Recently, we shared some research that demonstrates the significant losses and inefficiencies concerning Returnable Transport Items. It is obvious that companies, and whole industries, incur high costs, driven by mismanagement, theft, or other neglect of multi-use transport items, such as: pallets, containers, carts, trays, kegs, cylinders, baskets, crates, cases, and many others that support the efficiency and efficacy of transport and / or storage of the main product. Based on surveys and case studies the direct cost related to loss and theft range between 10-30% of the pool of registered items. Also, these inefficiencies often imply excess working capital, as companies try to mitigate the operational risks of shortage of RTI’s by (over)expanding their pool of RTIs.
However, the same research suggests that this topic is not high on the agenda of management in terms of improvement potential. A lot of companies consider these inefficiencies to be inherently tied to using RTIs and perceive the risk of loss and theft as (part of) a cost of doing business and typically rather low. This lack of awareness is striking given the size and nature of the problem.
Value at risk to RTI’s
Based on some recent data, read our recent blog on “The high cost of losses and theft for RTIs”, and some simple insight into the pool of RTIs deployed, it is quite straightforward to determine the “value at risk” (VAR) associated with the loss of RTI within your company.
The underlying framework is based on the idea that VAR is a function of the value of the pool of RTI’s, and the impact of losses, theft, mismanagement and negligence. The value of the pool is simply the volume (Q) of items times their average price (P), whilst the impact is tied to several (industry specific) external risk drivers (R) and the internal control framework (C, which is the collection of mitigating actions taken to manage and control the proper application of the RTIs).
Expressed as a formula: VAR = f (Q, P, R, C)
The latter two variables R and C are less tangible and more volatile and qualitative in nature. Hence, a point value for them is often too abstract and gives the illusion of precision whilst the true nature is more complex. A more insightful approach is hence with a range of different input variables. Using a two-sided variance, and for different levels of R and C, results in the following table, expressed in relative terms:
Value at risk at RTI’s
So, for a high-risk environment, with low degree of mitigating controls, the VAR could be as high as >40% of the RTI pool value, whereas a low risk one, with a well-established control framework and proper mitigating controls, the risk can be <3%. Obviously, this differs per industry and even company, so it’s worthwhile to analyse this for your own situation.
Value at risk for your company
Interested in what the VAR for returnable transport items is for your company? Try our “quick assessment tool” It will give you a quick idea of the risk and associated costs (and potential savings impact!) for your specific situation. Of course, at Tellape, we would be happy to discuss the ways to capture those savings! Tellape is a straightforward and user-friendly mobile application and insightful web based platform designed to enable you to register, administer and manage your RTI pool.
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