Memo SCILaid

From: Francois Damba

Date: 20 December 2019

RE: UNIT 3 - TASK 3 – RISK MANAGEMENT IN SOURCING AND IMPORT/EXPORT

The supply of salt and sugar is critical to the operation.

1. What are the risks of the current supply arrangements?

- I see a risk of the supplier failing to supply part or complete order due to the inflexibility of the purchase
contract, considering the value involved here and amount to be delivered and the time frame given to the
supplier to deliver a complete order in the specified time, I foresee the suppler failing to meet the target.
- The other risk I see here are in the terms and condition in the quality control and a number of processes
to be carried out at each and every stage of the order preparation the inspections and certifications are
very important but they will affect the delivery time given to the supplier.

2. What would you do to reduce these risks?

Before the purchase contract is issued there is need to engage and have a meeting with the supplier to
agree on terms and condition as well as checking delivery capacity. I noticed in the contract, the contract
is talking of complete delivery to be delivered within five working days after purchase contract is issued
and payment to take place after thirty days, I feel it’s a bit tricky to the supplier considering the nature of
the order required versus the time frame required and terms and conditions to be mate so engaging with
the supplier will definitely reduce the risks which may occur. The other main way of managing risk is by
carrying out effectively and efficient procurement process. The involvement of using specific actions,
based on the analysis is of specific risks which are inherent in specific goods and services.

The current supplier is local.

3. What are the risks of using a new international supplier?

- The new international supplier may not have much of the experience of working with local people and
local rules and regulations may not meet the local standard, the new supplier has a probability of
bleaching the local standards by attempting to supply the internationally produced products which do not
comply with the national or regional standards, there is also a possibility of high priced goods due to
customs clearance and all the importation processes and the foreign currency exchange rates, Goods
may also delay to arrive on time due to many factors such as weather condition during shipment, thefts
change of export laws. The process of inspection may also cause the delay or non-delivery due to the
inspection results.
- With the new international supplier there is a high risk of fraudulent activities here since SCILaid has no
experience of working with this new supplier, there may be a case that SCILaid pays the money into
account and the supplier ask for more money trying to cover up some cost of export processes will cause
more complications.

4. What can SCILaid do to manage these risks?

© 2017 Logistics Learning Alliance Ltd – ‘Supply Chain Improvement through Learning’
 - SCILaid must carefully do all the necessary procurement processes when to choose the supplier,
SCILaid must carry out due diligence process.
- SCILaid must have a good relationship with its suppliers and must be in touch and engaging with
suppliers so that a good relationship is made and good relationship is built so that whenever SCILaid
request for the supply of goods is given priority. SCILaid must carry all the necessary procurement
processes efficiently and effectively and SCILaid must analyze specific risk which are inherent in certain
goods and service and make sure that there are measures in place to manage these risks. SCILaid must
carry out the processes of approving activities and agreeing on budgets, this means that the time to carry
out the procurement process, in particular the planning activates can be shorter than it is required to carry
out the process efficiently.
- Developing appropriate strategies to manage risk can reduce or eliminate certain aspects of it. If we are
procuring critical goods, where quality and timeliness of supply is crucial, then the strategy may be to only
use established suppliers that have already demonstrated their ability to supply the same goods, or
similar goods in the past, thus, reducing the risk compared to sourcing from a new supplier.
- With some goods or services having a range of suppliers who can supply, and by sharing orders
between them, will reduce the risk of only sourcing from a sole supplier. The other critical means of risk
reduction is the use of legal contracts, the content and the wording of the legal contract this is because
they must be aware of its responsibilities.
-

5. Can you give a recommendation on the method of payment?

- There are many methods of international payment as follows
•Payment in advance
•Letter of credit
•Documentary bills for collection
•Open account
- So out of all the above methods I need to understand the nature of the goods
value and the probability of the risk which SCILiad is to take considering that
SCILaid is dealing with this new international supplier for the first time. For the
reason of safeguarding the organization’s resources the choice of a good method
of payment will be the best recommendation. Therefore I will recommend the
method which will ensure that the payment be done after all the processes of
exporting is done and goods received in good order. I recommend the Letter of
credit method of payment as provide security to both the buyer and the exporter.

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