Memo

From: Francois Damba

Date: 27 November 2023

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?

Since the supply of slat and sugar is critical to the operation , then the focus on delivery
with the agreed upon specifications and quality is of the utmost importance for the
procurement and program staff to meet the emergency needs of the final beneficiaries .
The current supply arrangements of sugar and salt has shown specific deficiencies that
will result in the following risks:

 Failure of meeting the final beneficiaries needs.

 Dissatisfaction of the program staff and the final beneficiaries .

 Incurring extra costs due to whether changing the received quantities or looking
for other suppliers to source from them.
 Requesting on demand and having no safety stocks may result in budgetary
problems due to potentially sudden increasing in the sugar and salt prices .
 Ruining the organization’s reputation among the beneficiaries , the other
humanitarian organizations and the donors.
 Potential loss of the already granted fund by the donor.

 Potential suspending to the funds that are still under the final approval process of
the donors.

© 2017 Logistics Learning Alliance Ltd – ‘Supply Chain Improvement through Learning’
 2. What would you do to reduce these risks?

To reduce the risks of the current supply arrangements of Salt and Sugar , we have to
establish risk management plan through which a number of different actions can be taken.
Establishing such plan will reduce not only these risks but also any potentially similar
risks that might be faced due to following the same supply arrangements in future .
Therefore , the following risk management related actions will be carried out to reduce the
risks:

 Developing suitable procurement strategy a part of which establishing a long term

framework agreements for purchasing salt and sugar should be done .
 Establishing procurement process ,procedures ,rules and guidelines that should be
followed and applied in all procurement activities.
 Signing binding contracts that include strict terms and conditions to protect the
organization from any potential breach by the supplier and that show the
responsibilities of the procurement people as well .
 Having ethical standards of behaviour to be used as a guide for the supplier when
carrying out their contractual business commitment to the organization.
 Involving the procurement people in the process of the needs identification and in
setting the required specifications of the required food materials.
 Carrying out continuous training of the procurement people and taking care of
having professional and skilful ones .

The current supplier is local.

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

There are many risks of using a new international supplier and they can be listed as fo
 Potential Fraudulent Behaviour of the Exporter.

 Performance-related Risks that may result in delivering wrong goods and of bad
qualities or late delivery .
 The exporter may not have enough financial resources to cover its commitments .

 Carelessness of the exporter to carry out the load and download processes in the
allowed time that will incur the organization demurrage charges .
 Misunderstanding that may take place due to cultural and trade practices
differences and due to language problems.

 Page 2
 4. What can SCILaid do to manage these risks?

SCILaid must take specific bonds and guarantees to minimize the risks and this can be
done through taking the following bonds and guarantees :

Bid Bond
This will provide the organization with security against any potential failure by the exporter
to carry out the contractual obligations and against its disability to proceed in performing
trading process .
Performance Bond
To guarantee that the exporter will carry out its contractual obligations and to perform in
accordance the binding terms and conditions , a performance bond will be taken in which a
detailed description to the situations which proof the malperformance of the exporter and
that will make the bond payable accordingly .
Retention Bond
This bond will be retained till the final delivery of the purchased goods takes place and till
after the goods are checked physically for any potential damages or unidentical
specifications and inferior qualities .
Advance payment Bond
This bond will provide the organization security against any advance payment done to the
benefit of the exporter .

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

Actually , there different methods of international payments and each type of

payment has different levels of risks to SCILaid . These methods are as
follows:
Payment in Advance
This is the least attractive method of payment for the buyer .
Letter of Credit
This method of payment is secure for the exporter and done in its favour.
Documentary Bills for Collection
This method of payment is secure both for the buyer and the exporter .
Open Account
This method of payment is secure for the buyer .

 Page 3
 Therefore , it is recommended for our organization to choose Open Account
method as a priority and Documentary Bills for Collection as a second option.

Regards

Francois

To answer this task, you will find the following learning material section helpful:

3.2. Risk Management

3.8. International Commerce & Methods of Payment

 Page 4