QUESTION 1 [16 MARKS]
1.1. Discuss managing supplier risk and provide any relevant example of
how South African organisations could mitigate risks posed by the
Russian war? (3)
All supply and sourcing decisions contain some risks that should be anticipated and
action should be taken to limit the risks. As supply chains grow to include more
foreign suppliers and customers, there is a corresponding growth in supply chain
disruptions caused by weather and traffic delays, infrastructural problems, political
problems, and fears of, or actual, unlawful or terrorist related activities. Supply chain
risk can be defined as the likelihood of an internal or external event that causes a
disruption or failure of supply chain operations, causing potential reductions in
service levels, product quality, and sales, with an increase in costs. There are
basically two questions to be answered namely, what are the common sources of
risk, and how can they be manage effectively. In this regard, the common risks are
categorised into political risk, market risk, sourcing risk financial risk, supplier
company risk, political risk, market risk, sourcing risk, financial risk and supplier
company risk.
Political risk
In just the last few weeks there have been political upheavals and riots in Ukraine
following attack from Russia bombings. Besides the obvious impact on life and limb,
these events add elements of financial, reputation, and customer service risk to
global supply chains and the need for enhanced planning, change management, and
security to mitigate that risk.
Management strategy: Increase Safety Stocks and Forward Buying
Due to fears of supply disruption, the companies may choose to carry some level of
safety stock to provide the desired product until a suitable substitute supply source
can be found. If the purchased item is readily available from other sources, the
desired level of safety stock may be relatively small.
, 1.2. The case study outlines how a war in another country impacts South
African supply chains. Discuss the purchasing function's role in
external supply chain integration by distinguishing between the different
parties involved in the external supply chain (3).
Inventory management
While it has been suggested that South Africa imports between 70% and 80% of the
fertiliser used in its agriculture industry. Higher fertiliser prices mean the cost of
production will increase and impact farmers' choices on which crops to grow.
Therefore, disruptions to these supply chains could have devastating effects on food
security in South Africa. With the drastic decline in the availability of fertilisers for the
agriculture industry, managers must reconsider strategies to sustain their competitive
advantages when external threats such as a war impact their value chains. This
requires strategic inventory management through keeping buffer stock, and
economic order quantity techniques.
Acting as the primary contact with suppliers
The supply disruptions provoke for consideration of local manufacturers who have
consistently faced international competition to bid for contracts.
Selecting suppliers
The war and its accompanying consequences have resulted in many South African
organisations reconsidering their contract with international suppliers who can no
longer meet supply demands. It has also impacted key value chains
1.3. From the case study follows that some South African farmers had to
reconsider their fertiliser supply chains resulting from the Russian war.
Advise these organisations on the benefits of using cross-functional
sourcing teams to address this shortage in supply. Marks will only be
awarded for the correct application of the theory. (7)
1.1. Discuss managing supplier risk and provide any relevant example of
how South African organisations could mitigate risks posed by the
Russian war? (3)
All supply and sourcing decisions contain some risks that should be anticipated and
action should be taken to limit the risks. As supply chains grow to include more
foreign suppliers and customers, there is a corresponding growth in supply chain
disruptions caused by weather and traffic delays, infrastructural problems, political
problems, and fears of, or actual, unlawful or terrorist related activities. Supply chain
risk can be defined as the likelihood of an internal or external event that causes a
disruption or failure of supply chain operations, causing potential reductions in
service levels, product quality, and sales, with an increase in costs. There are
basically two questions to be answered namely, what are the common sources of
risk, and how can they be manage effectively. In this regard, the common risks are
categorised into political risk, market risk, sourcing risk financial risk, supplier
company risk, political risk, market risk, sourcing risk, financial risk and supplier
company risk.
Political risk
In just the last few weeks there have been political upheavals and riots in Ukraine
following attack from Russia bombings. Besides the obvious impact on life and limb,
these events add elements of financial, reputation, and customer service risk to
global supply chains and the need for enhanced planning, change management, and
security to mitigate that risk.
Management strategy: Increase Safety Stocks and Forward Buying
Due to fears of supply disruption, the companies may choose to carry some level of
safety stock to provide the desired product until a suitable substitute supply source
can be found. If the purchased item is readily available from other sources, the
desired level of safety stock may be relatively small.
, 1.2. The case study outlines how a war in another country impacts South
African supply chains. Discuss the purchasing function's role in
external supply chain integration by distinguishing between the different
parties involved in the external supply chain (3).
Inventory management
While it has been suggested that South Africa imports between 70% and 80% of the
fertiliser used in its agriculture industry. Higher fertiliser prices mean the cost of
production will increase and impact farmers' choices on which crops to grow.
Therefore, disruptions to these supply chains could have devastating effects on food
security in South Africa. With the drastic decline in the availability of fertilisers for the
agriculture industry, managers must reconsider strategies to sustain their competitive
advantages when external threats such as a war impact their value chains. This
requires strategic inventory management through keeping buffer stock, and
economic order quantity techniques.
Acting as the primary contact with suppliers
The supply disruptions provoke for consideration of local manufacturers who have
consistently faced international competition to bid for contracts.
Selecting suppliers
The war and its accompanying consequences have resulted in many South African
organisations reconsidering their contract with international suppliers who can no
longer meet supply demands. It has also impacted key value chains
1.3. From the case study follows that some South African farmers had to
reconsider their fertiliser supply chains resulting from the Russian war.
Advise these organisations on the benefits of using cross-functional
sourcing teams to address this shortage in supply. Marks will only be
awarded for the correct application of the theory. (7)
