Open access peer-reviewed chapter

Investigation of the Risks of Non-Conforming Services in Logistics: Failure Mode and Effects Analysis (FMEA)

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Marieta Stefanova

Reviewed: February 16th, 2022Published: March 23rd, 2022

DOI: 10.5772/intechopen.103755

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After the analyses were performed using the SERVQUA model, the results were used for risk analysis (FMEA) to identify the causes, assessment, and consequences of logistics services that do not meet customer expectations. FMEA analysis was used as a method to investigate the consequences of emerging risks by quantifying the severity, likelihood of occurrence, and detection of non-conforming logistics services that further generated the RPN. Suggestions for specific actions to manage risks and opportunities that can be used for optimisation or improvement are also provided. From the analyses, it can be concluded that the main reasons for the decline in customer satisfaction are poorly managed logistics processes caused by the lack of sufficiently competent employees ready to deal with emerging risks and human errors.


  • FMEA
  • logistics services
  • non-conformities
  • risk

1. Introduction

Although the need for risk management in logistics arises as an alternative to commercial insurance; a good practice is to adequately manage it as a form of contingency insurance in the normal practice of logistics organisations. Risk management is concerned with the development of a crisis management plan should an adverse event occur. Mikušová finds that senior management of smaller organisations is very sceptical about their ability to manage risks and consequently a crisis. Under a crisis, their solution is to dismiss employees and wait for more favourable conditions [1]. Most managers believe that preventing crises by planning specific actions in the event of an adverse event is costly and the benefits are not always proven [2, 3, 4, 5]. Some studies have found that managers do not invest resources in crisis prevention because they believe that the crisis will, in most cases, unfold differently than their expectations [6, 7]. Other managers believe that there is no need to make such response plans [8] because their organisation is strong enough to overcome any risk and has the right strategic partner, the perfect product, or sufficient financial backing [9, 10]. A crisis resulting from dynamic changes in the external environment has the potential to threaten the sustainability and put the survival of the company at risk [11] if adequate action is not taken to overcome it [12]. The positive impact of the analysis of potential risks to the business is the ability to uncover the means of optimising it. It should be noted that the causes of the same risk may be different—internal and external to the organisation. This study finds that most management crises start as small problems that are overlooked and ignored. In the longer term, these problems grow into crises that can deepen and threaten the reputation and survival of the business. To avoid this development, smouldering risks that have the potential to grow into a crisis for the business must be minimised. Several distinguishing features help to overcome and minimise risk in logistics, the most important of which is related to taking immediate measures that can jeopardise the performance of delivery contracts and unfortunately are not within the control of the logistics company. Pearson and Mitroff find that most crises go through several stages, as shown in Figure 1 [13].

Figure 1.

Stages in crisis management (adapted from Pearson and Mitroff) [13].

Several warning signs of major operational problems have been identified, which have the potential, in most cases, to escalate into a crisis for the business. These are presented in Figure 2.

Figure 2.

Crisis warning signals (adapted from Pearson and Mitroff) [13].


2. Investigation of the risks of non-conforming services in logistics - failure mode and effects analysis (FMEA)

The risk analysis of non-compliant processes in logistics services using the FMEA analysis was conducted by the steps, shown in Figure 3:

Figure 3.

Main stages of conducting FMEA in logistics services.

2.1 Stage 1. Scoping

The main objective of scoping using FMEA analysis is to investigate the impact of risk factors that could affect the identified gaps between satisfaction and needs of customers or users of logistics services and that, as a consequence, negatively affect the financial performance of the FMCG logistics business. The results of the analysis can be used to prevent these factors from occurring or to reduce their impact and reach the required level of quality and efficiency.

The scope of the FMEA analysis includes the risk factors for the identified gaps between the satisfaction and needs of customers-users of logistics services, which directly or indirectly impact the prosperity of the organisation in the sample.

2.2 Stage 2. Define the constraints of the logistics processes and their corresponding inconsistencies

  • The first set of constraints related to the application of qualitative analysis and whether there is a risk of non-compliance. Subsequently, only the identified risks are assessed, which implies that some risks are neglected.

  • The second set of limitations relates to the timing of the analysis. For some risks, the estimate may be understated or overstated if the risk has a more significant short-term impact at that particular time.

2.3 Stage 3. Define and decompose the individual processes and sub-processes to be studied to obtain single components

Risk factors that can negatively affect customer satisfaction and needs can occur in any logistics service management process. Thus, we use FMEA analysis for the overall planning and management of processes related to logistics service quality management. The processes for delivering customer satisfaction are divided into sub-processes and work operations. The steps of the overall process and the definition of the operations are summarised in a flowchart for greater visibility and accessibility during the analysis and are presented in Figure 4.

Figure 4.

Managing a compliant logistics service.

The relationships between the different units in logistics organisations are of primary importance to achieve the efficiency of any business. Within a logistics organisation, it is good practice to identify several centres of financial responsibility that aim to define the precise authority and responsibility of each unit and the strategic priorities to spend the incoming cash flows. Traditionally, four levels of financial responsibility are considered, as shown in Figure 5.

Figure 5.

Financial responsibility in logistics by department.

The financial responsibility for managing expenditure should rest with the department responsible for the entire range of services, which require the utilisation of the budget set by the higher-ups. Optimising the nomenclature of service offerings is, unfortunately, not in their remit, as at this level, they only implement strategic objectives. A very wide range or a rapid expansion of the logistics service portfolio is a common cause of financial insolvency for many organisations in the supply chain. This is also the main reason for inconsistencies in sustainable service quality as too wide a range makes it difficult to control the activity and hinders specialisation in and improvement of the service delivery process. Management at this level is based on controlling deviations from pre-drawn higher-level budgets and the efficient use of working capital, which must be available to facilitate activity.

The financial responsibility for income management should rest with the department responsible for effective customer communication and providing the business with fresh funds to operate the organisation. Achieving compliance in the business is about building effective channels of communication and collecting receivables from customers based on sales volumes realised in value terms. The results of operations are related to the actual sales revenue collected, which is a significant contributor to the formation of profit or marginal income that is realised after deducting variable costs from the collections. In the context of quality management in logistics, this centre has the following priorities:

  • Responsible for the development, implementation, and maintenance of the risk management framework.

  • Presents and introduces the necessary actions to overcome risks and create opportunities.

  • Undertakes specific activities to ensure organisational confidence that the logistics system can achieve intended results to improve desired trends and effects and prevent or reduce undesired trends and effects.

  • Prepares information to analyse the effectiveness of actions addressing risks and opportunities and includes suggestions for improvement and risk treatment that require additional resources and (or) involve significant changes in the management of the logistics organisation’s operations.

The financial responsibility for earnings management should rest with the department that has broader authority in making strategic decisions about target market definition, pricing policy, and asset management. It is good practice for this centre to make decisions on whether to outsource activities that are not typical and profitable for the organisation and hire, lease, or acquire the means of transport to perform the logistics services. It is unlikely that these centres will decide on funding sources and the basic nomenclature of logistics activities.

The financial investment management function has the greatest responsibility in the organisation and oversees the strategic effectiveness of logistics. The centre is the line decision-maker in selecting potential funding sources and determining directions, has the authority to manage assets.

The investment management department should define the risk management framework at each level of the organisation (Figure 6). The main aspects of focus are as follows:

  • Understanding that the organisational context is the basic requirement for designing the risk management framework and defining risk levels and treatment criteria.

  • Risk management principles are part of the logistics organisation’s policy.

  • Active internal communication between departments and control of documented information is used to communicate how risks and opportunities are being addressed.

  • Adequate allocation of responsibilities and authority in actions to address risks and opportunities.

  • The highest management level must ensure that:

  • Risk management principles are part of the logistics service quality management policy.

  • Based on its defined scope of organisational logistics activities, it formulates specific tasks to address risks and opportunities as part of the organisation’s performance indicators.

  • The defined framework and allocated responsibilities and powers are adequate to manage the framework.

  • The resources provided and secured in the logistics activity to address risks and opportunities are adequate to the size and magnitude of the risks managed.

  • Effective communication is applied to explain benefits and uncover beneficial opportunities in the interest of all stakeholders.

  • Adequate actions are implemented to address quality management risks.

Figure 6.

Logical service quality management through leadership.


3. Actions to address risks and opportunities

Actions to address risks and opportunities are part of the logistics decision-making process at every level of the organisation and are a fundamental mechanism for quality improvement and management. The risks studied by the experts are labelled from F1 to F100 and acquire different numerical values according to the methodology set out in Chapter 2. The results of stages 4–8 are tabulated and included in Section 3.1 of the study.

3.1 Risk analysis of inefficient process management and human resource management

Shortage of human resources (F4) and lack of skills (F1), experience, and competence in logistics have been identified as two key factors contributing negatively to competitive advantage [14, 15, 16, 17, 18]. Along with these key factors, we witness increased staff turnover (F2) due to insufficient material incentives and management [19, 20]. First, to analyse the risk of process and human resource management, the study identifies how perceived problems, uncertainties, trends, and solutions are handled in the daily employee management during process management. The risks (F1 to F10) listed in the following tables and graphs provide a basis for further building plans to minimise or manage them in the field of real logistics. Very often, these risks are ignored by the management of the logistics company and subsequently become the cause of the shrinking or increasing losses of the activity. The risk associated with the lack of skilled labour [21] should be addressed by increasing the effectiveness of training (F3). Training programmes should be tailored to the different levels of staff competence attained [22, 23]. However, according to the experts involved in the study, it is often schematic and too general, and without a specific focus on the real problems arising in day-to-day work. The risks are magnified and exacerbated when company management does not provide a sufficient budget for staff training. In the wake of the pandemic, which necessitated social distance and limited commuting activities, logistics firms faced the challenge of dealing with reduced or limited human resources due to staff morbidity (F6). Evidently, emerging risks are related to a lack of professional interest, motivation to perform [24] and complete tasks, and mismatch between the employee’s and the organisation’s goals. Many researchers have proposed specific models for their management, including McAfee, Kilibarda, Anastasia, Kompf, Kanev, and others [25, 26, 27, 28, 29, 30, 31]. The main implications of risks related to process management and human resource management are summarised in Table 1.

ConsequencesInitial PRN (Figure 7)Actions to manage risks and opportunitiesResidual PRN (Figure 8)
The absence of staff competence to perform a specific assigned taskF1978504Periodic analysis and review of staff competency requirementsF1958360
Increasing staff turnoverF2664144Improve the recruitment process (recruitment of trainees)F2645120
Reducing the effectiveness of trainingF3966324Expansion of programmes and forms of training.F3936162
Shortage of personnel to meet the requirements associated with the task.F4977441Improve the recruitment process (recruitment of trainees)F4967378
Lack of budget for staff training.F5583120Annual budget planningF556390
Temporary physical and mental disability of the employeeF666272Conduct preventive health check-upsF665260
Lack of professional interest and motivation to perform and complete the taskF7749252Improved staff motivation system; Improved staff appraisal processF7739189
Misalignment between the employee’s personal goals and the organisationF8755175Career growth planning; Improving working conditionsF875270
The appearance of conflict in the performance of assigned workF9756210Improved staff appraisal process.F9755175

Table 1.

Risk analysis in process management and human resource management.

Figure 7.

Pareto analysis of initial PRN from F1 to F9.

Figure 8.

Pareto analysis of residual PRN from F1 to F9.

In the analysis, the risk factor rated as the highest priority risk was the absence of staff competency to perform a specific assigned task (504) and after taking risk management actions, the risk of the residual PRN decreased (360). The new priority risk is to improve the process for searching and recruiting staff with PRN (378).


4. Analysis of risks associated with maintaining infrastructure and equipment

Logistics organisations must daily minimise the risk and impact of unforeseen damaging events associated with maintaining infrastructure and equipment. It does not need to be proven that a damaged transport vehicle could not complete the delivery. Therefore, various events, as well as inconsistent logistics and transport processes, may contribute to a deterioration in the quality of logistics services. Many researchers recommend various programmes or specific actions to minimise this risk [32, 33]. One potential solution is to implement an incentive model that can be utilised for scenario-based collaborative risk management [34, 35]. The main risks associated with infrastructure and equipment maintenance management are summarised in Table 2.

Consequences of riskInitial PRN (Figure 9)Actions to manage risks and opportunitiesResidual PRN (Figure 10)
Failure of equipment or inadequate conditions for storage activities and infrastructureF10965270Improving the planning of repair and maintenance activitiesF10835120
Failure to meet the schedule for infrastructure maintenanceF11845160Establishing workable equipment maintenance schedules in coordination with external suppliersF1173484
Failure to meet the repair schedule due to lack of qualified personsF12856240Increasing the competence of the staff carrying out the repair work or selecting a new provider for these servicesF12755175
Shortage of material resources (technical equipment for the implementation of the process)F13986432Resource planning and improvement of technical equipmentF13556150
Repetitive failures, repetitive repairsF14675210Adjustment of the depreciation plan and life of the equipmentF1464496

Table 2.

Analysis of risks related to infrastructure and equipment maintenance.

Figure 9.

Pareto analysis of initial PRN from F10 to F14.

Figure 10.

Pareto analysis of residual PRN from F10 to F14.

In the analysis, the risk factor assessed with the highest priority risk was a shortage of material resources to perform the process (432) and after taking the risk management actions, the residual PRN has decreased to 150. The new priority risk is from failure to meet the schedule for repairs due to a lack of skilled personnel (PRN 175).


5. Managing risks associated with process control, monitoring, and measurement tools

Almost every logistics activity involves inventory management and inventory control. This necessitates the use of various monitoring and measurement tools that are affordably reliable to accurately account for the monitored items. The main activities involving monitoring and measuring tools are counting stock and collecting information on quantities of goods ordered, on hand, and dispatched. Some of the commodities handled in logistics must be stored under certain temperature and humidity conditions. Undoubtedly, if the measuring equipment did not correctly report these parameters and action was not taken when deviations from these parameters occurred, the company would suffer huge losses. The decision on what constitutes the appropriate means of measurement is based on each activity. Even when the means of measuring temperature is sufficiently reliable, it may not be suitable for the usage conditions. For example, thermometers that monitor temperature fluctuations in storage conditions in vehicles are not suitable for use in storage areas. The most complex task associated with measurement tools for inventory management is the purchase of a good data management system [36, 37] that processes the transaction data and generates reports and analyses in real time [38]. Many studies solve this problem; some researchers have also studied the existing inventory and stock management systems with their advantages and disadvantages [39, 40, 41, 42, 43]. Choosing the right measurement tool for stock and inventory can help to improve the efficiency and execution of timely deliveries [44] while fully utilising the capacity of the delivery vehicle and warehouse. The main risks are maintaining optimal inventories under dynamically fluctuating order and delivery schedules [45, 46, 47], managing stock build-up in the warehouse as a result of fluctuations in demand [48], inadequate performance of logistics services when warehouses and transport facilities are not fully utilised [49], and containers for international transport [50]. The utilisation of full vehicle capacity deteriorates due to poor demand planning if the vehicle is empty in one direction for longer distance deliveries [51]. An interesting study by Wantanakomol optimises the decisions taken related to the sizing of delivery batches according to demand forecasting and inventory level [52].

Table 3 summarises the main risks of inefficient process management and management of monitoring and measurement tools.

ConsequencesInitial PRN (Figure 11)Actions to manage risks and opportunitiesResidual PRN (Figure 12)
Control, monitoring and measurement error (biased control)F15684192Improve methods for identification and verification of measuring equipmentF15674168
Performing control with untested or uncalibrated measuring equipment (biased control)F16963162Periodic review of monitoring and measurement techniques and methodsF1654360
Measurement uncertainty (high uncertainty of process measurement)F1775270Improve methods for identification and verification of measuring equipmentF1773242
Failure to comply with measurement conditions (temperature range, humidity)F1873242Improve methods for identification and verification of measuring equipmentF1873242
Incorrect interpretation of measurement resultsF19746168Improve competence of those carrying out monitoring and measurementF1974384
Damage to measuring equipment during the measurementF20538120Availability of spare measuring equipmentF2053460
Damage to measuring equipment during transportationF2154360Periodic monitoring of ME storage and transport conditionsF2154360
Metering equipment failure incidentsF22748224Occupational safety compliance programmesF22745140

Table 3.

Risk analysis of inefficient process management: management of monitoring and measurement tools.

Figure 11.

Pareto analysis of initial PRN from F15 to F22.

Figure 12.

Pareto analysis of residual PRN from F15 to F22.

In the analysis, the risk factor assessed with the highest priority risk was incidents related to meter equipment failure (224), after taking the actions to manage the risk the residual PRN has decreased (140). The new priority risk is control, monitoring, and measurement Error (biased control) with a PRN of 168. Decisions to purchase new and more appropriate controls and process management software must be made considering the potential benefits, to the logistics firm and its customers, from the joint use of inventory control and warehouse management system in constrained systems.


6. Risk management of organisational knowledge

Organisational knowledge management risks arise from the contradiction that organisational knowledge is acquired, developed, and can be disseminated by employees, and logistics organisations can only create the necessary condition for defining, expanding, and protecting the malicious leakage of this knowledge. Nonaka has made great progress in defining a framework for organisational knowledge creation, which has been referenced by others 28,000 times [53]. Many researchers have conducted and, consequently, published studies on the positive effect in the management of knowledge sharing but the negative effect of knowledge leakage, including knowledge in the management of logistics processes, are still not adequately studied. There has been extensive research on the impact of protecting knowledge and information by developing a portfolio of measures [54, 55, 56, 57, 58]. A summary of the risks of ineffective management of the organisational knowledge management process is presented in Table 4.

ConsequencesInitial PRN (Figure 13)Actions to manage risks and opportunitiesResidual PRN (Figure 14)
Leakage of information from the organisation’s database.F23958360Increase the organisation’s information security, implement ISO/IEC 27001:2013.F23937189
Dissemination of false information within the organisationF24957315Preparation and periodic updating of the list of the organisation’s information assetsF24946216
Lack of information to analyse the problem.F25959405Involve experts to develop the database in the organisationF25955225
Lack of information needed to solve the problem.F261073210Improve the system for collecting and analysing data from external sourcesF261063180
Deliberate dissemination of inapplicable information and knowledge within the organisation.F27943108Conduct an expert assessment of the currency, completeness, and order of information from the organisation’s banking sourcesF2793381
Unauthorised use and dissemination of information in the organisation’s knowledge base.F28954180Increase motivation through information security training in the organisationF2852440
Use of incomplete information from the organisation’s database.F29986432Conduct expert assessment of the update, completion, and order of use of information from the organisation’s banking sources; Conduct expert assessment and document control prior to approval.F29686288

Table 4.

Ineffective process management.

Figure 13.

Pareto chart analysis of initial PRN from F23 to F29.

Figure 14.

Pareto chart analysis of residual PRN from F23 to F29.

Experts assigned the highest priority risk scores to two factors—lack of information to analyse the problem and use of incomplete information from the organisation’s database. After actions were taken to manage the risk, the residual PRN decreased from 405 to 225 for the first factor and 432 to 288 for the second. Despite the actions and measures taken to manage risks, the risk factors of not having information to analyse the problem and using incomplete information from the organisation’s database remain at a high level, which requires these factors to be monitored as a priority in the future. Minimising the risk of organisational knowledge leakage is essential for any logistics firm as a key factor in maintaining the organisation’s competitive advantage.


7. Management of documented information

Achieving quality in logistics operations requires documented information on the status of the units to be managed at each stage of the process and transport of goods between logistics warehouses. This flow of information becomes larger and more complex as the product physically approaches the end user. In recent years, with the free movement of goods, the required information documentation accompanying the goods has become more detailed and voluminous. Many researchers have explored the strategic potential of effective interaction between logistics and information technology for customer value creation and process performance management [59, 60, 61, 62, 63, 64]. Some researchers have also proposed specific models to manage and promote the implementation of an effective sustainability risk management system in the logistics network [56, 65, 66, 67, 68]. These prerequisites create risks that must be managed to prevent the destruction, total loss, or tampering of documented information between logistics operators and manufacturers or customers. The most significant risk, identified by the experts involved in the study, was the inconsistencies related to the complexity of the requirements or the competence of the staff to process them and the loss of documented information during the execution of logistics activities. The increased risk of loss of transport documents has been investigated by several researchers, some of whom have suggested specific improvements to minimise this impact [69, 70, 71, 72, 73]. Achieving a higher quality of logistics services can be sought through the creation of an adequate documented information management system, which has the potential to contribute and solve the ongoing tasks of delivering various goods just in time and prevent and reduce possible logistics loss risks in the future. Table 5 presents the results of the risk analysis related to the ineffective management of documented information.

ConsequencesInitial PRN (Figure 15)Actions to manage risks and opportunitiesResidual PRN (Figure 16)
Incorrect or incomplete completion of record forms.F30964216Timely updating and programming of documented informationF30854160
Records management errors.F31654120Control of training on documented informationF3145480
The use of outdated documented information (including that of external origin).F32984288Improve methods for managing documents of internal and external origin, including search enginesF32884256
Inconsistency in documented staffing, competency, and/or complexity of requirements.F33965270Increase information security in accordance with ISO 27001:2013 requirementsF33955225
Lack of access to the full set of documents at the point of use.F34977441Preparation and periodic updating of the list of the organisation’s information assetsF34963162
Delayed receipt of documented information.F35987504Prepare and periodically update the organisation’s information assetsF35966324
Lack of documented information.F36965270Timely software and database updatesF36955225
Loss of documented informationF37975315Improving document management methodsF37973189
Breach of confidentiality of documented information.F38986432Increase motivation through information security training in the organisationF38976378

Table 5.

Management of documented information.

Figure 15.

Pareto analysis of initial PRN from F30 to F38.

Figure 16.

Pareto analysis of residual PRN from F30 to F38.

In the analysis conducted, the risk factor rated with the highest priority risk was the loss of documented information (504); after actions were taken to manage the risk, the residual PRN decreased (324). The new priority risk is a breach of confidentiality of documented information with PRN (378).


8. Ineffective process management: marketing (including customer communication)

The link between logistics activities and marketing must be made in line with the decision-making for each specific logistics service. Marketing activities are linked to decision-making not only on how to deliver the products but also the choice of the types of outlets where the products will be delivered and the form in which sales will take place. Particular attention should be paid to promotional activities. Internet commerce has developed at a significant pace in recent years, which has also allowed potential business opportunities to grow. The policy chosen for the distribution of goods is a high priority and has a direct bearing on increasing customer satisfaction with logistics services. The integration of logistics and marketing functions allows the expansion of market opportunities and assortment. Internal integration between logistics processes helps to eliminate functional errors and improve coordination between functional areas. Gimenez and Ventura’s study on external integration of logistics [74] concludes that internal integration does not lead to better absolute performance and does not contribute to cost reduction, production availability, or lead time (the article has been cited over 650 times). Flynn’s study [75] builds on this view by exploring the reasons for the lack of positive effect and demonstrates that the integration approach needs to be contingency-driven. His study concludes that internal and customer integration are more strongly associated with performance improvement than supplier integration.

Experts find that the highest risk in this area is an unidentified properly positioned market segment and capacity. To minimise this risk, organisations must reorient logistics services to customers who contribute the most and have the greatest potential for growth, while reducing or even eliminating customers who do not contribute to prosperity. The inconsistency with the greatest negative effect is the acceptance by logistics organisations that the market is homogeneous, and the same services are provided to different groups of customers who have different backgrounds and different logistics needs. Table 6 presents the results of the risk analysis related to Ineffective Process Management: Marketing.

ConsequencesInitial PRN (Figure 17)Actions to manage risks and opportunitiesResidual PRN (Figure 18)
Shortage of marketing department staff with competence to solve marketing problemsF391094360Improves the employee search and recruitment process (hiring trainees) and periodic competency analysis of marketing department staffF39994324
Omission of commercial informationF40978504Increase the competence of the marketing department staff, including training, internship programF40878448
Lack of budget for marketing activitiesF41863144Improve the planning of marketing activities and increase the frequency of execution of plansF41763126
Lack of motivation and effective communication between the client and the organisationF42882128Analysis of communication channelsF42872112
Loss of brand loyaltyF43976378Improve marketing activity planningF43976378
Market segment and positioning capacity not properly identifiedF441079630Improve marketing activity planningF441058400
Ignoring internal communication at the expense of externalF45966324Improve internal communication between departmentsF45965270
Customer relationship management only, without considering the entire supply chainF461088640Improve planning with consideration of the entire supply chainF46986432
Underestimate the potential of emerging marketsF47899648Improve planning to consider the potential of emerging marketsF47897504
Satisfy unrealistic demands that are important for the logistics company but not for the customerF481087560Improve planning with consideration of actual customer requirementsF48986432
Failure to meet customer requirements in the long termF491098720Improve planning with consideration of actual customer requirementsF49998648
Lack of expansion of the range of services offered and failure to provide innovative logistics serviceF501097630Improving planning to consider innovation in the sectorF50997567

Table 6.

Ineffective process management: marketing.

Figure 17.

Pareto analysis of initial PRN from F39 to F50.

Figure 18.

Pareto analysis of residual PRN from F39 to F50.

In the analysis, the risk factor assessed with the highest priority risk was the failure to satisfy customer requirements in the long term (720); after actions were taken to manage the risk, the residual PRN has decreased (648). One of the consequences of the risks is related to the insufficient expansion of the range of services offered and failure to provide new and innovative logistics services. As a result of being reclassified from fifth in priority to second, the logistics organisation’s efforts must be directed towards its priority monitoring with minimisation of risk consequences (PRN 567).


9. Ineffective process management: contract analysis

The rapid development of logistics services does not correspond to standard contracts for freight forwarding, logistics, and transport. Many researchers have identified emerging issues between the service offered, its legal function, and the risk of sales uncertainty associated with the transfer of ownership of goods and product liability to the logistics provider [76, 77, 78, 79]. The main challenges are related to closer cooperation and relationship between the logistics company and the law firm, which establishes a contractual relationship with customers and defines the legal consequences. The inconsistencies in this process are related to the failure to understand the full legal impact and implications of even minor changes in the contractual relationship.

Contracts are an appropriate tool not only for managing logistics risks but also for managing customer relationships and for establishing and facilitating communication, coordination, motivation, and control between business partners. Well-managed contractual relationships can have a positive impact in preventing problems, reducing litigated claims, and regulating and governing relationships that would be difficult to achieve without contracts [80, 81]. The concepts of supply chain vulnerability and risk management require a more precise definition [82] by negotiating actions when incidents and emergencies occur.

Table 7 presents the results of a risk analysis related to ineffective process management: contract analysis.

ConsequencesInitial PRN (Figure 19)Actions to manage risks and opportunitiesResidual PRN (Figure 20)
cExceeding the processing time for customer enquiriesF5110108800Improve methods for scheduling and handling customer enquiriesF5110106600
Inconsistencies in the drafting of the contractF521087560Development and use of standard forms for contract draftsF521085400
Incorrect expert opinion on the draft contractF53986432Increase the competence of the experts reviewing the contracts proposed for approval and simplify the contract drafting procedureF53974252
Not all amendments are made when product (service) requirements changeF541088640Use of corporate information systems for contract design and reviewF541077490
Ineffective process of establishing long-term stable and trusting relationships with customersF55784224Increase the competence of the experts responsible for validating contracts and simplify the contract drafting procedureF55684192
Underestimating the risk to the outcome of a lawsuit with non-compliant logistical processesF56976378Review of the actuality of the claims handling budgetF56975315
Failure to take adequate and timely action to address complaintsF57987504Develop a programme and procedure for dealing with complaintsF57976378
The occurrence of a risk in the supply chain that is beyond the company’s controlF5810109900Establish a risk management and information control program and supply chain changesF581098720
Changes to regulated rules on compensation for injuries and damagesF591088640Establish a risk management and information control program and supply chain changesF591078560
Changes to the rules governing forwarding agency and customs clearanceF601098720Establish a risk management and information control program and supply chain changesF601078560

Table 7.

Ineffective process management: contract analysis.

Figure 19.

Pareto analysis of initial PRN from F51 to F60.

Figure 20.

Pareto analysis of residual PRN from F51 to F60.

To prevent these risks of legal claims and litigation and seek a path to effective resolution of disputes before they reach the courts, a legal framework should be established to regulate these relationships. The risk of not taking adequate and timely action to address claims was assessed as the greatest risk of non-compliance in the process. In the analysis, the factor assessed with the highest priority risk was the occurrence of a supply chain risk that is outside the control of the organisation. Making adequate and informed decisions to minimise this risk should become a top priority for the organisation. The increased frequency and severe consequences of past supply chain disruptions, as witnessed during the COVID-19 pandemic, set the stage for the deterioration of many logistics organisations’ financial performance.

The risk management actions set out in Table 7 are about making appropriate decisions; however, their effect, similar to any event, is associated with a degree of uncertainty and indeterminacy. It should be noted that the process of taking action to manage any risk should be continuous because misjudgements of risk factors can lead to unforeseen developments that can have negative consequences when identified too late. The consequences will be greatest for logistics organisations with only one warehouse or only one single supply channel. To prevent these severe consequences of external risks from threatening the company’s control, plans must be put in place to manage them and, if possible, move towards diversification before or as changes in the environment occur. This process becomes more difficult to manage when negative changes occur in the external environment. In such cases, risk factors may outweigh mitigation strategies. The occurrence of risks in the supply chain as a result of unpredictable events that occur suddenly and are high impact, which are not within the control of the company, can lead to the potential loss of the organisation’s efficiency and effectiveness targets. Thus, the process of reassessing control measures for the most highly rated risk by experts must be continuously monitored and managed.


10. Inefficient process management: design and development of new services

Risk management issues in logistics projects are primarily related to resourcing. These problems can be resolved by introducing internationally accepted quality standards for risk management (ISO 9001; ISO 31000; ISO 31010) in project management by using a systematic approach. It is a globally accepted good practice to integrate risk management into corporate sustainability management as a stand-alone functional unit.

Resourcing can be provided through support contracts with resource providers to mitigate risk. The potential to significantly reduce risks in the implementation of project activities is defined by good logistical coordination in the receipt and execution of requests and rapid response to negative changes in the environment and supply chain. Table 8 presents the results of a risk analysis related to ineffective process management in the design and development of new services.

ConsequencesInitial PRN (Figure 21)Actions to manage risks and opportunitiesResidual PRN (Figure 22)
Failure to meet design objectivesF61887448Enhancing competencies for the management and implementation of project activitiesF61867336
Failure to meet the design deadlineF62764168Improve planning methodsF62744112
Design cost over-runsF63754140Optimise the frequency and depth of analysis phases for design performanceF6373484
Shortage of material resources for the implementation of the logistics projectF64935135Provide material resources or secure them through resource support contractsF64934108
Shortage of human resources for the implementation of the logistics projectF6510104400Provision of human resources with employment programmes or through resource support contracts with organisations providing this type of serviceF651084320
Shortage of material resources for the implementation of the logistics projectF66656180Ensure financial resources or secure them through resource support agreements with lending institutionsF66654120
Lack of financial resources to implement the logistics projectF67545100Provide material resources or secure them through resource support contractsF6752550
Unproductive processes that hinder project implementationF6844464Optimise the frequency and depth of analysis phases for design performanceF6844464
Implementation of processes that do not add valueF69656180Optimise the frequency and depth of analysis phases for design performanceF69646144
Poor coordination between the members of the logistics project teamF70785280Actions to increase coordination: workshops and operational meetingsF70783168

Table 8.

Ineffective process management: design and development of new services.

Figure 21.

Pareto analysis of initial PRN from F61 to F70.

Figure 22.

Pareto analysis of residual PRN from F61 to F70.

The factor rated with the highest priority is failure to meet design objectives. It need not be proven that the management and resourcing of design logistics risks and risk management in operational logistics activities should be integrated to achieve the objectives and minimise the waste of resources. The risk of human resource shortage for logistics project implementation is highly appreciated. In addition to resourcing logistics projects, there is a need to establish a mechanism and develop programs to manage the vulnerability of project activities and implications for management throughout the implementation chain, while eliminating unproductive activities that do not add value to the organisation or customers.

11. Inefficient process management: management of processes, products, and services by external suppliers

The processes and products provided to the organisation by external suppliers are driven by the growing trend towards outsourcing of secondary logistics activities—transportation, packaging, and warehousing. The rationale for the demand for outsourcing logistics services is related to improving competitiveness by streamlining business activities and concentrating entirely on core competencies.

Many researchers are focused on identifying the factors for reaching outsourcing selection decisions. Most research publications identify the following factors:

  • access to expertise from classified staff and experts [83, 84].

  • reduce or stabilise costs [85, 86, 87].

  • concentrate on core competencies [88, 89].

  • financial restructuring [90, 91].

  • overcome organisational problems [92].

Table 9 presents the results of a risk analysis related to ineffective process management of processes, products, and services from external suppliers.

ConsequencesInitial PRN (Figure 23)Actions to manage risks and opportunitiesResidual PRN (Figure 24)
Irregular deliveriesF711089720Establish a supplier management program. Negotiate with alternative suppliers of the same commodityF711085400
Lack of resources for effective supply planningF72874224Improve staff competency to execute project activities and pre-agree budget to meet objectives and Adequacy Analysis of design resourcesF72873168
The impact of changes on the achievement of design objectivesF7363472Analysis of all implications, introduction of changes as a result of the designF7363472
Failure to meet delivery deadlines for external processes, products, and servicesF741079630Expand the list of approved suppliers and reduce the timeframe for their approval and validationF741078560

Table 9.

Management of processes, products, and services from external suppliers.

Figure 23.

Pareto analysis of initial PRN from F71 to F74.

Figure 24.

Pareto analysis of residual PRN from F71 to F74.

Irregularity of supply has been identified as the greatest risk in processes related to services from external suppliers (PRN 720). This risk arises from the lack of control over processes that are under the supplier’s control. Typically, the issues related to the supplier’s management experience and skills, which may be less than expected, and their inability to meet the performance requirements for the services.

Lack of outsourced process supplier capability can also negatively impact the risk of missing delivery deadlines. After the action was taken to manage the risk and the potential impact of failure to meet delivery deadlines was assessed by the experts with high scores; the risk is now ranked as priority one.

12. Ineffective process management: service delivery

Logistics activities, such as inventory and order management, warehousing, and transportation, can be managed through the opportunities provided by technological developments to organise supply chain relationships. Customers have identified the timeliness of requested deliveries as one of the most significant factors in their satisfaction. The present study found that the quality of logistics services has significantly impacted satisfaction and loyalty. Thus, logistics organisations must invest resources to improve quality management and share these improvements throughout the supply chain. Table 10 presents the results of the risk analysis on ineffective process management—external suppliers’ processes, products, and services.

ConsequencesInitial PRN (Figure 25)Actions to manage risks and opportunitiesResidual PRN (Figure 26)
Discrepancies between the characteristics of the services provided and those specified in the contract.F751076420Analyse the adequacy of resources for service delivery and expand the list of established outsourcing providersF751065300
Error in the preparation of the proposed contracts to be agreed, including incomplete and incorrect information;F761044160Introduce a requirement to use legal advice to improve the wording of clauses in contracts with external suppliersF761034120
Inaccurate completion of the requirements for the characteristics of the products supplied and/or incomplete description of the service or process supplied.F771076420Improve the system for processing requests for products and services deliveredF771066360
Failure to meet a product or service delivery deadline.F78954180Regularly monitor and improve the service delivery techniques (technology documentation) and Improvement of planning methodsF78934108
Provision of service in breach of procedure or failure to comply with an established service provision procedureF791076420Training and competence of the process owner and operatorsF791046240
Failure to comply with the general conditions laid down in the approved contractsF801044160Training and competency of process owner and operators and optimising the frequency and depth of management review in the service delivery processF801043120
Lack of human and material resources for service deliveryF811076420Resource adequacy analysis for service deliveryF811054200
The logistics services provided do not meet the agreed specificationF82854160Training and competency of process owner and operators and optimising the frequency and depth of management review in the service delivery processF82844128

Table 10.

Ineffective process management.

Figure 25.

Pareto analysis of initial PRN from F75 to F82.

Figure 26.

Pareto analysis of residual PRN from F75 to F82.

Several consequences of the risk are rated high by the experts (F75, F77, F79, and F81). Business planning and management software and resource and process optimisation may have a positive impact on improving the request process by facilitating and meeting delivery terms agreed with the customer. Business software to plan and manage transport activities may have a positive impact on the on-time delivery of orders by meeting the delivery deadline agreed with the customer (factors from F78, F80, and F82). The shortage of classified customer liaison staff in logistics is a growing risk and organisations should, therefore, focus on training and improving the skills of employees needed to provide a high level of customer service (F82). The organisation’s management must address the shortage of human resources to execute processes along with specific actions to manage the risks.

13. Ineffective process management: emergency management

The provision of logistics services involves interrelated processes and relationships between goods suppliers, distributors, transport organisations, wholesalers, and retailers. A logistics system can only operate effectively and efficiently when all processes throughout the customer’s product supply chain are functioning properly. Failure of any process in the supply chain has the potential to negatively impact the entire system and threaten the achievement of the set objectives. It is undeniable that logistics systems internationally are becoming increasingly vulnerable and open to many sources of threats. The high uncertainty in supply and demand due to the spread of the pandemic has further worsened the conditions for the smooth functioning of the supply chain and triggered the need for urgent commodity deliveries and, in some cases, threatened overall food security. Disasters, accidents, and catastrophes of various kinds create challenges for logistics systems to respond quickly and to repackage activities. Table 11 presents the results of a risk analysis related to ineffective process management—inconsistencies and emergencies.

ConsequencesInitial PRN (Figure 27)Actions to manage risks and opportunitiesResidual PRN (Figure 28)
Changes in the internal and/or external context of the organisation (increase or decrease in scope without a plan to implement the changes)F83986432Analyse any possible implications of the changes and Improve forms of communication with clients in the contract implementation process, e.g., regular joint (service delivery) workshopsF83786336
Failure of the service delivery processF84988576Resource adequacy analysis and development and implementation of an ISO 45001 HSE management systemF84788448
Sabotage in the delivery process or loss of customer loyalty during the service delivery processF85859360Enhance staff motivation and develop and implement elements of the ISO 10002 complaints handling systemF85659270
Unidentified non-compliant resultF861098720Improve control methods and non-compliant process of labelling production or service delivery protocol; increase staff motivation through trainingF86898576

Table 11.

Ineffective process management: inconsistencies and emergencies.

Figure 27.

Pareto analysis of initial PRN from F83 to F86.

Figure 28.

Pareto analysis of residual PRN from F83 to F86.

The experts determined the highest levels of initial PRN for factor F86, which is associated with an undefined non-conforming score. The consequences of contingency-induced risks triggered by events that are often beyond the company’s control can severely compromise logistics operations and business existence. Unfortunately, managing them is not always about the logistics organisation taking measures and decisions to manage them but about taking the necessary measures at the source of the event and countermeasures in the whole economy. These negative events can occur both accidentally and as a result of permanent minor changes. Taking this into account, it is possible that, once the risk has been contained, a return to the original state of logistics activity may not be an adequate solution to the changed circumstances. Therefore, from the perspective of the organisation’s strategic interest, it may be more appropriate not to adapt to change and rather create a new development opportunity and a completely changed logistics service delivery system.

This would be an appropriate solution in the drastically changed operating environment and conditions such that the original situation has become unfavourable, and adaptation of the system is not possible.

14. Ineffective process management: Internal audits

The ineffectiveness of internal audits of management systems in logistics is related to the fact that auditors are focused on compliance against a standard applicable to the system and documentation demonstrating such compliance, rather than on identifying opportunities for improvement. Better audit performance can be achieved when the audit programme is focused on identifying opportunities for improvement and adding value over and above the control of compliance against a standard. Table 12 presents the results of a risk analysis related to ineffective process management: internal audits.

ConsequencesInitial PRN (Figure 29)Actions to manage risks and opportunitiesResidual PRN (Figure 30)
Incorrect definition of the scope and programme of the auditF87753105Increase the competence of internal auditors and motivate internal auditorsF8774384
Lack of qualified persons to conduct the auditF88784224Train internal auditors. Hire auditors from external organisationsF8857270
Failure to state a discrepancyF89763126Increase the competence of internal auditors and motivate internal auditorsF8965390

Table 12.

Ineffective process management: internal audits.

Figure 29.

Pareto analysis of initial PRN from F87 to F89.

Figure 30.

Pareto analysis of residual PRN from F87 to F89.

The highest level of initial PRN was determined by the experts for factor F88, related to the lack of qualified persons to conduct the audit. During an internal audit, unqualified auditors would find it difficult to identify and prioritise the problems and ascertain their root causes. Preventive actions against risk should be planned and implemented after an internal audit. It is good practice to re-audit the process where problems have been identified and establish the effectiveness of the corrective actions taken. In cases where the problems are not yet resolved, rather than new corrective actions, a root cause analysis by experts in the field must be conducted to avoid the consequences of identified non-conformities being compounded. Effective internal audits can help to optimise processes and, consequently, provide an effective mechanism to implement changes and improvements and contribute to increased competitiveness.

15. Ineffective process management: leadership, management, and control

The results of the customer satisfaction survey and the opinion of experts involved in risk analysis validate the rule that to improve the quality of logistics services, it is necessary to identify and comply with customer service expectations and service performance, which positively affects customer satisfaction. Problems in management arise in cases where performance cannot meet inflated service expectations. To take action and minimise the risk of this non-conformance involves building a robust system to track orders from receipt of a request to delivery feedback such that problems and conditions that compromise satisfactory customer performance can be acted upon quickly. Management, including the control of customer-compliant logistics services, is the complete cycle of planning, executing, and controlling the efficient, cost-effective flow of raw materials, supplies, and commodities from point of origin to customer delivery and reverse logistics. The competitiveness of services can be achieved through control of the organisation’s available strategic resources (including human resources) or value-creation activities [93, 94, 95]. Logistics organisations should concentrate their efforts not only on the physical delivery of the goods but on resolving any issues that arise, which are of significant concern to the customer, during delivery. Notably, different customers have different essential requirements for logistics services, which are also dynamic over time. This requires a process of continuous improvement and control of service performance. Increased control must be established in response to every case of disruption and complaint. The areas that require continuous improvement are operational efficiency and integration throughout the supply chain. Table 13 presents the results of a risk analysis related to ineffective process management: management, service delivery process management, and strategic control.

ConsequencesInitial PRN (Figure 31)Actions to manage risks and opportunitiesResidual PRN (Figure 32)
Mixing mismatched and matched resultsF90999729Review and update the list of controlled process parameters and continuously improve the qualifications of process operatorsF90984288
Providing non-conforming output and providing non-conforming service to customersF9110109900Analysis and improvement of process control and monitoring methods and process management improvementF9110106600
Increased after-sales service and claims costsF921064240Process resource adequacy analysisF921062120
Conflict with stakeholder interestsF93866288Alignment of decisions with stakeholder interestsF93864192
Failure to achieve a strategic objectiveF941098720Optimise the frequency and depth of analysis of the organisation’s decision-making contextF941095450
Failure to meet quality objectives for compliance with customer requirementsF9510108800Improving methods for planning and analysing the adequacy of resources in processesF9510107700
Contraction of activity or delay in developmentF961096540Analysis of all possible consequences of the changesF961095450
Failure to comply with the general conditions laid down in the approved contractsF971089720Resource adequacy analysis for service deliveryF971085400
Lack of human resources to manage and control processesF98978504Train and improve the competency of process owners and operators and optimise the frequency and depth of management review in the service delivery processF98964216
Failure to comply with decisions takenF991098720Improve planning methods and optimise management review frequencyF991066360
Untapped market development opportunities (emerging niche markets)F 1001099810Optimise management review frequency and programme to monitor changes in market conditionsF 1001088640

Table 13.

Ineffective process management.

Figure 31.

Pareto analysis of initial PRN from F90 to F 100.

Figure 32.

Pareto analysis of residual PRN from F90 to F 100.

Experts identified the highest levels of initial PRN as a factor for providing non-conforming goods or services to customer requirements. In the satisfaction analysis, this risk factor was analysed in detail. The experts, who conducted the analysis, have suggested increasing the implemented process control measures and improvements to minimise the risk. The main area for development and sustainability is the improvement of any logistics process. Improvement processes should be linked to identified areas where non-conformities have been raised during internal audits. Certain criteria should be considered to prioritise their implementation: economic—reducing logistics costs, technological—reducing storage and transport time, organisational—improving communication and information flow, social—improving customer service, and environmental—reducing waste [96, 97, 98, 99, 100]. The experts involved in the study highly rate determining the residual risks for the factor related to the failure to meet quality targets for compliance with customer requirements and the risk now occupies the first position.

16. Managing common risks

Quality of service and, consequently, increasing customer satisfaction is a difficult process to standardise and depends on many factors. Non-conforming services should be avoided because they may cause a negative customer reaction that is not under the control of the logistics organisation. The FMEA analysis of the risk factors that contribute to non-conformities can be used to design programmes and take actions to minimise the effects of the 100 (F01 to F100) risks investigated.

The summary data from the initial and residual PRN analysis are presented in Figures 33 and 34. Results from the analysis identify the reasons that are most likely to contribute to the deterioration of the quality and satisfaction of logistics services—specifically, the occurrence of supply chain risk that is beyond the control of the logistics company and the provision of inadequate service to customers. All factors are analysed in more detail by main indicators.

Figure 33.

Pareto analysis of initial PRN from F01 to F100.

Figure 34.

Pareto analysis of residual PRN from F01 to F100.

Applying FMEA to non-conforming logistics processes and services, which have the potential to reduce satisfaction, can significantly shorten the analysis of the causes of non-conforming service quality to take timely and adequate measures before the negative impact of risk. Therefore, to improve the overall quality of logistics services through the FMEA analysis, it is necessary to identify not only the significant risks that arise from customer complaints but also specific actions to manage risks and uncover opportunities, and, subsequently, take risk management measures after corrective actions are in place.

17. Conclusion

For organisations providing logistics services, dynamic changes in the external environment impact process performance risk and threaten effective integration of resources, coordinated management of operations, and, consequently, negatively impact customer satisfaction and loyalty. These processes call for an improvement of logistics service management in the food sector and an integrated management concept combining the integration of satisfaction analysis processes and the risks that can negatively impact the delivery of a satisfying logistics service.

Due to the increasing market competition, a necessary condition for increasing customer satisfaction is the provision of qualified services that help to organise timely deliveries of the goods requested by the customer. The analyses conducted to give us reason to believe that the development of a systematic approach, including both satisfaction analysis and risk factor analysis, may be sufficient grounds for initiating improvements in customer service.

The management of improvement processes and the containment of service failure must be based on the current knowledge base and new innovative technologies. In cases where identified risks cannot be managed, a strategic development direction can be taken to outsource processes and minimise risk. Processes to improve customer satisfaction should only be undertaken after a thorough analysis to identify the root cause and determine specific actions to reduce the negative impact of potential customer service inconsistencies. Through process controls, these processes could help to prevent non-conforming services from occurring prior to customer requirements.

Logistics management has the misconception that reducing complaints would increase satisfaction to the same extent. Models for positively influencing satisfaction should contain much more than one variable. The customer satisfaction model used in this study contains six latent variables. Four observed variables are the causes of satisfaction analysis—perceived quality, value, image, and customer expectations, while the consequences of satisfaction are—complaints and loyalty. The study of customer opinion in relation to their satisfaction with logistics services and the associations between observed and latent variables are described using a set of equations with unknown coefficients. The estimated coefficient estimates were obtained using Partial Least Squares Path Modelling (PLS-PM). The calculations were performed by using XLSTAT 2021.4.1 software, which was used to determine path coefficients and the magnitude of the impact of the variables on each other and their significance.

After the analyses were performed using the SERVQUA model, the results were used for risk analysis (FMEA) to identify the causes, assessment, and consequences of logistics services that do not meet customer expectations. FMEA analysis was used as a method to investigate the consequences of emerging risks by quantifying the severity, likelihood of occurrence, and detection of non-conforming logistics services that further generated the RPN. The data from the analysis are summarised in tables by process and the results show the factors that could contribute most to potential non-conformities. Suggestions for specific actions to manage risks and opportunities that can be used for optimisation or improvement are also provided.

From the analyses, it can be concluded that the main reasons for the decline in customer satisfaction are poorly managed logistics processes caused by the lack of sufficiently competent employees ready to deal with emerging risks and human errors. Service improvement must go through an assessment and prioritisation of each element for improvement, take corrective action to manage risks, revise plans and processes in line with changes and in accordance with customer requirements, and, subsequently, examine whether the improvements have had a significant impact on satisfaction levels with the logistics services.


First, I would like to thank my family for coping with my absence during the writing of this monograph and especially my husband Daniel Stefanov, without whose support I would not have been able to realise this idea.

A huge thank you to my colleagues at the Department of Management and Logistics for encouraging this project.

I also thank all the logistics companies and users of logistics services who participated in the survey and shared their experiences.

I thank all the scientific contributors who provided constructive criticism of my work and made valuable contributions to its completion.

I also thank the “N. Vaptsarov” Naval Academy for opening opportunities and providing access to world-class educational and scientific resources and assistance from distinguished professors with scientific interests in the field of my research.

Thank you to all the organisations that hired me as a consultant and helped me strive for lifelong learning.

Conflict of interest

The author declares no conflict of interest.


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Written By

Marieta Stefanova

Reviewed: February 16th, 2022Published: March 23rd, 2022