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CMA Final · Entrepreneurship and Startup · Risk Management Strategies

Case: Kaveri Agritech depends on a single supplier in Nashik for 90% of its sensors. To lower the risk of supply disruption, the founders sign contracts with two more suppliers in different states, each supplying 30% of needs. Which risk management strategy does this mainly illustrate?

This is risk reduction through supplier diversification. By reducing dependence on one Nashik supplier and adding two suppliers in other states, the startup lowers both the likelihood and the impact of supply disruption while continuing the business, so it is neither avoidance nor transfer.

  1. ARisk retention through self-insurance
  2. BRisk avoidance by exiting the product line
  3. CRisk reduction through supplier diversificationCorrect
  4. DRisk transfer through hedging with derivatives

Explanation

Spreading purchases across multiple suppliers in different locations reduces dependence on one source and so lowers the probability and impact of disruption. The firm continues the activity, so it is not avoidance. No insurance or derivative contract is used, so it is not transfer.

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