msc thesis in logistics & supply chain management (1).pdf

8/17/2019 Msc Thesis in Logistics & Supply Chain Management (1).pdf

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Aarhus University, Business & Social SciencesMsc Thesis in Logistics & Supply Chain Management

HOW DO FAST MOVING CONSUMER GOODS COMPANIES

MANAGE SUPPLY CHAIN RISKS IN THEIR ESTABLISHED

EXCHANGES?

MARCH 2014

STUDENT: GEORGIOS NTALLAS

EKSAMENSNR: 414462

SUPERVISOR: CHRIS ELLEGAARD


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PREFACE

his Master Thesis project, which lies in front of you, is the efforts of a five

month period, to review, study and present the major risks that FMCG

companies face in their established exchanges and how do they handle them.

As the master thesis project is the last part of my master program, I honestly feel

that I could not make it without the assistance of several people that I need to thank.

First of all, I would like to sincerely thank Mr. Chris Ellegaard, my supervisor teacher,

who was there for me, by providing his valuable assistance and guidance during thisproject.

Moreover, I would like to thank My Market for their assistance in reviewing and

examining the case study and the help that their risk management team offered to

me. Also I would like to thank Mr. Alexandropoulos and Mr. Konstantinidis, as well as

their companies Athenian Brewery and Honey-Center, who offered me the

opportunity to conduct interviews with them, as I know that the free time on their

schedule is limited.

Finally I would like to thank my parents who were always there for me, supporting

me to strive for the best and reinforce me financially, so I could work unobstructed,

in order to reach my goal.

Georgios Ntallas

Athens, February 2014

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SUMMARY

This Master Thesis project aims to answer two basic questions concerning supply

chain risks in FMCG companies:

What are the most significant risks that FMCG companies have to tackle

down?

What action plans are implemented by FMCG companies in order to mitigate

those significant supply chain risks?

A thorough literature review was necessary in order to understand better important

concepts such as supply chain, supply chain management, risk management and

supply chain risk management and be available to answer the questions. One of the

most important aspects of the literature is the supply chain risk management

process. According to Manuj et al (2008) the SCRM process can be divided in five

steps: Risk identification, Risk Assessment and Evaluation, Selection of appropriate

risk management, Implementation of supply chain risk management strategy and

Mitigation of supply chain risks. Those steps are extremely important for the

companies as they help them to be prepared to mitigate risks with alternative action

plans. In order to have a common tool for ranking the risks according to their

significance, impact to the company and probabilities of occurring, a risk matrix was

created.

This risk matrix is used as ranking tool for the two interviews with experts of the

FMCG industry in Greece, in order to have a common scale of measurement for the

risks. The most important risks for those companies are presented, as well as their

evaluation and company’s mitigation strategy. Additionally further possible actions

are proposed. Furthermore a case study of a limited mitigation plan is presented,

concerning a Greek super market and one of their suppliers. The purpose of the case

study is to show how did the retailer identify and assess their potential risks and how

did they plot their action plan and what further actions should they have done to

limit the risks.

To conclude with, the posed questions are answered in accordance with the given

information through the interviews and the case study.


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Table of Contents

PAGE

Preface: …………………………………………………………………………………………….. 2

Summary: …………………………………………………………………………………………. 3

Table of Contents: …………………………………………………………………………….. 4

Abbreviations: ………………………………………………………………………………….. 7

Figure Table: …………………………………………………………………………………….. 7

CHAPTER 1: INTRODUCTION ……………………………………………… 8

1.1 BACKGROUND ………………………………………………………………………….. 8

1.2 RESEARCH PROBLEM ………………………………………………………………… 9

1.3 RESEARCH OBJECTIVES …………………………………………………………….. 9

1.3.1 RESEARCH QUESTIONS ………………………………………………………… 9

1.3.2 DELIMITATION …………………………………………………………………….. 10

1.4 RESEARCH METHODOLOGY ………………………………………………………. 10

1.4.1 RESEARCH METHODOLOGY …………………………………………………. 10

1.4.2 RESEARCH MODEL & OUTLINE …………………………………………….. 11

CHAPTER 2: LITERATURE REVIEW ……………….…………………….. 13

2.1 SUPPLY CHAIN MANAGEMENT …………………………………………………. 13

2.1.1 SUPPLY CHAIN ……………………………………………………………………. 13

2.1.2 SUPPLY CHAIN MANAGEMENT …………………………………………… 13

2.1.3 FMCG SUPPLY CHAIN MANAGEMENT …………………………………. 15

2.2 RISK ………………………………………………………………………………………….. 16

2.2.1 RISK MANAGEMENT ……………………………………………………………. 17

2.2.2 SUPPLY CHAIN RISK MANAGEMENT ……………………………………. 17


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2.2.3 FMCG SUPPLY CHAIN RISK MANAGEMENT …………………………. 18

CHAPTER 3: SCRM PROCESS……………………………………………… 19

3.1 SCRM PROCESS ………………………………………………………………. 19

3.2 RISK IDENTIFICATION ……………………………………………………………… 20

3.3 RISK ASSESMENT & EVALUATION …………………………………………... 22

3.4 RISK MITIGATION STRATEGIES,SELECTION & IMPLEMENTATION 26

CHAPTER 4: EMPIRICAL DATA ………………………………………………….…….. 30

4.1 FOCUS & GOALS …………………………………………………………….. 30

4.1.1 INTERVIEW FOCUS &GOALS …………………………………….. 30

4.1.2 CASE STUDY FOCUS & GOALS …………………………………… 30

4.2 STRUCTURE & PROCEDURE ……………………………………………. 31

4.2.1 INTERVIEW STRUCTURE & PROCEDURE ……………………. 31

4.2.2 CASE STUDY STRUCTURE & PROCEDURE ………………….. 32

4.3 INTERVIEW PARTNERS …………………………………………………… 32

4.3.1 INTERVIEW EXPERTS ………………………………………………… 32

4.3.2 CASE STUDY FIRM PARTNERS …………………………………… 33

CHAPTER 5: EMPIRICAL STUDY ANALYSIS ………..…………………………….. 34

5.1 STERGIOU S.A. – MY MARKET CASE STUDY ……………………. 34

5.1.1 RISK IDENTIFICATION ……………………………………………….. 35

5.1.2 RISK ASSESSMENT AND EVALUATION ………………………. 36

5.1.3 RISK MITIGATION STRATEGIES, SELECTION &

IMPLEMENTATION ……………………………………………………………………………………………… 38

5.2 INTERVIEWS – QUESTIONNAIRE …………………………………….. 39

5.2.1 RISK IDENTIFICATION ……………………………………………….. 39


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5.2.2 RISK ASSESSMENT AND EVALUATION ………………………. 41

5.2.3 RISK MITIGATION STRATEGIES: SELECTION &

IMPLEMENTATION ……………………………………………………………………………………………… 45

CHAPTER 6: CONSLUSIONS..……………………………………………………………. 48

CHAPTER 7: FUTURE RESEARCH ……………………………………………………… 50

REFERENCES ………………………………………………………………………………….. 51

APPENDICES ………………………………………………………………………………….. 53


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ABBREVIATIONS

FMCG: Fast Moving Consumer Goods

SCM: Supply Chain ManagementSCRM: Supply Chain Risk Management

FIGURE INDEX

FIGURE 2.1: INTERGRATING AND MANAGING BUSINESS PROCESSES ACROSS THE SUPPLY CHAIN

FIGURE 2.2: SUPPLY CHAIN MANAGEMENT FRAMEWORK: ELEMENTS & KEY DECISIONS

FIGURE 2.3: TYPE OF RISKS, SOURCES AND DESCRIPTION

FIGURE 2.4: SUPPLY CHAIN RISKS

FIGURE 3.1: RISK IN THE EXTENDED SUPPLY CHAIN

FIGURE 3.2: RISK IDENTIFICATION SUMMARY

FIGURE 3.3: CREATING RISK PROFILES

FIGURE 3.4: TYPE OF LOSSES & CONSEQUENCES

FIGURE 3.5: RISK ASSESSMENT & EVALUATION

FIGURE 3.6: RISK RANKING

FIGURE 3.7: SUPPLY CHAIN TYPES AND RISK MANAGEMENT STRATEGIES

FIGURE 5.1: MY MARKET RISKS

FIGURE 5.2: RISK ASSESMENT & EVALUATION FIGURE 5.3: ATHENIAN BREWERY’S RISK IDENTIFICATION

FIGURE 5.4: HONEY-CENTER RISK IDENTIFICATION

FIGURE 5.5: RISK ASSESMENT & EVALUATION:

FIGURE 5.6: RISK ASSESMENT & EVALUATION


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CHAPTER 1: INTRODUCTION

his chapter aims to describe and analyze the research problem of this project,

define the research method that is going to be implied and set the objectivesthat will lead to the formation of the research questions.

1.1 BACKGROUND

Nowadays companies are searching, more than ever before, for any detail that is

going to give them an advantage over their competitors. By ameliorating their supply

chain they have the opportunity to gain that advantage, as they obtain

manufacturing flexibility, they decrease the cost of the products and they offer their

products to the costumers faster and safer.

According to Mentzer et al (2001) supply chain is defined as “a set of three or more

entities (organizations or individuals) directly involved in the upstream and

downstream flows of products, services, finances, and/or information from a source

to a customer”. To achieve excellence in the supply chain though, is not so easy.

Companies have to tackle down major risks and disruptions in the supply chain such

as national law restrictions, terrorism actions, weather, accidents etc. Obviously

those risks can increase losses for the companies and that is why a supply chain risk

management plan is required.

In accordance with Harland et al (2003) risk is defined“as a chance of danger,

damage, loss, injury or any other undesired consequences”.

Furthermore according to Mitchell (1995) “risk contains different types of loss and

the risk of any particular type of loss is a combination of the probability of that loss P

and the significance of that loss to the individual or organization I , Risk n = - P (Loss

n) x I (Loss n) “ . Moreover, according to Manuj et al (2008) companies have to follow

some steps to manage successfully any supply chain risks. Those steps are:

1.

Risk identification2. Risk assessment and evaluation

3. Selection of appropriate risk management

4. Implementation of supply chain risk management strategy

5. Mitigation of supply chain risks

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1.2 RESEARCH PROBLEM

Taking into consideration that FMCG companies are related with goods, such as soft

drinks, grocery and dairy products that are subject to expiration dates and small

inventories, it is obvious that those companies have to deploy management

strategies limiting supply chain risks and uncertainty, preventing if it is possible any

disruptions and assure constant and continuous flow of goods.

Thereafter, in this thesis project is going to be discussed how FMCG companies take

all the necessary management measures to tackle down any risks that might occur in

their established exchanges.

1.3 RESEARCH OBJECTIVES

This research Thesis aims to broaden the knowledge on how to identify and manage

supply chain risks in the established exchanges of FMCG companies. More

specifically the objectives of this Thesis are:

To identify supply chain risks that have to do with FMCG established

exchanges.

To classify those risks according to their importance for FMCG companies and

point out the most significant.

Suggestions for actions that could take place in order to avoid or mitigate

supply chain risks

1.3.1 RESEARCH QUESTION S

Taking into consideration the above mentioned objectives the research questions

are formed as follow:

What are the most significant risks that Greek FMCG companies have to

tackle down?

What action plans are implemented by Greek FMCG companies in order to

mitigate those significant supply chain risks?


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1.3.2. DELIMITATIONS

To have a better understanding of how FMCG companies choose their supply chain

risk management strategy, it would be ideal to study and have a set of interviews

with different kind of companies that collaborate and have partnerships with them.

Although that this would be extremely helpful is difficult to be achieved, due to the

page restriction of this Thesis project and the time constraint. Thus, I am going to

focus on FMCG companies exclusively.

Moreover, the same weight is going to be given, in both external and internal supply

chain risks as both of them can affect the supply chain causing serious

consequences.

The most important issue during this research project is the difficulties that mightoccur while searching for conducting the interviews with supply chain managers.

Many of them do not have time to help or they are simply unwilling to provide their

knowledge. That might lead to small sample making it hard to draw safe conclusions.

Finally, I am going to focus more in qualitative analysis than in quantitative, because

the data that are going to be extracted from the questionnaire are going to be

suggestions for management actions or an already followed risk management plan.

1.4 RESEARCH METHODOLOGY

1.4.1 RESEARCH METHODOLOGY

For this thesis I am going to use qualitative research as I believe that by the time that

this project has to do with management actions and decisions, it makes it easier to

understand management’s behavior. There is a slight possibility of using quantitativeresearch too, only if the outcome of the interviews requires it (ex. Company losses

by wrong actions and a comparison between them).

The methodology consists of Literature and Empirical research.

For the literature research I am going to gather information from the internet

(scientific articles and journals), the school library and the material that was

provided to us during our studies. The literature research will help me to understand

better terms and methods concerning supply chain risk management(especially in


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the FMCG industry) and what is the procedure that should been followed by the

companies in order to achieve better results.

As it has to do with the empirical research, it is going to be based on interviews and

questionnaires answered by managers of FMCG companies, in order to examine and

understand what actions they have taken to tackle down any risks or disruptions;

and how those actions are correlated with the theory research that was conducted

before. There will be also a case study of a disruption that a Major Greek

supermarket had faced a year ago. In order to rank and prioritize the risks I have

created a risk matrix that is going to be used during the empirical research.

1.4.2 RESEARCH MODEL & OUTLINE

This Msc Thesis consists of seven chapters in total. The first one is the introduction

chapter that includes some background information, the research objectives,

questions and the research methodology and outline. The second chapter refers to

the literature review and more specifically is explaining terms such as supply chain,

supply chain management, food supply chain, risk management, etc. . The third

chapter analyses the supply chain risk management process in order to have a better

understanding on how companies should act prior to a problem. The two following

chapters (4, 5) consist of the empirical data,( in this particular case are interviews

from food industry experts) and the outcome and analysis of these data. The final

chapters (6,7) are the conclusion chapter of this thesis project, and the chapter for

future recommendations.


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CHAPTER 2: LITERATURE REVIEW

n this chapter, terms such as supply chain, supply chain management (SCM), Risk

management, etc., are going to be explained and discussed. Furthermore an

explanation of these terms concerning the FMCG industry is necessary as the

needs might be slightly different.

2.1 SUPPLY CHAIN MANAGEMENT

The following sub-chapters will focus in defining the terms of supply chain, supplychain management and FMCG supply chain management as it is extremely important

for the reader to be acquainted with those terms before proceeding with the

analysis of this thesis project.

2.1.1 SUPPLY CHAIN

There are many definitions of the supply chain in the literature that are focusing on

different attributes. Nevertheless a precise definition for the supply chain is been

expressed by Mentzer et al (2001) after taking under consideration various

definitions. According to Mentzer et al (2001) “supply chain is defined as a set of

three or more entities (organizations or individuals) directly involved in the upstream

and downstream flows of products, services, finances, and/or information from a

source to a customer”.

2.1.2 SUPPLY CHAIN MANAGEMENT

As it is stated by Mentzer et al (2001) there are many different definitions of SCMthat can be classified on three categories: implementation of a management

philosophy, management philosophy and a set of management processes. Despite it

is also stated that a single definition is not adopted yet, they give the following

definition,”SCM is defined as the systemic, strategic coordination of the traditional

business functions and the tactics across these business functions within a particular

company and across businesses within the supply chain for the purposes of

improving the long-term performance of the individual companies and the supply

chain as a whole.”.

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Croxton, Garcia-Dastugue and Lambert(2001) recommend the definition that is

developed and used from the Global Supply Chain forum and defines that “SCM is

the integration of key business processes from end user through original suppliers

that provides products, services and information that add value for customers and

other stakeholders. The following figure shows which key business processes have tobe implemented by SCM.

FIGURE 2.1: INTERGRATING AND MANAGING BUSINESS PROCESSES ACROSS THE SUPPLY CHAIN

Source: Lambert and Cooper (2000)

According to Croxton, Garcia-Dastugue and Lambert (2001) management of all firms

should take into account this eight key business processes, although the fact that the

importance of each process and activity may differ.

Moreover, supply chains are complicated and they usually consist of many firms. On

the other hand, a firm could possibly be member on many supply chains. Taking into

consideration the above mentioned, it is of paramount importance that the

organizations select wisely which of those supply chains and which key processes

have to be managed.

In accordance with Lambert and Cooper (2000), the SCM framework consists of the

three following elements: Supply Chain Network Structure, Supply chain Business

Processes and Supply Chain Management Components.

FIGURE 2.2: SUPPLY CHAIN MANAGEMENT FRAMEWORK: ELEMENTS & KEY DECISIONS

Source: Lambert and Cooper (2000)


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Furthermore, in order to make supply chains more manageable, Lambert and

Cooper (2000) suggest distinguishing firms between primary and supporting

members. Thereafter a primary member is defined as “all those autonomous

companies or strategic business units who carry out value-adding activities

(operational and or managerial) in the business processes designed to produce a

specific output for a particular customer or market.” and a supporting as “companies

that simply provide resources, knowledge, utilities, or assets for the primary

members of the supply chain.” That does not mean though, that a company that is a

primary member in one supply chain cannot be a supporting member in another

supply member.

Finally, Supply Chain Management Components is the last element of the

Framework. According to Lambert and Cooper (2000) nine management

components have been identified and it is clear that by adding more components or

by increasing the contribution of every component to the management, the level of

integration of the business process link can be increased. Those nine componentsare: planning and control, work structure, organization structure, product flow

facility structure, information flow facility structure, management methods, power

and leadership structure, risk and reward structure, and culture and attitude.

2.1.3 FMCG SUPPLY CHAIN MANAGEMENT

The major difference that is found in FMCG supply chain management has to do with

the food supply chain management subcategory. According to Land and Ding (2008)

there are characteristics that distinguish Food supply chain from supply chain. Thosecharacteristics are the following:

Shelf life constraints for raw materials and final products that affect the

product quality through the supply chain.

Production seasonality

Many of the products require refrigeration transport and storage means

Need for portion traceability of work in process because of quality and

environmental claims and product responsibility.

“Variable process yields in quantity and quality due to biological variations,

seasonality, and random factors connected with weather, pests, and otherbiological hazards.”

Moreover, there are some further characteristics such as: long production times,

small or zero inventories due to expirations dates and possible delays due to quality

tests. According to Levinson (2009) “the food supply chain typically starts on farms

and involves many different types of facilities – including processors, packers,

distributors, transporters and retail stores- before finally reaching the consumer.


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2.2 RISK

According to Mitchell (1995), “risk concept contains different types of losses and the

risk of any particular type of loss is a combination of the probability of that loss P

(lossn) and the significance of that loss to the individual or organization, I (lossn).”

Therefore:

Moreover, Harland et al (2003) defines risk as”chance of danger, damage, loss, injury

or any other undesired consequences.”

Risks can be divided into several categories, depending in which section they affect.

Thus we have Technical risks (Risks that have to do with technology, quality and

performance. This could also belong in Operation risks), External risks (Risks that

derive from Governmental decisions and Laws, weather conditions, etc.),

Operational risks such as employee and property risks and Financial risks that have

to do with credibility or currency issues. Financial risks can also be put into External

risks.

The following table shows types of risks and their description.

FIGURE 2.3: TYPE OF RISKS, SOURCES AND DESCRIPTION

Source: Harland et al (2003)

Riskn = P (lossn) x I(lossn)


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2.2.1 SUPPLY CHAIN RISK

Most of the above mentioned risks, if not all, can apply in the supply chain. With

supply chain risk term we mean all those risks that are responsible and can cause adisruption or a delay in the flow of goods in the supply chain. Those risks can be

separated into two categories, internal and external supply chain risks. Internal risks

include risks that have to do with business operations such as forecast errors,

machine dysfunctions, inventory issues, human mistakes, delayed deliveries and IT

problems. On the other hand external risks have to do with risks that are outside of

the supply chain and sometimes are unpredictable, such as weather conditions(

floods, earthquakes, hurricanes), or have to do with governmental decisions, political

conditions(wars, rebellion), financial frauds, fire, raw materials shortages , etc.

.Concerning the FMCG supply chain risks, one major issue is the fact that many of the

raw materials can be vulnerable to diseases when it comes to food industry or toproducts that are based in agricultural raw materials. That can cause problems to the

supply chain as the end product could be delayed or be in less quantities than the

desirable. The following figure shows many of the potential supply chain risks.

Figure 2.4 : SUPPLY CHAIN RISKS

Source: Manuj et al (2008)

2.2.2 RISK MANAGEMENT

Risk is a “component” that can be found in any firm, thus is extremely important fortheir viability to learn how to manage risk sufficiently.


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According to Harland et al (2003), “attitude towards risk is influenced by the nature

of the business but also by individual style and behavior. Attitude changes with

experience; an individual, organization or sector used to taking risks may change

their attitude after experiences heavy losses.” Taking into consideration this

paragraph is easy to understand that even if there is a low risk possibility of an

occurring event we cannot say and judge if the management plan is going to work, as

the manager puts his personal opinion and behavior while applying the plan.

Therefore, risk management is the effort of the management team to predict,

analyze and form a plan to tackle down risks that can affect any function of a

business in order to minimize costs, maximize profits and succeed in their goals.

2.2.3 SUPPLY CHAIN RISK MANAGEMENT

Supply Chain Risk Management can be defined as the plotted strategies or actions

that have to be taken from the management team, in order to prevent or to mitigate

any possible risks in the Supply Chain. According to Cristopher et al (2002) SCRM isdefined as “the identification and management of risks within the supply chain and

risks external to it through a co-ordinated approach among supply chain members to

reduce supply chain vulnerability as a whole.”

Moreover, Norrman and Lindroth (2002) define SCRM as “SCRM is to,

collaboratively with partners in a supply chain or your own, apply risk management

process tools to deal with risks and uncertainties caused by, or impacting on,

logistics related activities or resources in the supply chain.” Finally, according to

Manuj et al (2008) companies have to follow some steps to manage successfully any

supply chain risks. Those steps, which are going to be analyzed further in the nextchapter, are:

1. Risk identification

2. Risk assessment and evaluation

3. Selection of appropriate risk management




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CHAPTER 3: SCRM PROCESS

n this chapter I am going to present, discuss and analyze a framework for a

successful supply chain risk management. Each of the steps of this process isgoing to be discussed in separate sub-chapter.

3.1 SCRM PROCESS

Sodhi and Tang (2012), state that the SCRM process consists of four steps. Those

steps are risk identification, assessment and evaluation of those risks, mitigation of

the risks and responding to incidents through communication, coordination andother means. According to Manuj et al (2008) the following – five step- model for

risk analysis and mitigation is proposed.

1. Risk identification

The purpose of this step is to categorize the potential risk according to the type of

risks that have been referred previously. Moreover, it is important to apprehend in

which stage of the extended supply chain the risk can be found.

FIGURE 3.1: RISK IN THE EXTENDED SUPPLY CHAIN

Source: Manuj et al(2008), Adapted from Mentzer (2001)

2. Risk assessment and evaluation

In this stage the management team has to analyze the risks that have been identified

before. Not all of those risks are critical for the supply chain, so it is necessary to

include in the analysis which are the probabilities of occurring, what are the

potential losses for the firm, what are the consequences, etc.

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3. Selection of appropriate risk management strategy

After finishing with the assessment and evaluation, the next stage is to select the

appropriate strategy. This strategy has to be tuned with the general corporate and

the supply chain strategy.


There are several characteristics that are important prior to the implementation of

the strategy. As the information technology is considered an important factor of the

SCRM process, the filtering of the data and the important information is vital.

Moreover, the understanding of the firm structure will help to improve

communication between employees and the management.


Despite having a risk management plan plotted it is not sure that all risks are tackled

down. Risk management covers risks that are possible to happen. Thus an alternative

strategy is required in order to cover unexpected events that are going to lead to

unexpected losses.

3.2 RISK IDENTIFICATION

Risk identification consist the first stage of SCRM process. In order to achieve amitigation plan in a satisfactory level, it is necessary to map as many of the possible

hazards that threaten the firm, and as Greene and Trieschmann (1984) states, if not

all possible risks or sources of risk are identified then it is extremely difficult to

mitigate those unidentified risks in the future . Thus, it is critical to mention that risk

identification should be continuous in order to ensure that the management team is

aware of all the possible risks.

By source of risk we mean all the aspects of the organizational environment of the

firm that can affect positive or negative the firm. According to Tchankova (2002),

“risk identification is the first step of risk management. It develops the basis for thenext steps: analysis and control of risk management. Correct risk identification

ensures risk management effectiveness.”

Moreover, according to Waters (2007) it is unrealistic to list all possible risks, so he

concludes that it is more precise to say that risk identification points out the most

significant risks. Furthermore he introduces a general procedure for risk

identification with the following steps:


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1. Define the overall supply chain process.

2. Define this into a series of distinct, related operations.

3. Systematically consider the details of each operation.

4. Identify the risks in each operation and their main features.

5.

Describe the most significant risks in a register.

In order to achieve those steps and succeed in identifying the significant risks, firms

have to use, according to Waters (2007), some of the following tools designed for

general and supply chain risks: historical data, brainstorming, cause and effect

analyses, scenario planning, supply chain mapping, relative importance to the

supplier and the costumer.

FIGURE 3.2: RISK IDENTIFICATION SUMMARY

Source: Waters (2007)

On the same time it is important to classify risks in accordance with their position in

the extended supply chain and if they are categorized as domestic or

global.According to Manuj et al (2008) “the objective is to create what can be

referred to as a profile for each of the risks identified in table 11.

The risk profile contains elements of the specific risk within the broad category,

whether the risk is atomistic or holistic, quantitative or qualitative and affects

domestic or global operations.”

FIGURE 3.3: CREATING RISK PROFILES

Source: Manuj et al(2008)

1 Figure 2.2.2, page 16 (More figures for Supply Chain Risk Categories in Appendix)


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Finally, according to Harland et al (2003) “the categorization of types of loss helped

to examine possible consequences; examples of consequences of non-trade

compliance are shown in figure 3.3.”

FIGURE 3.4: TYPE OF LOSSES & CONSEQUENCES

Source: Harland et al(2003)

3.3 RISK ASSESSMENT AND EVALUATION

Risk Assessment and Evaluation is the second step of the SCRM process. According

to Sodhi and Tang (2012) risks can be separated into normal and abnormal. Normal

risks are identified as those risks that can be managed into the supply chain

management. Risk assessment is not considered necessary for those risks.

On the other hand, abnormal risks are those risks that can cause significant losses to

the company and the possibilities of occurring cannot be predicted precisely, as

there is scarcity of data and difficulties in accessing them.

Waters (2007) states that there are two ways of measuring risks: qualitative and

quantitative. According to Sodhi and Tang (2012) and Harland et al (2003),

companies have to assess risk by answering what are the possibilities of a risk to

occur and what are the impact and the consequences for the firm if the risk is not

managed. Those questions are part of the quantitative risk measurement. The

outcome of the quantitative risk measurement could be measured in monetary

units. Quantitative measurement should be preferred than Qualitative, because it

provides better precision to the risk assessment team, and easier comparison

between the risks. On the other hand, qualitative risk measurement describes the

concept of the risk and how it affects the firm. For example how much does the riskaffects organization’s reputation and image.


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Moreover, firms have to take into consideration the possible duration of the

exposure to the risk. According to Waters (2007), probability of events could be

given by the three following approaches:

Calculating theoretical probability by using the existing knowledge of a

condition.

Analyzing Historical data in order to draw conclusions about how often the

event occurs and what are the probabilities of it happening again.

Taking under consideration firm’s people opinions about the probabilities of

occurring.

All of those three approaches have drawbacks as in first and third approach real

events are more complicated and it is hard to identify and analyze all the aspects.

Moreover, historical data are considered to be good approach but we should bear in

mind that conditions might have changed.

According to Manuj and Mentzer there are two major paradigms in the literature

concerning risk assessment paradigms, probabilistic choice (PC) and risk analysis

(RA). “PC is based on the concept that unwanted choice will be compensated with

good events.”On the other hand, “RA paradigm works on the concept of minimizing

regret. Regret is the difference between the cost of an optimal solution that would

have been adopted if the decision maker knew beforehand what would happen, and

the cost of the solution actually adopted.” Moreover they state that risk assessment

frameworks are divided in three wide categories: Decision Analysis, case study and

perception based. They also suggest Delphi Method, (brainstorming by a consultancy

team inside the firm in order to conclude in a consensus), when organizations lack of

historical data and further information.

Decision Analysis: Decision Analysis is a methodology that includes many procedures

and tools for assessing risks and aims to address and evaluate choices by a

quantitative approach.

This method applies statistical tools such as decision trees, influence diagrams,

probabilistic forecasting and multivariate analysis to real world problems in order to

provide a graphical representation of the alternatives, so as to provide the most

suitable alternative.

Case Study: Harland et al (2003) developed a supply chain risk assessment

framework by using a few case studies. These case studies helped the focal firm to

map the supply network, to be aware of their location and identify, assess and

manage risks in the supply chain by implementing the proper strategy.


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Perception Based: Perception based tool has to do with asking the right questions to

the right managers into the firm. By concentrating in the critical points of the supply

chain the managers achieve to assess potential risks.

All the above mentioned help the risk assessment team to prioritize and categorize

risks according to their impact in the supply chain; thereafter the firm will pay more

attention to the risks that its supply chain is more vulnerable. In order to prioritize

the risks, the management team should take into consideration several factors such

as the severity of the risk, financial consequences, cost and resources needed for the

risk mitigation.

The next table from Manuj and Mentzer (2003) is a tool for the assessment and

evaluation as it presents an explanatory analysis of the risks containing possible

losses, the probabilities, impact and the worst possible scenario and if this scenario

is acceptable/ affordable from the firm. Thereafter it is easier for the risk assessment

team to evaluate the risks.

FIGURE 3.5: RISK ASSESSMENT & EVALUATION

Source: Manuj & Mentzer (2008)

The following table is created in order to be used for the risk ranking. Risks will be

divided into four categories according to their frequency of reoccurring and theimpact that they have to the firm: Insignificant, Moderate, Significant and

Catastrophic. In order to rank easier the risks every category is going to be marked

with a color.


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FIGURE 3.6: RISK RANKING

Source: own

Insignificant: Moderate:

Significant: Catastrophic:


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3.4 RISK MITIGATION STRATEGIES: SELECTION AND

IMPLEMENTATION

According to Jüttner, Peck, and Christopher (2003) a distinction between risk drivers

and risk mitigation strategies is obligatory. It is obvious that the improvements andthe general evolvement in the supply chain management brought new challenges

and risks as an outcome of those actions. Those management decisions have

enhanced the firm’s and supply chain’s exposure to risks and potential disruptions.

Those decisions that are taken from the organization in order to achieve better

profitability and improve competitiveness are identified as risk sources/drivers.

According to Jüttner et al (2003) some of the risk drivers are given below:

1.

Efficiency oriented rather effectiveness2. Supply chain Globalization

3. Focused factories and centralized distribution

4. Outsourcing

5. Limited suppliers base

On the other hand, Norrman and Jansson (2004) state that risk mitigation strategies

aim to reduce the consequences if an adverse is realized. Moreover, according to

Sodhi & Tang (2012) “risk mitigation entails efforts to reduce the impact of risk

incidents in case such incidents do occur.”

Jüttner et al (2003) assorts four generic supply chain risk mitigation strategies:

1) Avoidance, 2) Control, 3) Cooperation,4) Flexibility , while Manuj and Mentzer

(2008) classify risk mitigation strategies in the seven following categories:

1. Avoidance:

Avoidance is preferred when the risks associated with operating in a given product

market or a broader geographical area, or working with limited suppliers or

customers, is considered unacceptable (Miller 1992). That could lead the firms to

delay their introduction to a market or even to withdraw from a market or to

withdraw specific products or to decide to invest in low risk (uncertain) markets.

2. Postponement:

This strategy gives the advantage to the firm to produce, whenever is applicable, a

generic product that is based on the total aggregated demand. By that the firm can

delay the differentiation point. This strategy could be efficient under normal

circumstances while in case of a disruption they provide great flexibility to the firm.

3. Speculation:

According to Manuj &Mentzer(2008) “in speculation, decisions are made on

anticipated customer demand.” Perry (1991) states that “when customer-servicestandards are defined by the competitive environment and customer-driven, supply


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chain resources are directed to those specific products and customers that provide

the firm with a competitive advantage.”

4. Hedging:

Hedging strategy offers flexibility to the firm as gives the opportunity for dispersing

activities and collaborators (suppliers, customers, etc.). Concerning the supply chain,

if a disruption occurs, is not going to affect all the entities simultaneously.

5. Control:

According to Juttner et al (2003), “companies may seek to control contingencies

from the various risk sources, rather than passively treat uncertainties as constraints

within which they must operate.” Such examples are increased inventories, vertical

integration, etc.

6.

Transferring/Sharing RiskTransferring/Sharing risk can be achieved by outsourcing and contracting.

Outsourcing helps the firm to share or even to transfer the risk to suppliers.

Moreover, contracting strategy offers an array of options to the retailers, where they

can choose from according to their levels of risk aversion.

7. Security:

Security is of major importance as firms have to deal with plenty of hazards such as:

risks that might derive from chemical or biological hazards during shipping or safety

issues during the production. According to Manuj & Mentzer (2008) “the ability to

sort out what is moving, identify unusual or suspicious elements and concentrate onthem, and deal with the rest of the movements through a sampling-based process

may be a viable strategy.

Moreover, Tang and Christopher (2006) propose the following robust strategies for

mitigating supply chain disruptions, that could be included or be a part of the pre-

referred mitigation strategies.

1) Postponement:

2) Strategic stock: Could be part of Control. Retaining inventories in

strategic locations in order to increase flexibility. It is consideredinefficient to FMCG companies related to the food industry as these

products have limited inventories.

3) Flexible Supply Base: Having alternative suppliers might increase the

cost but gives extra flexibility to the firm and minimizes the losses in a

disruption event.

4) Make and Buy: Produce some of the products or part of the products

in house factories and outsource other activities simultaneously.

5) Economic Supply Incentives: Giving financial incentives to suppliers in

order to stay in the market while binding them to certain quantities.

6)

Flexible Transportation: There are three approaches, multi modaltransportation, multi carrier transportation and multiple routes.


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All of the approaches offer flexibility to the organization by giving the

opportunity to shift the mean of transportation or the route.

7) Revenue Management via dynamic pricing and promotion: Common

mechanism for shelling perishable products.

8) Assortment planning: Display products in order to affect consumer’s

choice.

9) Silent product rollover: New products are inserted in Market without

announcement. Lack of information leads consumers to choose other

available products.

The biggest drawback of these robust strategies is that cost might overcome the

benefits of their implementation. Another drawback could be that the desirable

strategy will not fit in the firm’s generic management strategy. As it is referred

previously, risk management strategies have to comply with the supply chain

management strategy and the generic corporate strategy.

Manuj and Mentzer (2008) present 4 different supply chains, according to supply ordemand uncertainties. In the following figure risk management strategies are divided

in those four categories.

FIGURE 3.7: SUPPLY CHAIN TYPES AND RISK MANAGEMENT STRATEGIES

Source: Manuj &Mentzer (2008)

According to Freedman (2003), firms have to apply an explicit strategy that must be

communicated effectively through the members of the risk assessment team.

Organizations might face several issues while attempting to implement the risk

strategy. Freedman (2003) suggests the following:

Strategic Inertia: Firm’s managers staying inactive.

Lack of Stakeholder commitment: Not having everyone on board.

Strategic Drift: Not focusing on the goal

Strategic “Dilution”: Loose leadership and low commitment levels from the

members. Strategic Isolation: Communication and synchronization problems.


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Failure to understand progress: KPI Measurement

Initiative Fatigue: Abundance of projects that might lead to derailment.

Impatience: Manager’s will to implement the strategy immediately.

Not celebrating success: Not recognizing progress may put overall success in

jeopardy.

Concerning the above mentioned pitfalls, firms should aim to reduce complexity

while implementing the risk assessment strategy. Reducing complexity in the supply

chain is of major importance, as the supply chain partners could be widespread

around the world, where there is a diversity of legal and political environments that

could raise complexity.

According to Manuj & Mentzer (2008), one way of managing complexity is flexibility.

“Flexibility is important in a global supply chain because it plays a facilitating role in

the coordination process and provides a unique ability to help firms manage the high

levels of environmental and operating uncertainty inherent in international

operations.”

Besides flexibility, other important factors are IT, organizational learning and

performance metric.


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CHAPTER 4: EMPIRICAL RESEARCH

he empirical research consists of a presentation of a case study and theoutcome of interviews and a questionnaire. Moreover, the procedure and the

structure of the case study are going to be presented as the focus and the

goals of the interviews and the questionnaire.

4.1 FOCUS AND GOALS

This sub-chapter describes where the focus for the interviews and the case studies

should be and which the goals that are being set are.

4.1.1 INTERVIEW/QUESTIONNAIRE FOCUS & GOALS

The programmed interviews take place with FMCG industry professionals who are

supply chain oriented. Those people are fully aware of the processes and the

techniques that are used to tackle down potential risks in the supply chain and are

ideal for the interviews as they can provide the necessary data. The focus of the

interviews will be in the supply chain risk management process that is followed by

the company and what are the costs of implementation. Moreover, a minor focus

will be in potential losses in case of misjudging the risk.

The set goals for the interviews are to have a list of the major risks according to the

experts, categorized by their significance and their impact to their firm. Moreover, itis important to note down how a firm faces a risk/disruption in the real word and to

understand how they select their strategy and what actions have they taken to

mitigate those risks and how.

4.1.2 CASE STUDY FOCUS & GOALS

The case study has to do with a Greek major Super Market that faced a disruption

when their bread supplier could not fulfill the order due to a fire in their factory.

The focus on the case study will be to bring into the surface if there are any

mistakes from the supplier or the retailers actions concerning the risk managementprocess, to learn what their risk management plan was and to examine if there was

any further actions that could help the super market to avoid this disruptions.

The case study focus exclusively on the fresh products of the FMCG retailer as those

products is hard to be managed, due to their expiration date and the absence of

inventory. Furthermore, the supermarket will fill in a questionnaire for categorizing

specific risks according to their significance.

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4.2 STRUCTURE & PROCEDURE

Here it is going to be explained the structure of the interviews and the case study, as

the steps before the interview arrangement.

4.2.1 INTERVIEW/QUESTIONNAIRE STRUCTURE & PROCEDURE

In order to arrange the interviews, I firstly contact the companies via e-mail, and in

the cases that they did not reply I had to call the company in order to arrange face to

face meetings. Concerning the case study the first option was adopted. Moreover,

there where cases that companies did not accept a face to face interview so I had to

form a questionnaire and send it via email. The most serious complication during this

procedure was the fact that the biggest number of the reached firms replied

negative for sharing any information and that led to limited data.

Concerning the interview structure, there are going to be prepared some questions

in advance but in case of any additional questions that have to be answered or any

queries, the interviews are going to be in a loose semi structural format in order to

be flexible to participate in the conversation. In addition, in order to avoid yes/no

answers there are going to be used “open” questions.

The first part of the interview is to know better the interlocutor, in order to feel

familiar with each other. Afterwards I have to elaborate on the thesis project and

explain the main goals and the purpose of this paper.

The main part of the interview consists of 3 parts. In the first part the posed

questions have to do with the kind of risks that their companies are currently facing.

Then they are asked to prioritize those risks according to their significance and the

impact to the organization.

The second part consists of questions that aim to give data and information on how

the firm and the risk management team is facing those risks, what are their actions

prior the agreement with suppliers and if there are any supplementary actions

required afterwards. The last part of the main part is the “aftermath” of risk

management plan.

In this part they provide me with information if the plan was successful and

efficient, if there were any losses (financial, etc.) and if there were any other further

actions required in order maintaining supply chain resilient.

The final part of the interview is a limited conclusion of the previous discussion and

assurance from my side that the given information are confidential, and are going to

be used only for academic purposes.


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4.2.2 CASE STUDY STRUCTURE & PROCEDURE

In order to be fully aware of the case study I had to contact all the involved parties

for an interview. Despite being willing to explain the incident to me, the supplier in

the examined case study did not want to share any further information about the

strategy that his firm followed after the disruption and the losses that they possibly

had. Therefore the biggest weight was on the retailer’s reaction. Furthermore, I

accessed the web for information concerning the case study. The procedure was the

same as was described above.

The first part of the case study structure was to collect information about the firms

through their official websites in order to know the status of the organizations. The

next step was to let the respondent narrate the case study from his perspective, in

order to have an objective point of view for the case study.

The main part of the case study interview was to have a clear picture of what were

the consequences for the retailer, what was their action plan before and after the

disruption and in general if they had an SCRM process plotted. In this part it is

important to understand if the company was ready to face potential risks and to

observe who was responsible from the organization for the taken decisions (risk

management team or individuals).

The last part of the case study is about concluding on what did go wrong and what

have the company done precise in order to tackle down the disruption and

Moreover, to come up with more actions and mitigation strategies that could

possibly be applicable in the specific situation.

4.3 INTERVIEW PARTNERS

This chapter presents the experts that are going to participate in the interviews and

the role that they have in their organization. Moreover, in this sub-chapter the parts

of the case study are going to be presented.

4.3.1 INTERVIEW EXPERTS & QUESTIONNAIRE

ATHENIAN BREWERY:

Athenian Brewery is the biggest beer producer company in Greece. They are

responsible for launching in the Greek Market, Heineken and Amstel brand namesamong others.


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Athenian Brewery was found in 1963 and nowadays the export their products in 11

countries. Due to Horeca Exhibition that took place in Athens during February, their

time was limited. Thus instead of an interview they answered to the adjusted

questionnaire.

Mr. Loukas Konstantinidis:

Mr. Loukas Konstantinidis is a food technologist and quality manager. Moreover, he

is responsible for accessing risks and plotting a risk management strategy for the

company. He works for Honey-center (Κέντρο Ελληνικής Μελισσοκομίας in Greek)-

P. Kavouras & SIA O.E , a Greek company that provides the Greek market with honey,

products that derive from honey and all the necessary items and tools that are

needed for the honey industry.

4.3.2 CASE STUDY FIRM PARTNERS

STERGIOU SA:

Stergiou SA is a confectionery, bread & sandwiches company that was found in

Athens in the middle 60’s. The company is an exclusive supplier of the Greek army,

many of the major Greek hospitals and the Super Market, My Market concerning the

fresh bread, sandwiches. The company employs more than 200 people. Moreover,

Stergiou owns a network of bakeries that sells his product directly to customers.

My Market:

My Market was founded in 1976 as Metro and was re-launched as My Market in

2004. My Market is the third biggest retail Super Market in the country with 58

stores in their network. Despite the Greek debt crisis they succeed opening 13 new

stores in the last 4 years and they employ more than 4.000 people.


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CHAPTER 5 EMPIRICAL STUDY ANALYSIS

his chapter aims through the analysis of the case study, the interviews and the

questionnaire, combined with the theory presented earlier in this paper, to

provide a better understanding on how do organizations prepare themselves

and react to potential risks and disruptions in general and in their established

exchanges.

5.1: STERGIOU S.A. – MY MARKET CASE STUDY

During the summer of 2012, and more specifically in the late August, a fire started

for reasons unknown in the production unit of Stergiou SA confectionery and Bread

Company. Due to the fact that Stergiou had exclusive partnerships with many

organizations, that disruption led them to be inefficient in supplying specific kind of

products to them. By the time that their products have short expiration dates it is

obvious to realize that he was not able of retaining an inventory, so they could

handle the crisis smoothly.

My Market is one of those companies that have an exclusive partnership with

Stergiou concerning buns, cakes, fresh bread and sandwiches. The dates after this

incident, Stergiou decided that they could cover the production of buns and cakes,

which have a little bit longer expiration date (almost a month) and a daily production

was not necessary, from their bakery stores instead of the production unit. Despite

trying to mitigate the disruption, they could not find a way to put back in truck the

production of the fresh bread and sandwiches, by the time that their expiration date

was of four days maximum. This ineffectiveness led My Market to have shortages in

the above mentioned products for at least two months that Stergiou could not

deliver them.

In the forthcoming sub-chapters I will explain and analyze the actions that My

Market did while signing the contract with Stergiou and while the disruption in their

partnership occurred, in accordance with the SCRM process that was analyzed above

in this paper.

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5.1.1 RISK IDENTIFICATION

Risk identification is the first step of the SCRM process and it is considered extremely

important as it gives a clear picture of the possible “threats” that a company could

face. That is why My Market, through their SCRM team, try to map the mostsignificant and realistic risks that could harm the firm.

Their first steps are to categorize the risks in order to know better in which section

of the supply chain they might occur. Firstly they categorize risks in two bigger

categories, internal supply chain risks and external supply chain risks. Internal risks

are further categorized into the following categories: Supply risks, Demand risks,

Security risks and Operational risks. In the external risks the most significant

categories are Weather related risks and Hazard risks.

The following table shows the most important risks that have been identified by My

Market.

FIGURE 5.1: MY MARKET RISKS

EXTERNAL RISKS INTERNAL RISKS

WEATHER Snow (this could be in

operational risk too, as the

outcome of the risk is

distribution related

problems.)

SUPPLY Bad product

quality

Late deliveries

Inaccurateforecasts

HAZARDS /

OTHER

Earthquakes

Port workers Strikes

DEMAND Inaccurate

forecasts

OPERATIONAL IT risks

Transportation

disruptions

FIFO loose strategy

Wrong ordering

SECURITY Employee

accidents

Fire in the facilities

Vandalisms

Source: My Market interview


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Concerning the specific case study, the Stergiou risk management team had not had

highly prioritize the specific disruption. On the other hand My Market risk

management team prioritize this risk in the internal risks and more precise in supply

risks. During the contract talks they have agreed that there is not necessary to put a

clause in a case of disruption due to hazard reasons as something like that wasunlikely to happen. Moreover, despite being an exclusive partnership there was not

signed a clause that could limit My Market of signing with other suppliers. According

to Manuj et al (2008) it is to create a profile for every risk in order to be easier for

the company to assess the risk and to know exactly what kind of potential losses

they might have. Concerning this, My Market identifies almost the whole of the risks

as domestic risks, as their operations are only in Greece (except limited cases that

the supplier is abroad) and moreover, they distinguish two possible types of losses:

financial losses and reputation losses.

5.1.2 RISK ASSESSMENT & EVALUATION

Risk assessment and evaluation constitutes the second part of the SCRM process. It

is extremely important for firms, as it is designed to provide them with information

about losses and consequences, as well as with the probabilities of a risk to happen.

My Market uses a combination of Decision Analysis and Perception Based method.

The most important type of loss for them, according to My Market risk management

team, is the one that affects their reputation, as they believe that the potential

financial losses that are the aftermath of bad reputation cannot be calculated in long

terms. That is why they mostly prefer Perception Based method, as according to

Manuj and Mentzer Perception Based tool gives the opportunity to the managers to

assess potential risks by concentrating in the critical points of the supply chain.

Moreover, they could use the Delphi method too, but they believe that it would

require more time in order to reach a consensus. Additionally they believe that a

consulting team does not know, as they do, how the organization works. Decision

Analysis is used for risks that “hide” potential financial losses, which are going to be

significant for the company.

In this case study My Market deals with Supply risks and more specifically with the

late deliveries risk (in this case is no delivery at all from the supplier), as due to the

fire in Stergiou facilities, the supplier was unable to deliver the order to the super

market. This risk is been evaluated as possible and the impact on the company as

major. According to their evaluation, the risk is considered as significant by the time

that it can cause shortages to the super market and harm the super market ‘s

reputation, as well as causing losses.


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During the interview they stated that in Stergiou case the evaluation could be

different if they knew that they would be in shortage for two months. After this

experience they decided to add a new supply risk category named delivery

disruption. This category is evaluated as infrequent with severe impact on the firm.

This risk would still be classified as significant since the possibilities of occurring arenot as many as in the late delivery risk.

The following table shows which are the most significant risks for My Market, what is

the impact to the company and finally what are the probabilities of occurrence

according to figure 3.5.

FIGURE 5.2: RISK ASSESMENT & EVALUATION

According to this table, My Market’s most significant risk is considered to be a loose

implementation of the FIFO strategy. They state that by not following correctly thestrategy, they are forced to destroy those products in the Super Markets, as product

RISKS PROBABILITY IMPACT EVALUATION

Wrong Ordering POSSIBLE MEDIUM SIGNIFICANT

Lack of Quality Control UNLIKELY MINOR INSIGNIFICANT

Under/Over Receiving POSSIBLE MAJOR SIGNIFICANT

Buyer orders with his initiative UNLIKELY MINOR INSIGNIFICANT

FIFO loose implementation LIKELY MAJOR CATASTROPHIC

Weather conditions disruptions INFREQUENT MAJOR MODERATE

Late Deliveries POSSIBLE MAJOR SIGNIFICANT

Loose Inventory Control POSSIBLE MINOR MODERATE

Security issues UNLIKELY MEDIUM INSIGNIFICANT

IT / Technological issues UNLIKELY MAJOR MODERATE


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returns are not accepted by the suppliers, due to the clauses in signed contracts.

Moreover, there are additional costs added by the “scrap” procedure followed in

their stores.

5.1.3 RISK MITIGATION STRATEGIES: SELECTION & IMPLEMENTATION

As it is mentioned above, the fire in Stergiou facilities caused a lot of problems in My

Market, as it left its super markets with shortages concerning confectionery

products, sandwiches and fresh bread.

Regarding confectionery products that have a short expiration date, Stergiou took

the responsibility and decided to use a variation of make and buy mitigation robust

strategy. Stergiou could not continue the production of all of their products in the

home factory and decided to continue the production of products with a longer

lifespan (cakes for example) to their three retailer shops that had the capability of

baking (in smaller quantities though). The variation is that Stergiou shifted the

production, but did not outsource it; by the time they could cover the needs of their

clients, concerning the confectionery products. On the other hand Stergiou did not

have a mitigation plan for continuing the production of the fresh bread and the

sandwiches. A solution according to the literature would be an implementation of

the make and buy strategy and most specifically to outsource part of the production.

However this is not so realistic, as the strategy is not considered an effective solution

when the company is not facing a disruption and it could probably cost more than

the benefits that is going to offer.

On the other hand, My Market had to face a supply chain disruption that led their

super markets to shortages, concerning mostly the fresh bread and secondly the

sandwiches. Their problem was that Stergiou was their exclusive supplier,

concerning fresh bread and sandwiches, and they were not sure what the right

action for the company was during the disruption. Concerning other products where

there are many suppliers, My Market usually implements Revenue Management and

Assorting Planning techniques in order to “hide” possible supply disruptions. The lack

of an alternative supplier leads My Market to financial losses, but not significant

enough to harm the organization. The biggest issue for the firm was the fact that

their clients would not find fresh bread in the stores and that would harm their

reputation and strengthen their competitors.

Moreover, taking into account that the type of the supply chain was an efficient

supply chain with low demand and supply uncertainty, led My Market to a major

drawback to their risk management strategy, related with not applying the control

and the Flexible Supply Base mitigation strategy. In accordance with Macneil (1978)


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an aspect of the control strategy could be to design contract in such a way that

account for possible changes and risks.

That actually means that My Market could put specific clauses in cases of supply

disruptions that could “force” the supplier to find an alternative way to fulfill the

orders. As they explained they had not followed the control strategy because they

underestimated the probabilities of a fire event in the facilities of a major supplier.

Despite the fact that this may sound reasonable there are still additional actions that

the firm could do in order to mitigate the disruption. They could adopt the flexible

supply base robust strategy that is referred by Tang and Christopher (2006).

According to this strategy the firm could have more than one supplier for a specific

product in order to achieve bigger flexibility. The drawback of this strategy is that it

raises the cost under normal circumstances, but in the examined case that could not

be a major problem as there are only two products, with small purchasing cost. My

Market did not have an alternative supplier and the greatest mistake, which they

admitted ex post, was that they did not approach an alternative supplier during the

disruption, as they were reassured that the production will start again almost in a

month.

5.2 INTERVIEWS –QUESTIONNAIRES

The following sub-chapters are going to present the most significant risks related tothe supply chain, according to Greek FMCG companies professionals and how do

their companies act in order to “tackle down” those risks.

5.2.1 RISK IDENTIFICATION

According to Athenian Brewery, they had formed a risk assessment team in order to

identify, assess and mitigate risks. This team closely cooperates with Procurement

and Planning Departments in order to achieve smooth operations and the

continuous flow of goods. As he stated, they try to list as many possible risks as they

can in order to be ready to face any disruption in their supply chain. This task is

considered infeasible as the risks can be hundreds, so the firm records only the risks

that they believe that can harm them directly and in such a way that it will cause

them significant financial losses and lead to a bad reputation. Moreover, during the

risk identification they are consulting their suppliers so they can cover all of the

possible threats that their company might face. That is why in their signed contracts

they put special terms that have to be fulfilled, such as: exact delivery dates, quality

issues, specific service level, etc. The following table shows the most significant risks

according to Athenian Brewery’s risk assessment team.


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FIGURE 5.3: ATHENIAN BREWERY’S RISK IDENTIFICATION

RISK CATEGORY RISKS TYPE OF LOSSES

SUPPLY RISKS

LATE DELIVERIES/DELAYS INACCURATE FORECASTS

COMBINED FINANCIAL ANDREPUTATIONAL

OPERATIONAL RISKS WRONG ORDERING/ INACCURATE

LEAD TIME

STOCKPILLING

INEFFICIENT/WRONG DISTRIBUTION

FINANCIAL PRIMARILY AND

REPUTATIONALY SECONDLY

ENVIRONMENTAL RISKS EXTREME WEATHER

NATURAL DISASTERS

FINANCIAL

TECHNOLOGICAL RISKS MACHINE BREAKDOWN

IT ISSUES

FINANCIAL

GEOPOLITICAL RISKS PORT TRADE UNION STRIKE

CORRUPTION

FINANCIAL

DEMAND RISKS BACKORDERS

QUALITY / PRODUCT

DISSATISFACTION

STOCK ALLOCATION

BOTH

Source: Athenian Brewery Questionnaire

Mr. Konstantinidis, representing P. Kavouras & SIA O.E, stated that in order toidentify the most significant risks for the company they closely collaborate with their

future suppliers. Regarding their approach, they brainstorm with their future

suppliers, prior the agreement, in order to point out the most significant threats that

they could possibly harm their supply chain. After this they agree in the contract

terms by adding special clauses and terms in order to bind each other. Acting like

that, according to Mr. Konstantinidis, allows the company to map all of the possible

threats, concerning both sides. Furthermore, I was informed that they decided not to

form a risk assessment team as their company is a domestic small company that

operates in the Greek Market, and they believed that risk should be assessed by theperson that has the biggest experience in company’s trades. The following figure

shows the identified risks for P. Kavouras & SIA O.E – Honey Center.


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FIGURE 5.4: HONEY-CENTER RISK IDENTIFICATION

RISK CATEGORY RISKS TYPE OF LOSSES

SUPPLY RISKS LATE DELIVERIES/DELAYS OF

RAW MATERIALS

COMBINED

FINANCIAL ANDREPUTATIONAL

OPERATIONAL RISKS WRONG ORDERING/

INACCURATE LEAD TIME

DEFICIENT DISTRIBUTION

REPUTATIONAL

ENVIRONMENTAL RISKS EXTREME WEATHER

NATURAL DISASTERS

FINANCIAL

TECHNOLOGICAL RISKS MACHINE BREAKDOWN

IT ISSUES

FINANCIAL

GEOPOLITICAL

RISKS/OTHER

PORT TRADE UNION STRIKE

AIR TRAFFIC CONTROLLERS

STRIKE

FINANCIAL

Source: Honey-center interview

5.2.2 RISK ASSESSMENT & EVALUATION

After the risk identification, Athenian Brewery’s risk assessment team has to

prioritize and rank the founded risks according to their impact to the organization. In

order to achieve that and be fully aware of the potential threats they mostly use

Perception Based tool and the Delphi technique. Firstly they make a list of the

identified risks and then with the assistance of the responsible managers they rankthose risks according their possibilities of occurrence and the consequences that

might cause to the firm. Afterwards they implement the Delphi technique by

providing the list that they have made to a consulting team, in order to have a more

precise opinion about the potential risks.

According to the risk assessment team the most significant risks for Athenian

Brewery are fitted in the demand risks category. Those risks are presented and

ranked in the following table according to figure 3.5.


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Source: Athenian Brewery Questionnaire

The most significant risks for Athenian Brewery are put in the operational, demand

and supply risks categories. The most significant out of all is the possible lack of raw

materials and the possibility of late deliveries. It is obvious that with the possible

absence of the raw materials the firm is unable to produce its final product and

launch it to the market. Thus Athenian Brewery puts in the contracts clauses that

require deliveries from their suppliers in exact dates and specific lead times in order

to face this problem as well as the backorders issue.

On the other hand, according to Mr. Konstantinidis, P. Kavouras & SIA O.E/Honey –

Center forms the list of risks by using if scenarios technique in order to find the

impact and the possibilities of the potential risks. In this company, as in the two pre-

referred, a perception based variation is being used.

Due to the fact that they are a small company, they try to map and assess all the

possible risk by brainstorming and critical thinking. This technique according to Mr.

Konstantinidis examines situations that decline from normal and it is mostly based

on the experience that the managers of the firm have. It is important to refer thattheir way of thinking during the brainstorming process looks identical with what

RISKS PROBABILITY IMPACT EVALUATION

Inaccurate Lead time POSSIBLE MEDIUM SIGNIFICANT

Unsatisfactory Quality UNLIKELY MEDIUM INSIGNIFICANT

Backorders POSSIBLE MAJOR SIGNIFICANT

Inventory Issues/ Stockpiling/Stock allocation LIKELY MEDIUM SIGNIFICANT

Lack of Raw Materials/Late Deliveries LIKELY MAJOR CATASTROPHIC

Weather conditions disruptions INFREQUENT MAJOR MODERATE

Freshness Issues/ Returns POSSIBLE MAJOR SIGNIFICANT

Demand Fluctuations POSSIBLE MINOR MODERATE

Security issues UNLIKELY MEDIUM INSIGNIFICANT

IT / Technological issues UNLIKELY MAJOR MODERATE


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Waters (2007) have suggested, as they try through their existing knowledge of the

situation and the historical data to determine the probabilities of occurrence.

The following table consist the outcome of the interview with Mr. Konstantinidis and

it briefly describes the type of the identified risks, the probabilities of occurring and

the impact that those risks to the firm. The probabilities of the risks where given in

percentages and they were converted according to the figure 3.5 during our

conversation.

The most important risks as are listed in the following table are related with the

operational part of the supply chain and more specifically with distribution

problems. Other significant risks for the company are related with raw materials

issues, late deliveries from the suppliers and weather conditions as they can affect

the distribution to the islands.


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RISKS BRIEF PRESENTATION PROBABILITIES SIGNIFICANCE

Product Quality

Assurance

The product has to be

checked in order to meetclients and company’s

standards. Client

dissatisfaction due to quality

related issues.

5% / Infrequent Medium Impact to

the company. Risk isranked as moderate.

Weather

conditions

This category contains

severe weather conditions,

as well as winds that can

block ship departures to the

islands.

10% / Infrequent Medium Impact to

the company. Risk is

ranked as moderate.

Raw Materials/

Late Deliveries

Shortages of raw materials

are created due to late

deliveries from the suppliers.

As a result there are delays

in executing the orders.

30% / Possible Medium Impact to

the company. Risk is

ranked as significant.

Deficient

Distribution

This risk could be listed in

two categories as

distribution is a part of

operations. On the other

hand, this issue is created

several times due to port

trade unions and air traffic

controllers strike, causing

disruption to the

distribution.

30% / Possible Minor Impact to the

company. Risk is

ranked as moderate

Technological

/IT issues

Production problems due to

machine breakdown


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5.2.3 RISK MITIGATION STRATEGIES: SELECTION & IMPLEMENTATION

The first action that Athenian Brewery plots to implement in order to mitigate the

pre- mentioned supply chain risks prior the agreement with them is trying to be as

precise as possible with their forecasts in order to meet the demand and avoid

possible backorders. Moreover, they put contract clauses, this is recognized as a part

of a transferring/sharing strategy as it is described by Manuj & Mentzer(2008),which

bind both the suppliers and the company to specific dates and lead times. All of

these actions though have been taken prior the potential agreements with their

potential suppliers and constitute preparations from the firm’s side. The actions that

the organization is going to take concerning their established exchanges are

different.

According the risk assessment team, after the agreement with the suppliers the risk

assessment team deploys plan b, even plan c concerning the potential risks.

The most significant risk is the late deliveries of raw materials. Due to the

promotion-based Greek competitive market, the delay of raw materials that are

intended for tailor made activities could be disastrous for the firm as “deducts”

reliability and enhances bad reputation. Moreover, such an event turns the

consumers and the retailers to competitors. The supply chain in this case is

characterized as of responsive supply chain with low supply and high demand

uncertainty, by the time that there is strong competition in the market, based on

promotional activities. Concerning this risk the organization has qualified the proper

risk mitigation technique, as they should add flexibility in their supply base. That is

why they selected to have two alternative suppliers in order to be flexible in

disruptions; despite they know that this could increase the cost during normal

circumstances. This is exactly the flexible supply base robust strategy as described by

Tang & Christopher (2006). Another action that it could be effective, is the

implementation of retaining strategic stock. According to the firm this could raise the

inventory cost and could lead to stock allocation. On the other hand though, this

could add flexibility to the firm and limit possible losses during a disruption.

Another significant risk for the most FMCG companies that are related with the food

industry is freshness issues and expiration dates management. According to the

company freshness issues can be caused from several reasons. Some of them

msc thesis in logistics & supply chain management (1).pdf

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