Development of Risk Evaluation and Mitigation Systems for Logistics System

Ahmad Rusdiansyah a, Della Deswiana Pratama a, Muhammad Faisal Ibrahim b* a Department of Industrial Engineering, Institut Teknologi Sepuluh Nopember, Indonesia Jl. ITS Raya, Keputih, Kec. Sukolilo, Kota SBY, Jawa Timur 60117, Indonesia b Department of Logistics Engineering, Universitas Internasional Semen Indonesia, Indonesia Jl. Veteran, Kb. Dalem, Sidomoro, Kebomas, Gresik Regency, East Java 61122, Indonesia * Corresponding author: faisalibrahim.ie@gmail.com

Please cite this article as: Rusdiansyah to analyze blood supply chain risk management. Ratnasari, et al. [22] analyze supply chain risk management in a newspaper company. Immawan and Putri [23] implement HOR to assess supply chain risk. Furthermore, Asbjørnslett [24] adopts a proactive approach to dealing with newly changing risks. Wee, et al. [25] discussed mitigation strategies in logical risk management from the perspective of process flow.
Based on previous research, one of the popular methods implemented in supply chain risk management is HOR. Unfortunately, the estimated loss and the possible risk have not been considered in assessing the risk. Therefore, this study aims to develop a Risk Evaluation and Mitigation System based on the HOR method. This study provides a new contribution to the Risk Evaluation and Mitigation System in company logistics activities. This complete paper structure is presented as follows: part 2 discusses Proposed Risk Evaluation and Mitigation Systems or Method and case studies; part 3 presents results and discussion, and lastly, part 4 concludes the study.

Proposed Risk Evaluation and Mitigation Systems
This research constructed four stages in the proposed Risk Evaluation and Mitigation Systems, such as risk identification, risk analysis, risk evaluation, and risk response (Fig. 1). The detailed description of each stage is explained as follows:

Risk Identification
At the risk identification stage, this study proposes risk identification based on the company's business process. Business processes were based on five business aspects: supplier, receiving, tracking, delivery, and customer. This business process is modified from the business aspects of the supplier, input, process, output, and customer. At this stage, each business process was recorded for risks, causes of risk, and impacts. The risk assessment is presented in the risk analysis section.

Risk Identification
Risk Analysis Risk Evaluation

Risk Evaluation
Risk evaluation is a stage to evaluate the level of risk posed. At this stage, risk evaluation was based on calculating the Risk Priority Number (RPN). The RPN scores were generated from the Likelihood (L) and Consequence (C) assessments. The RPN formula is presented in Equation (1). Furthermore, this study projected five risk level categorization scales, which are presented in Table 3. RPN measured all risks to determine the level of risk. The RPN value was formed to calculate the mitigation priority presented in the risk response stage.

Risk Response
This stage described the mitigation proposals and calculated mitigation priorities. Mitigation proposals were designed based on the causes of risk. The list of mitigation proposals was used as input for the calculation of mitigation priorities. The mitigation priority calculation was modified from the House of Risk (HOR) model. The mitigation priority model can be seen in Table 4. In the mitigation priority model, the value of the relationship between the causes of risk j and the mitigation action k is denoted as Ejk. The Ejk values used were 0, 1, 3, and 9. 0 indicated there was no relationship. 1 showed an innate but weak relationship between the causes of risk and the proposed mitigation. 3 represented a moderate relationship between the causes of risk and the proposed mitigation. Nine indicated that there was a strong relationship between the causes of risk and the proposed mitigation. Furthermore, the RPN value of the risk cause j (RPNj) and Ejk was exemplified to calculate the Total Mitigation Effectiveness (TEM). The TEM formula is presented in Equation (2). Mitigation proposals were also assessed based on the level of difficulty (Dk). The mitigation Dk value showed the difficulty in mitigating due to unpredictable risks. This study exercised a Likert scale of 1 to 5. The higher the Dk value, the more difficult mitigation was to be carried out. The value of Dk was utilized to calculate the effectiveness-difficulty mitigation ratio (EKM). The EKM formula for each mitigation is presented in Equation (3). Mitigation priorities were based on the order of the ECEC values from largest to smallest.

A Case Study
A case study was conducted in a chemical and pharmaceutical company in Indonesia to apply the proposed Risk Evaluation and Mitigation Systems. The logistics activities of the company were the focus of the problem in this study. Currently, the company's logistics activities were carried out internally. However, the company planned to transfer all logistics management to a third party (Third-party logistics (3PL)). Three 3PL candidates need to be considered in logistics management. The company also tries to overcome logistics management through internal companies. Therefore, it is necessary to evaluate risks and determine mitigation priorities in managing logistics in this company.

Results and Discussion
The four stages of risk evaluation and determining mitigation priorities are described in the following sub-sections.

Risk Identification
Risk identification was performed in the logistics department, referred to as the supplier, receiving, tracking, delivery, and customer business processes. The results of risk identification, causes of risk, and impacts can be seen in Table 5. Thirty-three (33) risks were collected for this problem. Furthermore, these 33 risks identified the causes of the risks and the impacts of the risks. There were 33 causes of risk and 29 impacts that result from the generated risks.

Risk Analysis
At this stage, thirty-three (33) causes of risk were successfully assessed based on the Likelihood scale. The results of the likelihood assessment can be seen in Table 6. There were five causes of risk with a likelihood scale of 1, eleven risk causes with a likelihood scale of 2, and four risk causes with a likelihood scale of 3. For the 4 and 5 likelihood scales, the number of causes was eight and one, respectively. These results indicate that the likeliness and likely scale will be the dominant scale on the Likelihood assessment.
Also, the Consequence assessment was delivered based on the estimated loss of company profit. The company loss was successfully estimated for 33 impact risks. The estimation results can be observed in Table 6. The results indicated ten impacts with a consequence scale value of 1, two impacts with a consequence scale value of 2, eight impacts with a consequence scale value of 3, and nine impacts with a consequence scale value of 4. Likelihood and Consequence assessment results were generated as a risk evaluation calculation presented in the risk evaluation sub-section.

Risk Evaluation
Risk evaluation was underpinned from the level of risk classified based on the RPN. The results of the risk level can be seen in Table 6. It can be seen that five risks were in a low category, 14 risks were in the very low category, five risks were in the medium category, and the other five risks were in the high category. These results were utilized as the basis for proposing company mitigation.

Risk Response
Based on risk evaluation, this study proposes 14 mitigation (Ms) proposals as follows: M1 is a reminder to suppliers to include clear and correct data. M2 is a check to the supplier so that the COA is also included. M3 is a Daily Cycle Count of materials regularly and consistently. M4 is an additional lease for the external warehouse. M5 is to make sure every delivery route has a backup transporter. M6 contains a request to Customer Service so that it can issue orders gradually. M7 is for warehouse operators to recalculate the number of items entered. M8 contains the instruction on checking the amount of cargo and clarification to the truck fleet drivers. M9 explains that every small order in number will be sent by Less Container Loaded (LCL). The M10 contains the identification and repair of defective items as soon as they are found. M11 suggests that forklift operators do movements to carry goods at low speed. M12 is the use of 3PLcompany 1. M13 contains the use of 3PL-company 2, and M14 describes the use of 3PLcompany 3.  Furthermore, from the 14 mitigation proposals, calculations were then carried out to determine mitigation priorities. The results of the calculation of mitigation priorities are presented in Fig. 2. These results indicated that the use of 3PL-company 1 (M12) has the highest priority, followed by the use of 3PL-company 2 (M13) and the warehouse operator recalculates the number of items entered (M7).

Conclusion
This study was projected to develop a Risk Evaluation and Mitigation System based on the HOR method. It succeeded in developing Risk Evaluation and Mitigation Systems. The case study results underlined that the proposed Risk Evaluation and Mitigation Systems could be appropriately applied to evaluate company risks and provide