Fundamentals of Risk Management

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supply chain management
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Take the example of a sports club that has decided to outsource the procurement 
of merchandise sold to fans of the club. The expectation of fans is that merchandise 
will be desirable, available, distinctive and of appropriate quality, and will represent 
value for money. The club itself will require that merchandise is of an appropriate 
quality and high availability, desirable, profitable and ethically sourced. The risks 
associated with the supply chain and the risks of managing conflicting stakeholder 
expectations need to be assessed.
The conflicting stakeholder requirements of value for money and profitability 
have led the club to take the decision that merchandise will have to be procured from 
a low-cost manufacturer, probably based in a country with lower employment costs. 
However, the club may have also decided that it will not procure directly from a 
manufacturer, but will use a third-party procurement agency. The requirements
then placed on the procurement agency will include the goods being of appropriate 
quality and obtained at the lowest cost available from an ethical supplier.
There are many risks associated with the course of action that the club has decided 
to take. There may be quality and availability issues that could cause dissatisfaction 
amongst fans and result in reduced sales. There are also questions of corporate social 
responsibility that need to be addressed. It is likely that the decision to use a third-
party importer will reduce these problems, because the importer should be in a better 
position to establish and monitor corporate social responsibility standards.
The essence of the supply chains for many organizations is that they have gone 
from ‘lowest risk at any cost’ to a situation of ‘lowest cost at any risk’. In reality, both 
hazards and opportunities need to be managed. In other words, the potential downside 
of outsourcing needs to be identified and mitigated with the same level of diligence 
as the upside or assumed benefit of outsourcing is embraced.