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ACCA Strategic Professional · Strategic Business Leader · Managing, monitoring and mitigating risk

Kestrel Logistics relies on one supplier for a specialised component. Following a flood at the supplier's site, deliveries stop for weeks. A review finds the board never considered this dependency. Which improvement to its risk management would best address the cause of the problem?

The board should add supply chain dependency to its risk register and business impact analysis, then develop responses such as alternative suppliers or buffer stock. The failure arose from not identifying a critical dependency, and external risks must still be assessed and mitigated.

  1. AIncrease the insurance excess to reduce premiums
  2. BInclude supply chain dependency in the risk register and business impact analysis, and develop alternative sourcing or buffer stockCorrect
  3. CReplace the supplier immediately with the cheapest alternative
  4. DRemove supply chain risk from the register because it is outside the company's control

Explanation

The root cause was failure to identify and assess a critical dependency. Including it in the risk register and business impact analysis allows the board to prioritise and plan responses such as dual sourcing or buffer stock. External risks still need to be managed, and simply switching to the cheapest supplier could create new risks.

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