Topic 2 RoboCanada Inc. - How to Rule the Risk
Hello! We are delighted to present to you our solution on the 2nd topic.
With the data provided about RoboCanada we decided to approach the first question as follows: Firstly, we analysed the main markets using the available external data sources and concluded that all three markets are substantial in value (for example, South Korea is the second largest robot markets, after China (Powley, 2014)).
Then, we analysed the focus countries with the available Risk Room tool, assessing the relative risk exposure of each focus country compared to others. After finding potential countries of interest we then decided to additionally back up our decision with solid external facts that match with the Risk Room. After a thorough analysis we opted out for 3 top options and compared them to the existing hub in RoboCanada’s suppy chain.
So, for China the relatively high risk that should be mitigated is the risk of exchange rate fluctuations. China has a low risk level in transport infrastructure and can further improve on it with their “New Silk Road strategy” (Gosset, 2015).
While both for China and Thailand high risks of storms and floods should be mitigated if possible.
Malaysia, on the other hand, has lowest risk levels among all the focus countries in most of the categories.
Vietnam has both Business Environment and Political and physical risks high relative to other countries as can be seen from the data analysed in the Risk Room.
Indonesia and India have fairly similar risk reports, based on our analysis and are burdened by high risk of corruption, political violence and information infrastructure.
Lastly, Russia has been exposed to combination of both high and low risk levels but when analysing we also considered several external sources to assume the further decline of Russian economy.
Positioning on the map on this slide can give us solid indication of which three options to choose, and when factors from external sources are included, such as: crisis in Russia (Economics, 2015), trade relations between China and South Korea (Observatory Economic Complexity, 2012) or geostrategic position of Malaysia and Thailand we conclude that top three options are Malaysia, Thailand and China. We support our decision by the analysis and the data from the Risk Room primarily and can claim that risk exposure in these countries is relatively low to the one of other given options. However, using the external sources we were able to further back up the decision. Also, one can see on this graph the position of the chosen three options relative to countries where existing manufacturing hubs are located. Moving on to the “What if” analysis, we assumed it is possible to mitigate certain risks in chosen countries. If setting up the hub in Malaysia we assumed one would do so in accordance with modern supply chain practices which can increase the competitiveness of employees, therefore lowering the quality of labour risk. Secondly, in order to mitigate the risks related to environmental catastrophes, both in Thailand and China, RoboCanada can either buy insurance policies or pay special attention to choosing an appropriate location within the specific country. Lastly, exchange rate fluctuations risk is commonly mitigated by using hedging instruments or negotiating the deal denomination with suppliers, debtors and buyers (O'Sullivan, 2010). The risk mitigation can substantially lower the risk exposure in each of the chosen countries as we can see from the graph.
Finally, we have identified additional risks by assuming setting new assembly and distribution hub would be in accordance to modern supply chain management (Accenture, 2014). This enables RoboCanada to respond to change in environment more quickly but requires (FM Global, 2006), among other, long term commitment to a certain strategy and, most importantly, constant monitoring not only of risks identified in the Risk Room but also risks related to supply chain specifically. Specific risks or additional areas of concern for RoboCanda to consider when setting up new assembly and distribution hub range from internal organisational risks to risks relating to the competitive environment in the industry. For example, risk of competition, which is interconnected with risk of demand volatility and cost pricing volatility. Changes in those can substantially affect the whole supply chain and lead to increased cost thorough, for example, increased inventories. Moreover, running a highly complex global supply chain faces the organisation with various different risk environments to handle and increases the importance of well-operating IT and logistics systems. Lastly, sustainability of the supply chain for global organisations requires a great deal of effort in order to manage the relations with all the stakeholders.
In conclusion, we stress the importance of constant monitoring of all the relevant risks for organisation with global operations both using the tool such as Risk Room and reviewing its internal supply chain procedures.
Observatory Economic Complexity. (2012). Retrieved from South Korea - profile: https://atlas.media.mit.edu/en/profile/country/kor/
Accenture. (2014). Don't play it safe when it comes to supply chain risk management. Accenture.
Economics, T. (2015). Business Insider. Retrieved from How We Know Russia's Economic Crisis Has Officially Arrived: http://www.businessinsider.com/russias-economic-crisis-has-officially-arrived-2015-1
FM Global. (2006). The New Supply Chain Challenge: Risk Management in a Global Economy.
Gosset, D. (2015). China's Grand Strategy: The New Silk Road. Huffington Post.
O'Sullivan, K. (2010). CFO.com. Retrieved from Painful Conversations: http://ww2.cfo.com/risk-compliance/2010/04/painful-conversions/
Powley, T. (2014). China becomes largest buyer of industrial robots. Financial Times.
Zurich (2014). Supply chain resilience 2014.
DeAngelis, S. (2012). Supply Chain Risk Management: Tension between Lean and Resilient Principles