Introduction
Because all companies are open systems, they are influenced by a multitude of external forces. With globalization and competitiveness on the rise, the implications of risk on the organization are enormous. Both operational and financial risks exist. Concerns associated with operations include both production and marketing risks. Currently, the majority of firms employ a specialized risk assessment and risk management team to eliminate or mitigate the effects of risk. Enterprise Risk Management is currently a field of study that includes risk management.
Mr. Brown, Chief Marketing Officer of California Organics (April 25, 2008): Our company is the foremost producer and distributor of organic farm produce. What began as a tiny farming venture in 1975 has evolved into a professionally managed organization employing more than 200 people. No pesticides or non-organic fertilizers are utilized in the cultivation of the company's crops. The farm and offices are located in California, and its products are distributed to grocery stores in our state as well as border communities in Nevada and Arizona. Increasing levels of health consciousness have led to an increase in demand for organic foods, which bodes well for the future of our company.
In these regions, the majority of our sales are to small and medium-sized grocery stores. Due to the low pricing supplied by supermarkets, it does not provide services to them. Produce is distributed by a network of ten delivery vehicles. The food is packed in such a way that the food that will ripen first is supplied to local stores and the food that will ripen last is delivered to stores further away.
Risk Assessment: All department heads, including me, are members of the company's crisis management team, which is led by our CEO. A document regarding crisis management has been distributed to all team members. The document's main points are listed below. Agriculture is the area of operation, so all hazards linked with this sort of industry might be considered possible risks for this organization.
Optimal agricultural productivity depends on a variety of conditions, including the weather, the availability of irrigation infrastructure, and the use of organic fertilizers. In lieu of insecticides, the company utilizes ladybugs to repel insects. Floods, cyclones, and forest fires are among the many weather-related dangers. Assessing average weather trends will be aided by a review of the area's historical weather records. The Company has sufficient water sources to irrigate the area for six months if there is no precipitation. Organic fertilizers, including as compost and animal waste, are available year-round. The business has storage facilities such as warehouses and cold storage facilities. The available cold storage facilities cannot accommodate more than two days' worth of production in the event of a distribution system breakdown, which can pose storage issues. Due to their intrinsic characteristics, certain products cannot be stored for more than one week without being spoiled. Even though the company's network is efficient and the quantity of trucks is sufficient to serve the business, a breakdown could result in significant losses. This is because the full shelf life of the product is restricted to two days without refrigeration, after which it would perish. None of the company's trucks are equipped with refrigeration. The storage facilities of our clients also contribute to the freshness of the company's produce. The prices of agricultural products are contingent on their availability on the market. A glut in general production will cause prices to fall, which will reduce the company's earnings and profits. As an organic producer, our prices are higher than those of non-organic items, and demand will depend on the economic climate. Payment for our products has never been a difficulty for our business.
Enterprise Risk Management: The risk assessment team provided us with the aforementioned potential threats that the business may face. The risk management team has taken or will take the following actions to manage the aforementioned risks: The expansion of catchment areas has begun, and once completed, the corporation will have enough water to last a year without precipitation. Ordered are more cold storage facilities. The purchase of crop insurance for protection against natural disasters has occurred. A separate department for fleet maintenance has been established.
Tuesday, 15 April 2008
Our delivery plans were significantly disrupted due to a mix-up caused by a delivery department error. My staff in the marketing department took prompt action, which prevented the situation from becoming a significant embarrassment and causing financial loss. The delivery department has just elevated an employee to the position of delivery supervisor. His role is to assign delivery orders to truck drivers in order to ensure accurate delivery. The incident occurred around the holiday season, when large orders are typically executed. This added pressure to all divisions, particularly the delivery department. Occasionally, the purchasing staff is permitted by business policy to purchase vegetables from nearby farms to accommodate growing demand. This time, around 20% of the orders were obtained from outside the company. Due to the consequent rush, the new supervisor gave incorrect delivery instructions to six of our ten delivery vans. An evaluation revealed that the following issues had occurred:
All of our close customers who were to receive ripe or nearly ripe produce received items that would only ripen after three days. Buyers began to contact the marketing department in regards to the mix-up and urged that other steps be made to provide fresh fruit. Otherwise, they would turn to our competitors for their purchases. When our distant customers accepted delivery of the merchandise on April 17, the majority of the items were rotting. They followed the same procedures as our local customers. Our quality control personnel was unable to identify the non-organic produce that was mistakenly included in the products we ordered from other vendors to meet demand. The administrative office receives a call from the attorney of a consumer who allegedly became unwell after consuming these specific fruits and vegetables. He threatened to bring a lawsuit for negligence against the corporation. In addition, he stated that he will seek damages of $500,000 for causing his client's illness.
The risk management team had quantified the hazards in the following manner.
The company's tolerance level for incorrect deliveries in adjacent regions is 5%, and in distant markets it is 2%. The likelihood of such risks occurring is 1 incorrect delivery every 100 trips. In actuality, the percentage of incorrect deliveries was 60%, since six trucks made incorrect deliveries. Quality of items outsourced: The quality and authenticity tolerance for outsourced organic foods is fixed at 1%. The probability of purchasing non-organic food has been assessed at 1%. In the past five years, the delivery of nonorganic food containing pesticides has occurred only once, according to an examination.
Our organization and department in particular took measures to resolve the situation.
A day of incorrect deliveries caused by an error in the delivery department caused the marketing manager significant difficulties. It appears that the situation was created by a recently appointed supervisor who gave incorrect delivery orders to the truck drivers. The marketing department was contacted by irate suppliers who complained about the issue and wanted alternative delivery arrangements. Competitors with foresight took advantage of the circumstance and offered to provide goods to our customers at a discount. The revelation concerning the pesticide content was widely reported in the local media, causing the company's reputation to suffer. Since they represent the link between the company and its clients, the marketing department had to carry the full weight of the issue.
In a crisis management team meeting held on the afternoon of April 15th, it was determined that recalling all trucks would be futile, so no action was taken in this regard. Trucks that were supposed to deliver to distant regions (but were sent to nearby purchasers) were recalled, and the items were placed in storage to be transferred to our nearest markets within the next two days. Thus, the food in those trucks was preserved. The estimated value of spoilage was approximately $150,000. On the 20th of April, 2008, our department, with the assistance of relevant authorities from other departments, launched a large public relations initiative. We are nearly finished meeting with all of our clients in person to resolve outstanding issues. The majority of them have acknowledged that this was an isolated incidence and will continue to be our customers. We estimate that 20% of our consumers have been lost or will be lost. The chief executive officer and our marketing and public relations directors met with the attorney of the dissatisfied customer. His attorney phoned the client and scheduled a meeting at the residence of the offended party. Before filing litigation, the business reached a settlement with him for $100,000. A news conference was held and the media was provided with a suitable explanation without releasing information that could be detrimental to the company's reputation.
Mr. Gordon, Chief Executive Officer of California Organics: Our company's unanticipated catastrophe has shaken us out of our relative comfort. All of our departmental heads have been advised to be more watchful in the future. Additional delivery system checks have been implemented to prevent incorrect deliveries and the lack of organic certification among our suppliers. Extensive improvements were made to our inspections of imported goods. On May 2, 2008, a retraining program for all employees in all departments is slated to commence. The supervisor who was responsible for all of the problems was given a warning. Our crisis management staff and marketing division have received praise for their adept handling of the situation.
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