Question

You operate a food supply company. Your primary customers are restaurants. You provide delivery services to select customers. Determine the potential direct and indirect losses that you might incur because of your delivery operations. In terms of risk management.

Answer 1

As a food supply company with primary customers being restaurants, we face the same risks as the restaurants and a few additional risks. We also provide delivery services to select customers. Potential direct or indirect losses due to delivery operations, in terms of risk management are:

Direct losses:

Food is a perishable commodity. It requires very specific treatment and management in terms of storage, handling, transporting and delivery. A lapse at any point in the process may lead to spoilage, thereby causing direct loss to the company.

A restaurant may blame an instance of food borne illnesses stemming from the restaurant on us. It is difficult to discern whether the food material used by delivered by us, if it was fresh and used in time or not. These factors may impact the reputation of the business.

Indirect losses:

Demand forecasting and procurement of raw materials is a problem area. We may not be able to forecast demand accurately at times, leading to notional losses in case demand from restaurants exceeds raw material available with us or real losses in case demand is less than forecast.

Inventory expenses are high as food requires specific storage conditions in terms of cleanliness, temperature, humidity, etc. Any lapse here will lead to spoilage.

Delivery accessories such as special cold storage vans, insulated bags, appropriate packaging add up in financial costs. Improper demand forecasting may lead to losses by way of inefficient use of such accessories.

Tampering, pilferage and theft by delivery personnel is another risk which may lead to losses.