Table decreasing the network supply chain risk, one
Table of content Executive Summery1 1. Background of the Study2 1. 1 Supply network in Leather Industry2 1. 1.
1 Ethiopian leather industry Strength and Constraints2 2. Literature Review3 2. 1 Supply chain Management3 2. 2 Supply Network4 2.
3 Supply Chain Risk Management (SCRM)6 2. 4 Supply Chain Risk Source7 2. 5 Supply Chain Risk Consequences9 2. 6 Supply Chain Risk Drivers9 2.
7 Mitigating Risks for the Supply Chain11 3. Case study : Threat to the supply network of ANBESSA Shoe Share Company – Managing the risk13 3. 1 Company Profile13 3. 2 Supply network in ANBASSA Shoe Share Company14 . Supply Chain Risk Management in ANBASSA16 4. 1 Potential Risk in Supply Network in the Company16 4.
2 Short-term Risks to the Supply Network16 4. 3 Global Risks to the Supply Network17 5. Risk management practice in ANBESSA Shoe Share Company18 5. 1 Triple Bottom Lines Analysis19 6. Recommendation20 Executive Summery The trend for expanding production capacity to deliver service and product to the right customer, in the right quantities, at the right place on the right time had forced companies to enter to the global market and create international supply network.During the transformation of local production to global leads to different kind of uncertainties and supply network risks; a supply chain become more and more complex as a consequence of global sourcing, the risk related to the supply network will increase. The purpose of this paper is to discuss how Ethiopian leather industry in particular ANBESSA Shoe Share Company is affected by the risk in the supply network in the industry as a result of global market.
Now a days, It is the responsibility the managers to be aware of internal and external supply network risks which directly or indirectly affects company’s production. In order to work on the possibilities of decreasing the network supply chain risk, one has to identify the source of risks, the drivers, the consequence and execute strategic plan for mitigation of the supply network risk. In the study, the threat to the supply network of ANBESSA Shoe Share Company has been discussed including the strategic plan for managing the risks. . Background of the Study The study has focused to identify the risks involved in supply chain existing industry based on its interaction in the local market and global sourcing. Global sourcing makes supply network more complex and this leads for the emergence of supply network risk.
As a matter of fact, no industry can work as isolated without having relation to other industries or factories within the industry it is governed to be successful and achieve its organizational goal. 1. 1 Supply network in Leather Industry 1. 1.
Ethiopian leather industry Strength and Constraints Ethiopian sheep are known for its high natural quality of skins that satisfies international parameters such as good substance, high cut ability and good feeling. Ethiopian Hair Sheep Skins originating from the highland are appreciated by the international leather industry because of their high strength at lower thickness and flexibility which makes them very suitable for gloving, garment leather and shoe upper. Goat skins from Ethiopia are demanded on the international markets by producers of suede garment and hoes because of their compact fiber structure.
The Ethiopian leather industry is affected by a series of constraints. These include a growing rate of deterioration of leather quality observed by the tanneries during the last years. They are accompanied by factors that limit the quantitative production potential, such as low off take rates, low recovery rates of hides and skins from farm to factory, insufficient slaughter facilities, inadequate market structure, illegal animal exports, hoarding and speculation by hide and skin traders (ECBP, 2008)One of the main problems affecting the leather and specifically the tanning industry is related to a decreasing quality of skins. According to, (Bayou, 2006) skin diseases, scratches and scars, flay cuts and holes, putrefaction and heat, and poor substance are the main problems related to skin and hide quality the tanners are facing. Abdissa (2008) estimates a current loss to the Ethiopian economy of about US $20 Mio/year. Ectoparasites and related skin diseases have rapidly spread and specially affected sheep and goats in Ethiopia in the last 10 years.They are considered as the major threat not only to the Ethiopian leather industry but also for owners of small ruminants.
(ECBP, 2008) 2. Literature Review 2. 1 Supply chain Management Supply chain is the movement of materials and information as they flow from their source to the end customer. Supply Chain includes purchasing, manufacturing, warehousing, transportation, customer service; demand planning, supply planning and Supply Chain management. It is made up of the people, activities, information and resources involved in moving a product from its supplier to customer (www. upplychaindefinition. com).
A supply chain is all the steps involved directly or indirectly in fulfilling a customer needs. All organizations have supply chains of varying degrees, depending upon the size of the organization and the type of product manufactured. These networks involve the process of changing the supplies and components (raw materials) into finished products and then distribute them to the customer. Supply chain management is the design and management of seamless, value-added processes across organization boundaries to meet the real needs of the end customer.The increasing saturation of markets and globalization has created competition to be more and more intense in the last years. As a result, companies are forced to collaborate with each other more closely using the concept of supply chain management. Supply chain management is an approach to design value chains by optimizing the inter-organizational flow of material, information and capital in order to reduce costs and enhance customer value.
Due to the increase in the number of organizations in the supply network and the division of labor, supply chain complexity will also increase.The necessity of managing this complexity will lead for application of supply chain management concept and risk management. The existing Competition in the global market in all industry sectors has lead the entrance of new industry and the expansion of the existing one. As a result, the supply chain network is becoming unpredictable with different kind of risks surrounding the network which needs more attention and the application of supply chain management strategies.
Supply chain can be interrupted and tend to break down during major disruptions which can be recoverable or totally unrecoverable.As a result, a company might be affected in different terms, short or long term disturbance which will lead to the financial problem and put the existence of the company in danger. 2.
2 Supply Network Current business trends are leading to complex, dynamic supply networks. One consequence is that risk is increasing, and shifting around supply networks. Managers need to identify and manage risks from a more diverse range of sources and contexts (Clemons, 2000). Companies to compete in the global market have to satisfy the increasing demand of its customers which is dependent on the sophisticated latest technology. To be the best roduct provider, it is mandatory to be up to date of the new technologies in terms of input, production, output and distribution to the maximum satisfaction of its customers. While competing in the existing global market, a company will face various risks without its knowledge and control as a result of different kind of direct and indirect interactions involving during its activities to satisfy its customers. Network risks are not always predictable, there are many types of unpredictable disasters, including terrorist attacks, wars, earthquakes, economic crises, devaluation of currencies, computer virus attacks etc.
Therefore, managers are expected to look the risk drivers of its company and manage to overcome the risks. Supply networks are becoming more complex, dynamically changing webs of relationships (Harland C. , Brenchley R, & Helen W. , 2002). As a result of this complexity arising from many sources, some key drivers are increasing product/service complexity, e-business, outsourcing, and globalization.
It is becoming essential for companies to be aware of the existence of risk in supply chain and manage it properly to be capable of competing in thy global market and stay in the business.Poorly managed risks can lead to inaccurate forecasting, lower product quality, decrease in turnover and share price, loss of reputation, and poor relationships with the other members of the supply chain and conflict amongst the organisation’s stakeholders (Cousins et al. , 2004). To eliminate, or at least mitigate these effects, companies need to adopt supply chain risk management strategies (Frosdick, 1997; Christopher, 2005; Manuj and Mentzer, 2008a; 2008b). In the process of managing supply networks effectively, an organization has to understand the dynamics of the existing networks in which it is interacting.Understanding of the entire network, internal and external to the focal organization and or supply chain will enable an organization to easily identify the risk areas, the risk drivers, the consequences and mitigate the risks. Christopher and Peck (2004) and Christopher (2005) classify supply chain risk into five categories: 1 Process risk – Internal to the organization 2 Control risk – External to the organization 3 Demand risk – Internal to the organization 4 Supply risk – External to the organization 5 Environmental risk.
Supply side Company Demand side Supply Chain Environment Sources of risk within a supply chain (Kersten et al. , 2006) 2. 3 Supply Chain Risk Management (SCRM) Supply chains are very complex with many parallel physical and information flows occurring in order to ensure that products are delivered in the right quantities, to the right place (customer), in the right time in a cost effective manner. The path towards more efficient supply networks during recent years has resulted in the networks becoming more vulnerable to disruption.As a result there is always risk in the supply network which leads to treat of interruption in smooth working condition of the supply chain. Companies are increasingly dependent on their fellow supply chain members. Supply chains, rather than companies, compete against each other (Franck, 2007).
Supply Chin Risk Management (SCRM) is defined as a concept of Supply Chain Management, which contains all strategies and measures, all knowledge, all institutions, all processes and all technologies which can be used on the technical, personal and organizational level to reduce supply chain risk (Kersten et al. 2006a). In general terms, the process of managing risk in the supply chain context takes place on both the supply chain level and the company level. The supply chain of one company can be affected by the disturbance of any other company which is directly or indirectly connected to it in terms of supply network. While discussing supply chain risk management, it is necessary to distinguish the four basic concepts as described by Uta Juettner, Helen Peck and Martin Christopher (2003): • Supply Chain Risk Source • Supply Chain Risk consequences Supply Chain Risk drivers • Mitigating Risks for the Supply Chain . Source: MBL93HY- Supply chain management course power point presentation by 2. 4 Supply Chain Risk Source Supply chain risks refer to the possibility and effect of a mismatch between supply and demand.
This mismatch could be the result of internal or external supply chain risks an organization is facing. ‘‘Risk sources’’ can be categorised based on the potential disruptions faced by organizations in supply chain and provides the basis for risk assessment.Categories of the risk sources are: a) Environmental risk sources – includes uncertainties arising from the supply chain environmental interaction.
This includes accident (e. g. fire), socio – political action (e. g. terrorist attack), natural disaster e. g.
earthquakes), etc. Christopher and Peck (2004) define environmental risk as those which “. . .
may be the result of socio-political, economic or technological events many miles or organizations removed from the focal firm’s own supply chains, but may have carryover effects through linkages to other industry networks”. ) Organizational risk sources – this risk lies within the boundaries of the supply chain parties and range from labour (e. g. strikes), production uncertainties (e. g.
machine failure) c) Net-work related risk sources – this risk arise from the interaction between organizations within the supply chain. There are three types of network related risk sources, lack of ownership, chaos (complete disorder) and inertia (lack of responsibility to changing environmental conditions, (Christopher & Lee, 2001).From the point of view of the links within the supply chain, environmental and organizational uncertainties can be seen as risks “to” the links in the supply chain whereas network-related uncertainties are risk source “of” the links.
The complexity of supply chain network arises from different sources, in order to effectively manage the risks arising from the supply network, the management has to see the different angels of network which the organization Is operation in. pic Risk Sources in Supply Chains 2. 5 Supply Chain Risk Consequences Risk consequences are the focused supply chain outcome variables like osts or quality, i. e. the different forms in which the variance becomes manifest.
(Uta J. , Helen P. &Martin C. , 2003). According to Christopher, based on the definition of risk in referring the uncertainties of internal and external, environmental variables that reduce the outcome of predictability, the term risk is also used when referring to the consequences of risks, i. e.
to the potential outcome indicators. In this sense, the terms ‘‘operational risks’’, ‘‘human risks’’ or ‘‘risks to customer service levels’’ are consequences of risks.As a result of the different kind of risks which affects the supply chain, the entire operation will be interrupted and distorted which finally affects the organizational goal at large.
The severity of consequence of supply network risk might differ from one organization to another depending on the type of industry and specific product of the company. Types of losses as a consequence of supply network risks are: I. Financial loss II.
Performance loss III. Physical loss IV. Psychological loss V. Social loss and VI.
Time loss 2. 6 Supply Chain Risk Drivers There are different kinds of risk drivers to the supply chain network.Depending on the complexity of the supply network in a given organization, one has to identify the type of risks and the associated drivers of the risk so that the company can design strategy to prevent the occurrence of the supply network risk. There are different categories of risk which varies depending on the type of risk drivers which affects the supply chain network.
Once a company has identified the existing supply network risk and the respective risk sources in its supply chain, it has to design strategies to prevent the risk and minimise the total effect on the overall activity of the company. Supply chain risk and drivers Category of risk |Drivers of risk | |disruption |Natural disaster | | |Labour dispute | | |Supplier bankruptcy | | |Dependence on a single source | |delays |High capacity utilization at source of supply | | |Inflexibil | | |ity of supply source | | |Poor quality or yield at supply source | |procurement |Exchange rate risk | | |Industry wide capacity utilization | | |Long-term versus short-term contracts | |forecast |Inaccurate forecasts | | |“Bullwhip effect” | |inventory |Rate of product obsolesce | | |Product value | Source: MBL93HY- Supply chain management course power point presentation byIn the process of reconciling supply with demand, it is obvious that there will be risk involving in the supply network. The major drivers of risk which affects the level of risks in this process are: • A focus on efficiency rather than effectiveness • The globalization of supply chains • Focused factories and centralized distribution • The trend to outsourcing • The reduction of the supplier base. 2.
7 Mitigating Risks for the Supply Chain Mitigation is a hedge against risk built into the operations themselves; therefore, the lack of mitigation tactics is a risk in itself. Some of the strategies which companies can adapt to mitigate risk are avoidance, control, co-operation and flexibility. Risk Mitigating Strategies in Supply Chains Avoidance |Dropping specific products/geographical markets/supplier and/or customer organisations | | | | | |Vertical integration | |Control |Increased stockpiling and the use of buffer inventory | | |Maintaining excess capacity in productions, storage, handling and/or transport | | |Imposing contractual obligations on suppliers | | | | | |Joint efforts to improve supply chain visibility and understanding | |Co-operation |Joint efforts to share risk-related information | | |Joint efforts to prepare supply chain continuity plans | | | | | |Postponement | |Flexibility |Multiple sourcing | | |Localised sourcing | | | | | |Source: Supply Chain Risk Management “international Journal’ | Risk mitigation strategies in supply chains have to be investigated in conjunction with the risk drivers.
The cost of mitigation risk and the benefit derived from mitigation should be compared and evaluated.There is always a trade-off between the extra costs related to most of the mitigation strategies and the total costs of supply as a main principle of contemporary supply chain management. As a result of the existence of the different kinds of supply network risks in terms of damage it causes, continuity, and dependency or interrelated status of the network risks in the overall system of the organization, it is mandatory that managers has to be conscious of the current situation in global market and design a balanced and effective risk-reduction strategies for their companies. The four interrelated basic constructs of Supply Chain Risk Management: pic Supply Chain Risk Management—The Basic Constructs.
3. Case study : Threat to the supply network of ANBESSA Shoe Share Company – Managing the risk 3. 1 Company ProfileANBESSA Shoe Share Company is a pioneer in terms of introducing modern shoe making technology to Ethiopia. It is established in 1927 in response to the increased demand for shoe in the country. It started production of shoe at the time when such conveniences were not widely known among the general population of the country.
ANBESSA Shoe Share Company’s main factory premises and the administration office are located in the center of Addis Ababa, Lideta Kifle Ketema. The factory, has one branch production unit known as MANPO branch in the Eastern part of Addis Ababa which is now being used as export unit. For this study, the ANBESSA Shoe Share Company is abbreviated as ANBESSA.
ANBESSA is engaged in both manufacturing (production) and distribution (sales) of various types of leather upper and shoe for Gents, Ladies and Children. Its activity ranges from component making up to production of ready for use foot wears. ANBESSA has widened its product mix by adding export standard products.
ANBESSA is one of the companies which is renovating its old equipment and install new advanced machineries from time to time. Recently the company conducted an expansion project employing state of the art technology adapted from Italy and Germany and increased its production capacity to 3000 pairs of exports standard finished shoe per day and 1,500 shoes per day for local market.ANBESSA’s two major markets are the local market and the expert market which the company is recently embarked on.
Italy, Germany, Netherlands, Switzerland, France, Canada, Sudan are among the major export destinations of the company. For the local market, it uses 17 retailing shops which are found across the country in selected major town. It has also a direct and indirect export market. The history of the company shows that there were export activities back in 1970s.
Time to time these activities has been diminished and the company’s export market completely dried up. In an effort to revive, ANBESSA has accomplished a lot for the past four years and motivating results has also been achieved.The workers in the company are highly skilled and experienced as a result of its long years of experience in the business. The company has made efforts to upgrade its employee capacity by inviting international expatriate to conduct training on latest shoe technologists and up-to-date its capacity through international experience. The company has built a sting market tie with a well-known Italian shoe manufacturing and distributing company. For two successive years the company registered a high export accomplishment and got a national award.
Italy, Germany, France, Netherlands, Canada and Sudan are among its major export destinations. 3. 2 Supply network in ANBASSA Shoe Share CompanyAs indicated in the company profile form the company’s website and site visit, ANBASSA has strategic alliance with domestic leather factories, wholesalers, distributors, retailers, importers of finished and upper shoes around the world, exporters of raw materials (Global) and end user customers (local and international). RM SuppliersCustomer RR ANBASSA Source: supply network described during site visit ANBESSA basic raw materials are partly purchased locally from the local market partly imported from Italy and China. The company divides its raw materials based on the two sources.
a) The major raw materials locally procured are sheep upper, caw lining (finished and not finished), caw hide, finished sheep lining and glue. The major local suppliers of the raw materials are Pithard Ethiopia Leather Company, Butta Tannery, Afede Tannery and Blue nine Tannery. b) The major imported raw materials of ANBESSA are shoe accessories uch as threads, shoe soles and insoles. The major suppliers for its raw materials are Italy and China. The major production takes in the factory, the raw materials are converted to finished products, and finally ANBESSA will enter to local market and distribute its products to its local customers through its different local branches and export its finished shoe and shoe upper to its international customers in the global market. During this process there are predicted and unpredicted risks involved in the supply network. This study will try to indicate the risks involved in ABESSA factory and discuss the strategic plan the factory implement for managing the supply network risk.
During the site visit, it is observed that the supply network in ANBESSA Shoe Share Company represents the interaction the company has between its suppliers of raw materials, ANBESSA, the distributors, importers and consumers. 4. Supply Chain Risk Management in ANBASSA 4. 1 Potential Risk in Supply Network in the Company The major problems in supply network of the company are studied in terms of its short term and global risk. The major risk drivers in the supply network of ANBESSA is the quality of locally procured raw materials, the shortage of supply which affects the full utilization of the factory’s capacity and price fluctuation in the current market. 4.
2 Short-term Risks to the Supply Network The major risks are: ? quality of raw materials supplied locally are poor this affects the production of shoe dissatisfaction of customer shortage of raw material discrepancy of demand and supply in leather products ? fluctuation of price affects the factory’s budget ? inconsistent power supply in the factory has caused interruption of production this in turn has limited performance of the factory which has direct effect on its financial status. The factory has to pay salaries and all overheads regardless of its production interruption. ? working capital shortage has affected the company’s supply network in its production, output, distribution, export etc. and as a result customers will be dissatisfied and are forced to go to competitors. ? shortage of skilled labor has affected its activity.As manpower is the main source of production, it is one of the major elements affecting a company’s supply chain network.
As technology is changing and became more sophisticated, one has to update its system in terms of all resources, technology and production capacity to be capable of competing in the current global market to satisfy customer needs. ? delay in delivery time for locally procured materials – the delay will cause the overall production to be below the schedule or below request and his will create dissatisfaction to the customer. 4. 3 Global Risks to the Supply Network ? Environmental regulations regarding tanner technology are frequently changing and this has put in danger ANBESSA’s financial and man power capacity to compete globally. the existing global market has enable customers to have access using latest technology and choose the best product electronically and decide with minimum cost. This has created problem to leather industry in the 3rd world countries such as ANBESSA since its capacity doesn’t allow the company to give this kind of service for its customers. ? the current world financial crises has increased the cost of raw materials which ANBESSA is basically importing form Italy and China.
? The current government regulation in the leather industry has allowed free market and international investors are welcome to enter to the industry. This regulation has affected ANBESSA and the company is losing its export market since it’s not easy to compete with foreign investors. 5.Risk management practice in ANBESSA Shoe Share Company Risk Management is incorporated in the strategic plan of the ABNESSA as this is part of the 5 years strategic plan of Ethiopia in a country level. The export practice in ABNESSA is that the importer countries of finished shoe such as USA, Italy etc. will provide the raw material as well as the design for the finished shoe and shoe uppers to ANBESSA and ANBESSA will produce as per the specific request from the importer.
The risk involved in the supply network is that there might be disruption in the supply network if there is any unforeseen events occurred to the supplier of the raw materials which is beyond the control of ANBESSA. This can cause delay in shipment, etc. herefore, there is always external risked involved in importing of raw material which creates dissatisfaction in the foreign customers. Production for export is dependent on the requirement of the importers, as a result there is a risk involved in the supply network. ANBESSA management has made its top strategic plan to manage the risk in the supply network existing in the company.
Strategic Plan of ANBESSA to RISK MANAGEMENT |Risk Source |Risk Drivers |Risk Mitigation strategy | |Decrease in export price |Global economic crises |Participate in global trade fares and create | | |awareness globally | | | |Apply BPR (Basic Project Reengineering) | | | |Combine related projects, reduce irrelevant process| | | |and reduce cost | |Shortage in leather products supply and |Past experience |Create collaboration with leather factories | |increase in raw material price | |(suppliers) | | | |Report to higher responsible party for permanent | | | |solution | | | |Import good quality leather products with tax free | | | |Increase the company’s working capital | |Decrease in demand in the international market|Global crises |search for international market | |Shortage of skilled man power |Less experienced professionals in the |invite international experts and train local staff | | |country | | |Unable to perform as finalize projects as |Expected support was not released |proper follow-up | |planned due to finance problem | | | 5. 1 Triple Bottom Lines Analysis ANBESSA is administered by the government and has to bind itself to government regulations. The company applies the triple bottom line concepts in terms of financial accountability, social accountability and environmental accountability. ? Financial accountability: ANBESSA is expected to be: ? financially profitable in order to stay in the market and compete locally and globally to satisfy its customer’s needs. ? increase its export earning Social accountability: ANBASSA is obliged to: ? give employment opportunity to skilled young professionals and train them to be productive give to the maximum of their capacity and contribute to the achievement of the organization goal and as a whole to growth of the country – Ethiopia.
? Increase its production capacity and quality of its products and satisfy the current shoe demand of the society ? Environmental accountability – ANBESSA factory is located in the center of the city – Addis Ababa, Ethiopia. However, there is no damage the factory has in terms of pollution since it is well established and there is no waste product which will pollute the society. 6. RecommendationBased on the existing Government policy, ANBESSA Shoe Share Company is one of the factories governed and supported by the five year strategic plan of the county – Ethiopia. Based on this policy, I recommend that ANBESSA creates strategic working relation with the local leather product suppliers and international exporters of leather products in order to be competitive globally. As the big challenge ANBESSA’s management facing is the entrance of new competitors to the industry such as local and international investors, the management has to give priority to strategically control the network supply risk arising from the complexity of the existing market.This can be done by the application of Supply Chain Risk Management (SCRM) which involves a systemic process to detect, evaluate, monitor and react to risk conditions that will significantly harm an individual business or product.
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