Asia Sourcing Risk Analysis for One of the Strongest Retail Brands in the Nordics

The client, one of the strongest retail brands in the Nordics, selling fast-moving consumer goods, have had a major sourcing presence in China for over a decade. However, the client was looking to get a comprehensive insight to the overall risks they were exposed to in Asia, as well as which actions was needed to mitigate these risks.

The client turned to ARC Consulting to conduct a sourcing risk assessment, including industry supplier specific risks.

The project consisted of three parts. Firstly, doing a comprehensive risk identification and analysis. Secondly, setting up a risk mitigation strategy in order to lower the probability and impact of identified risks. Lastly, setting up contingency plans in case that the identified risks actually happens.

The project comprised an assessment of the client’s entirety sourcing in China, including but not limited to, supply market trends, macro-economic risks, labor-related risks, geopolitical risks, trade risks, regulatory and administrative aspects, regional risks, CSR and PR-risks as well as supplier-specific risks.

The objective was to help the client to understand the potential risks they are facing when sourcing in China, as well as help them lower the probability and impact of the risks by setting up a step-by-step roadmap for the client.

Retailer warehouse

The client currently had a major sourcing presence in China with over 500 suppliers, delivering 26 product categories and a total of 5,100 items. Given the increasing labor cost in manufacturing as well as stricter governmental restrictions, a series of macro risks, such as increasing shipping cost and exchange rate floatation, environmental restriction, tax levying and export restriction was identified.

In addition, the study included a comprehensive overview at all of the clients 160 key suppliers, which was defined as those suppliers that are in the top 50% of the spend or volume in any category. The study found that over 20% of the total purchasing spend was spent on suppliers with one or several identified risks.

Industry and supplier specific risks were highlighted, and all categories were compared and evaluated against alternative markets in SEA.

The project was divided into several steps.

  1. Initial analysis of sourcing data and category structure to identify key products and to enable cross category analysis of risks.
  2. Process breakdown of key products in each category to fully understand the whole value chain.
  3. Risk identification from several perspectives, including economical, administrative, political, labor, CSR, etc.
  4. Risk measurement and quantification of both probability and potential impact. Risk criticality ranking based on both factors.
  5. Developing practical plans for how to react in case a risk materializes, despite mitigating actions.

8 out of 26 categories was identified as high-risk categories, in term of labor shortage, increasing costs, environmental challenges, etc. Corresponding mitigation suggestions, such as closely monitoring the regulatory changes, shift to alternative sourcing regions, find back-up suppliers and regular negotiations were given.

ARC Consulting provided the client with a ranking of the risks the client was facing, a strategic step-by-step mitigation plan, and ultimately sustainable and cost-saving recommendations. The sourcing risk assessment helped the client to understand the general sourcing risks and market trends in China, as well as act strategically on the recommendations provided when moving forward.

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