Business Risk Mitigation Strategies

Discuss about the Report for Business Risk Mitigation Strategies.

Three Tailored Risk Mitigation Strategies

Risk mitigation is a planning made or options chosen for enhancing opportunities and reducing threats occurring to the completion of a project’s objectives. This process is implemented by organizations for tracking identified and unidentified risks, detecting new risks and also evaluating the effectiveness of various risk process throughout the evolution of a project. Maxtron Inc. a manufacturer of lifestyle electronics products planning to shift to its home country America who was manufacturing its products in a low cost destination till now, as the Globalization is on a good pace in today ‘society. And to reshore there are certain risks and transportation costs associated with it. This question is going to discuss the three risk mitigation strategies which Maxtron need to consider before starting up with the project.

Acceptance of Risks

Although acceptance of risk does not mean there is a reduction in its effect but still it is considered as a strategy. Such a strategy is a common tool when expenses related to risk management is higher than the risk. An organization which does not have enough to spend in managing risks does not have a high chance of the occurrence of risks and they can opt for this strategy. The three strategies that Maxtron needs to consider for dealing with the costs are: Enhancing Capacity: means focusing on low cost, building centralized capacity for the demands which is unpredictable, Experiencing Redundant Suppliers: means supplying more often for high volume products while less redundancy for low-volume products, and Enhancing Inventory: Decentralizing lower valued products while centralizing higher valued products.

Enhancing the Capacity

One of the crucial elements or functions which help supply chain management ensure an uninterrupted and smooth flow of goods and materials is reduction of risks once they are analyzed. In today’s date business and enterprises work under a very unpredictable and complex environment. This constantly is a threat to supply of products needed for manufacturing. Hence companies research and are continuously trying to analyze risks and find ways to reduce it (Ellis et al., 2010).

While dealing with the global supply chain risks, Maxtron concentrates on lowering costs and making speculative demands decentralized in nature. For demands and requirement they opt for building centralized capacity and increase decentralization when their prices drop.

Such programs where one is made prepared for emergencies are basically long term goals. Here the overall capacity is aimed to be strengthened so that the organization becomes efficient enough for facing any kind of urgent situations. They must have the power to bring out the current risk situation in an orderly transition using fast recovery encouraging sustained development. (Anonymous, 2004)

Experiencing Redundant Suppliers

Companies many times treat all their suppliers in the same manner and many times when there is a risk related to suppliers they tend to respond to it pretty late. Maxtron has segmented its entire supply base, made governance contracts based on what is the role of every supplier and what their importance is in its supply chain. This way not only can they anticipate risks better and accurate but also prevent disruptions of all kinds (Giguere, 2012)

Enhance Inventory

Also popularly termed as a no brainer method to mitigate risks, this is the most commonly used strategy by companies. Maxtron too uses this model to find how much are the results of additional inventories in a situation where the origin or source is moved without a plan and systematic improvements made in the supply chain management.  Although 65 to 70 days is what people will general opinionated but, an offset is tried to be made by extending terms of pay, using high pay for offsetting bigger inventories (Dittman, 2014)

Gravity location Model for reshoring new plant by Maxrton

In this model the manager makes an identification of potential locations within every sector in a company where the organization has envisioned locating a plant. The gravity location model comes to of great use as it is suitable for geographical locations in that particular region. Such kind of a model helps minimizing transportation cost of raw materials from the suppliers and from the finished goods manufacturers for the market in question.

Coordinates of the optimised location for reshoring Maxtron’s new plant

Calculating Optimised Co-ordinates for Source:

d_n for Source S1= ?(550-250)² + (650-350)²

                        =          ?180000 = 424.26

d_n for Source S2= ?(550-200)² + (650-300)²

                        =          ?245000 = 494.97

d_n for Source S3= ?(550-150)² + (650-250)²

                        =          ?320000 = 565.68

x’ = ((250*0.8*250)/424.26 + (400*1.2*200)/494.97 + (250*0.7*150)/565.68)/(0.47+.97+.31)

= 204.69

y’ = ((250*0.8*350)/424.26 + (400*1.2*300)/494.97 + (250*0.7*250)/565.68)/(0.47+.97+.31)

            = 304.57

The new co-ordinates for Source are = 204.69 and 304.57

Calculating Optimised Co-ordinates for Market:

d_n for Source S1= ?(550-400)² + (650-300)²

                        =          ?145000 = 380.78

d_n for Source S2= ?(550-550)² + (650-600)²

                        =          ?2500 = 50

d_n for Source S3= ?(550-450)² + (650-550)²

                        =          ?20000 = 141.42

x’ = ((300*0.9*450)/380.78 + (450*1.1*550)/50 + (350*1.2*450)/141.42)/(0.71+9.9+2.97)

= 522.86

y’ = ((300*0.9*300)/380.78 + (450*1.1*600)/50 + (350*1.2*550)/141.42)/(0.71+9.9+2.97)

          = 573.35

The new co-ordinates for Source are = 522.86 and 573.35

Total optimal transport cost in Maxtron’s supply chain

When inventory in an organization is moved from one point to another in a supply chain it comes under transportation and there is a cost involved with it. The network of such transportation is made in such a manner and the transport medium chosen is such that it equals its responsiveness with its cost.

For Source Optimization Cost will be =

(424.26*250*0.8) + (494.97*400*1.2) + (565.68*250*0.7)

= 84,852 + 2, 37, 585.6 + 98,994

= 4, 21, 431.6

For Market Optimization Cost will be =

(380.78*300*0.9) + 50*450*1.1) + (141.42*350*1.2)

= 1, 02, 810.6 + 24, 750 + 59, 396.4

= 1, 86, 957

References

Dittman, J. (2014). Managing Risk in the Global Supply Chain.

Ellis, S.C. (2010). Buyer Perceptions of Supply Disruption Risk.

Giguere, M. (2012). Segment your suppliers to reduce risk. Living With Risk: A Global Review of Disaster Reduction Initiatives, 2004 version, Inter - Agency Secretariat of the International Strategy for Disaster Reduction.

Sampson, S. (2012). Location Planning Analysis with the Center of Gravity Method.