Question

This is related Risks and Resilience in Supply Chains

(1) Using a focal firm with which you are very familiar as an example (please name the organization), identify 3 risks faced by its associated supply chain. Also, explain the extent to which they could impact the said supply chain.

(2) What does it mean when we say that a supply chain is resilient? What practical steps can you as a supply chain manager take to make your supply chain to be resilient?

(3) Exchange rates among major economies in the world fluctuate on a daily basis. Clearly explain how this can pose a risk for a company and its associated supply chain. How might a company mitigate such risk?

Answer 1

1) Using a focal firm with which you are very familiar as an example (please name the organization), identify 3 risks faced by its associated supply chain. Also, explain the extent to which they could impact the said supply chain.

The company in focus is Starbucks.
The following are the 3 risks faced by the supply chain of star bucks.
a) Commodity prices
Starbucks is dependent on consistent prices of it's inputs to provide quality coffee to it's customers. The 3 essential inputs for starbucks are coffee, dairy products and diesel/petrol. These commodities are highly susceptible to fluctuations on price and availablity.
A fluctuating price will have impact on the bottom line thus affecting the financial performance of the company

b) Interruption in supplies from key suppliers
Coffee is mainly grown and sourced form the developing world. Countries that grow coffee like Brazil,Colombia, Ethiopia, Uganda,Mexico etc are known for political unrest and law lessness. Any unrest in the coffee growing regions could halt the supply of coffee beans for starbucks.

c) Large scale nautral catastrophe in operating area
Supply of quality coffee beans can be affected by many things like natural disasters, crop disease and unfavourable weather pattern. Coffee is the mainstay for starbucks business and any problem in the supply of same can bring the operations to a grinding halt.

(2) What does it mean when we say that a supply chain is resilient? What practical steps can you as a supply chain manager take to make your supply chain to be resilient?

Supply chain resilience is the ability of a supply chain to react after a disruption has occured . i:e to resist disruption and recover the operations capability.
The following steps can be taken to make a supply chain resilient

a) Understanding risk
An analysis of the types of risks each supplier brings should be undertaken. Questions like what are the risks, their impact on the business and the likelihood of the event should be asked. An alternative plan of action should be drawn based on the findings so as to mitigate the risk once the disruption occurs.

b) Understanding the supplier
A supplier analysis should be done. The analysis should be on the suppliers supply chain,the political and economic environment under which they operate etc. This will help the manager to foretell of any risks.

c) Flexibility
A flexible organisation stands a better chance to be resilient.The supply chain should not be dependent on any one single supplier. Instead the supply chain should be flexible enough to source from multiple suppliers, thus avoiding dependency.

(3) Exchange rates among major economies in the world fluctuate on a daily basis. Clearly explain how this can pose a risk for a company and its associated supply chain. How might a company mitigate such risk?

When the exchange rate fluctuates a currency can either appreciate or depriciate. Such fluctuations of currency can lead to trimming of profits and cash flows.
a) Currency appreciation
It is an increase in the value of country's currency in terms of another. Thus the local produce will be higher in price and costly to procure for the supply chain.

b) Currency depreciation
Loss of value of a country's currency with respect to one or more foreign currencies. Thus the local produce will become lesser in price.This will have a negative impact on the suppliers because their profit margins will decrease considerably and may ask for higher margins than agreed upon.

A company can mitigate the risk by
a) Agreeing on a baseline exchange rate with suppliers.
b) Maintaining multiple suppliers from different countries.
c) Hedging against currency fluctuations.
d) Use risk management tools and models to arrive at a optimum rate of fluctuation which the company can handle