barriers, and because of that, it is one of the most robust frameworks for risk assessment and management.

An example of a risk assessment and management tool that allows the assessment of aggregate risk through a mixed approach (quantitative and qualitative) is the fuzzy logic method ^[24]. This method began to be studied in 1920 by the authors Lukassiewicz and Tarski and was later introduced in the literature in 1965 by Lotfi Zadeh. It uses the human interpretive paradigm to model the behavior of systems. It uses linguistic variables, membership functions, and rules of inference, evaluated qualitatively, to infer about the system’s outputs as a result of the aggregated contribution of each system component. It is a method that has proven itself in the most varied areas of industry, from artificial intelligence to medical decision making.

3. Risk Factors in Logistics

The literature mentions that participation in collaborative networks in the field of logistics has had little appeal due to uncertainty about the quality of the services provided by network operators ^[25]. This uncertainty results, in part, from the lack of indicators showing the quality level of operators. In collaborative networks, the choice of a particular operator for a given logistical task is essentially based on operational parameters such as cost and time ^[26]. However, this strategy does not take into account the fundamental concerns of the companies that need the logistics service and of the companies that provide the logistics services.

In a sense, these two factors can be combined, because the lack of third-party liability affects the reputation of the company that contracts other companies. In this way, the sum of the liability factor and the reputational damage factor results in a factor with the highest weight among the factors.

The impact on reputation extends to very different areas of logistics. In this sense, the assessment of reputational risk becomes essential for the decision making of companies in their interactions with third-party companies and also for the assessment of the quality of the services provided by the company itself.

In this sense, it is important to develop a model for assessing reputational risk in order to support decision making and to promote the participation of companies in collaborative networks. The benefits of such participation are widely discussed in the literature and have been shown to be positive in practice ^[27]. However, the participation of small- and medium-sized enterprises in collaborative logistics networks is low, despite the benefits that can result from such participation.

References

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Vitor Anes

António Abreu

Ana Dias

João Calado

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1. Collaborative Networks

2. Risk Assessment and Management

3. Risk Factors in Logistics

References