SUPPLY CHAIN RISKS MITIGATION STRATEGIES ADOPTED · PDF fileSUPPLY CHAIN RISKS MITIGATION...

International Journal of Current Business and Social Sciences |IJCBSS Vol.1, Issue 4, 2015

SUPPLY CHAIN RISKS MITIGATION STRATEGIES ADOPTED BYMANUFACTURING FIRMS IN KENYA: A CASE OF COCA COLA

COMPANY (K)

Author: Mohamed Konse Siba-Masters Student at Jomo Kenyatta University ofAgriculture and Technology

Co-Author: Dr. Jane Omwenga-Lecturer at Jomo Kenyatta University of Agricultureand Technology

CITATION: Mohamed Konse Siba (2015). Supply Chain Risks Mitigation StrategiesAdopted By Manufacturing Firms in Kenya: A Case of Coca Cola Company (K).International Journal of Current Business and Social Sciences, 1 (4), 1-29

w w w . i j c b s s . o r g 1 ISSN 2312-59861

http://www.ijcbss.org/


ABSTRACTThe aim of the study was to investigate the supply chain risks mitigation strategies adoptedby manufacturing firms where the context of focus will be Coca Cola Company in Kenya.The specific objectives of the study were: To establish the effects of capacity additionstrategy, channel flexibility strategy, inventory addition strategy and supply chainresponsiveness strategy on mitigation of supply chain risks in Coca Cola Company. Thestudy applied a descriptive research design. The target population was 83 top managers, theirdeputies and lower level management staffs at the Coca Cola Company. Stratified randomsampling technique was used where a sample of 50% was selected to generate a sample of 42respondents. Primary data was collected using a self administered questionnaire distributedthrough drop and pick later method. Quantitative data collected was analyzed by descriptiveanalysis. Descriptive statistical tools such as SPSS and MS Excel helped the researcher todescribe the data. The findings were presented using tables and charts. The Likert scales wereused to analyze the mean score and standard deviation. In addition, the researcher conducteda multiple regression analysis. The study found that the Company faces supply chain risks inthe current business environment. It has adopted capacity addition strategy in the mitigationof supply chain risks, channel flexibility strategy, inventory addition strategy and supplychain responsiveness strategy. Paying more attention to risk and to managing that risk iscritical as new technologies, regulatory requirements, consumer demands, and potentialdisruptions combine to make the petroleum industry supply chain risk managementincreasingly complex. The stakeholders in the supply chain view supply chain managementas a strategic activity, rather than just mere operational activity. The company should plan toinvest in good communication infrastructure to avoid any failure in inventory management.There is need for the Company to create a department for supplier selection and evaluation.

KEY WORDS: Supply Chain Risks, Mitigation Strategies, capacity addition strategy,channel flexibility strategy, inventory addition strategy, supply chain responsivenessstrategy




INTRODUCTIONBusinesses today are faced by the challenge of falling demand and unpredictable globalsupply costs which will expose these and other built in supply chain vulnerabilities. One ofthe most significant paradigm shifts of modern business management is that individualbusinesses no longer compete as solely autonomous entities, but rather within supply chains.In this emerging competitive environment, the ultimate success of the business will dependon management’s ability to integrate the company’s intricate network of businessrelationships. Large companies like Coca Cola have increasingly turned to global markets fortheir supplies. According to Norman and Lindroth (2004), the competitiveness of a supplychain is determined by many different factors and a resource based view of the firm, withattention to networks, knowledge management and environment. The globalization of supply chains has forced companies to look for better and more inter-linked systems between Supply Chain Management (SCM) competencies, multiple SCMstrategies and the implementation processes and SCM capabilities to coordinate the flow ofmaterials into and out of the company as opposed to the fragmented systems, which havecharacterized many organizations. Supply chains have expanded rapidly over the decades,with the aim to increase productivity, lower costs and fulfil demands in emerging markets.The increasing complexity in a supply chain hinders visibility and consequently reducesone’s control over the process. Supply chains have grown more global and interconnected; asa result they have increased their exposure to shocks and increased the frequency ofdisruptions. According to Chopra and Sodhi (2004) most SCM-related risks stem from eitheruncertainties or an inability to co-ordinate several activities and partners. Risk in the context of supply chains may be associated with the production/procurementprocesses, the transportation/shipment of the goods, and/or the demand markets. Such supplychain risks are directly reflected in firms’ financial performances, and priced in the financialmarket (Ruteri and Xu, 2009). Accordingly, improving a firm’s competitiveness andprofitability through supply chain management can be accomplished by enhancing overallcustomer satisfaction. Mitigation of supply chain risks has become an important means forsustaining competitive advantage for all successful industries and businesses (Claire, 2002).Supply chain risk management is the intersection of supply chain management and riskmanagement. According to Jain, Wadhwa and Deshmukh (2009), the dynamic supply chain process indeveloped countries like USA and UK involves the constant flow of information, materials,and funds across multiple functional areas both within and between chain members. As manyorganizations continue to outsource manufacturing to low cost countries in Asia, theCaribbean, Eastern Europe, and Latin America, the increased frequency and severity ofsupply chain disruptions increases significantly. According to Mitroff and Alpasan (2003)most organizations are not adequately prepared to manage supply chain risks. In their study,only between five and 25 percent of FORTUNE 500 companies are prepared to handle crisesor disruptions and that a US$50 million to US$100 million cost impact can be incurred foreach day a company’s supply chain network is disrupted. According to Matthew (2008), as global markets grow increasingly efficient, competition nolonger takes place between individual businesses, but between entire value chains. Thereforeexecutives are developing supply chain partnerships/collaboration in an attempt to reducecosts, improve service and to gain competitive advantage. Today, there are many




opportunities for the coordination of activities across the supply chain even in the evercomplex manufacturing sector. This is largely due to the development of information systemsand communication technologies within the sector. Integrating supply management withother factors of operations allows all functions to be involved in the management decisions. Naude and Badenhorst-Weiss (2011) carried a study on supply chain management problemsat South African automotive component manufacturers. The study established that theproblems that automotive component manufacturers (ACMs) experience in automotivesupply chains is an important contemporary issue. According to the study, supply chainproblems may cause inefficiencies that impact on the competitiveness of ACMs. The studywas exploratory in nature, and consisted mainly of a survey among ACMs in South Africa. Itwas found that of the 75 identified problems; the most significant problems were internalprocess problems, followed by customer related problems. The most significant problems liein the demand management area in the supply chain.

The supply chain mitigation Kenyan The field of supply chain risk has not been widely studied in Kenya. However, severalresearches have been conducted in relation to supply chain and supply chain management.For instance, Kangogo, Wario, Bowen and Ragui (2013) conducted a study of supply chaindisruption in the Kenya floriculture industry where the focus was on Equator Flowers.According to the authors Modern supply chains are dynamic and interconnected networksthat are gradually lengthening and globe-spanning. The study sought to investigate factorscontributing to supply chain disruption in the industry and used Equator Flowers Limited inEldoret, Kenya. The research applied descriptive survey research design and employedrandom sampling technique. The data collection was done with the aid of structured andsemi-structured questionnaires containing relevant questions on the supply disruptionphenomenon. The study found that the most significant amongst the factors contributing tosupply chain disruption in the floriculture industry in Kenya are natural disasters, logisticsprocess design, labor union actions and finally production function mechanics. To addresssupply chain disruptions, the study recommends: implementation of comprehensive businesscontinuity plans mitigating against the supply chain effects of natural disasters, developmentof logistical process redundancies, formulation of creative policies to contain labor unionsagitations and investment in research to develop resilient and scalable production functionmechanics.

Kimani (2013) conducted a study on supply chain management challenges in Kenyapetroleum industry a case study of National Oil Corporation, his focus was on efficiency andnot effective supply chain management by oil companies. According to the author,Organizations adopt numerous business improvement methodologies to improve the businessperformance. The study found that all four independent variables have high effect onimplementation of effective SCM in the petroleum sector. The findings show that challengesfacing supply chain management in the oil marketing companies in Kenya occur in one ormore of the supply chain components; transportation, equipment, communication, suppliers,customers, labor and finance. In an effort to manage their supply chain and reduce costs, oilmarketing companies are outsourcing their logistics functions to third-party logisticscompanies to managing their supply chains. Oil companies also engage in strategic planning.E-procurement, close partnership with suppliers, use of external consultants, outsourcing non




core activities, dealing with few suppliers, engaging in vertical integration and Supply ChainBenchmarking.

Awino (2009) conducted a study on empirical investigation of supply chain management bestpractices in large private manufacturing firms in Kenya. She noted that today, largecompanies are mainly focusing on becoming efficient and flexible in their manufacturingmethods in order to handle uncertainty in the business environment. Chima (2007) conducteda study on supply-chain management issues in the Oil and Gas Industry and asserted that oiland gas industry is involved in a global supply-chain that includes domestic and internationaltransportation, ordering and inventory visibility and control, materials handling,import/export facilitation and information technology. The oil marketing companies need totrain their personnel so as to appreciate the concept of SCM and the best practices andsystems that are significant in mitigating the challenges of SCM. They also need to developcustomer relationship management, supplier relationship management and engage in closercooperation with other companies, government and regional players.

The Coca-Cola Company The Coca-Cola Company is the world's largest beverage company. Along with Coca-Cola,recognized as the world's best-known brand, The Coca-Cola Company markets four of theworld's top five soft drink brands, including diet Coke, Fanta and Sprite, and a wide range ofother beverages, including diet and light soft drinks, waters, juices and juice drinks, teas,coffees and sports drinks. In Kenya, the Carbonated Soft Drink (CSD) industry consists ofthree players. These are Coca Cola, Softa and Milly food Processors. Of the three playersCoca Cola is the market leader with over 96% of the market share (CABI Report April,2002). There are six Coca Cola bottling plants in Kenya namely Coast Bottlers, NairobiBottlers, Mount Kenya Bottlers, Rift Valley Bottlers, Equator Bottlers and Kisii Bottlers.

Nairobi Bottlers is owned by Sabco group of companies while the rest having ICDC andCentum Investments as the major shareholders. The Coca Cola plants produce a wide rangeof beverages including Coca Cola, Coke Light, Sprite, Fanta, Stoney, Dasani, Krest andSweppes. Due to the liberalization of the economy, it is now much easier to import productsinto the country. This implies that there are a lot of imparted CSD in the market such asPepsi, Mirinda, Seven-Up Virgin Cola and a host of other health drinks such as Red Bull,Shark and Dark Dog (Nyangara, 2011). These have triggered the change in the strategiesadopted by Coca Cola. Coca Cola in Kenya has six bottling Plants namely; Nairobi, Coast,Rift Valley, Mt. Kenya Equator and Kisii Bottlers.

Statement of the ProblemSupply chain risk mitigation is important in any organisation to eliminate the possibility ofthe risk occurring, shift a risk or outcome to a third party, reducing the impact of a risk,reducing the probability of an event occurring and to establish contingency plans that reducethe impact after an event occurs. Companies can explore their risk through the investigationof various possible scenarios to stress test the supply chains. According to Juttner, et. al.,(2003) risk mitigation strategies are avoidance (dropping specific products / geographicalmarkets, etc), control (through vertical integration, increased stockpiling, maintaining excesscapacity in production, storage, etc., and composing contractual obligations on suppliers),




cooperation (through joint efforts to improve SC visibility, the sharing of risk-relatedinformation, and preparation of SC continuity plans) and flexibility (through postponement,multiple sourcing, localized sourcing). In the current era of globalization, supply chain risk mitigation is important in organisationslike Coca Cola to eliminate the possibility of the risk occurring, shift a risk or outcome to athird party, reducing the impact of a risk, reducing the probability of an event occurring andto establish contingency plans that reduce the impact after an event occurs (Yusuf,Gunasekaran, Adeleye and Sivayoganathan, 2004). Locally, Kangogo, Wario, Bowen andRagui (2013) conducted a study of supply chain disruption in the Kenya floriculture industrywhere the focus was on Equator and found that modern supply chains are dynamic andinterconnected networks that are gradually lengthening and globe-spanning. Kimani (2013)conducted a study on supply chain management challenges in Kenya petroleum industry acase study of National Oil Corporation and found that challenges facing supply chainmanagement in Kenya occur in one or more of the supply chain components; transportation,equipment, communication, suppliers, customers, labor and finance. Coca Cola Company in Kenya is an asset intensive industry with supply chain managementplaying an integral role in the business function (Oganga, 2013). However, the Companyuses the fixed/zone routing technique (trucks assigned to fixed geographic routes) todesignate orders to the trucks. This causes imbalances in assigning deliveries to trucks. Afterreceiving their orders, the drivers decide their stop sequence (often having to reorganize theproducts on the truck and bear in mind the pickups, empty bottles, at the stores). Furtherthere is no concept of time frame for the deliveries, the only information sales would receiveis the sequence of deliveries. Thus, sales have to guess estimated times of arrival for eachstop. Dispatchers find it difficult to track the economic performance of the operations, due tolack of management reports that summarize the day's activities. Although a number of studieshave been done on the concept and context of supply chain, none has been done within thecontext of Supply chain risk mitigation in the manufacturing firms in Kenya. To bridge thisgap, this study focused on supply chain risks mitigation strategies adopted by manufacturingfirms in Kenya with a specific reference to Coca Cola Company in Kenya.

General Objective To investigate the supply chain risks mitigation strategies adopted by manufacturing firms inKenya: A case of Coca Cola Company in Kenya

Specific ObjectivesTo establish the extent to which Coca Cola company has adopted capacity addition strategyin the mitigation of supply chain risksTo determine the role of channel flexibility strategy in mitigating the supply chain risks facedby the Coca Cola Company To assess the effects of inventory addition strategy on mitigation of supply chain risks in theCoca Cola CompanyTo explore the influence of supply chain responsiveness strategy on mitigation of supplychain risks in the Coca Cola Company.




LITERATURE REVIEW

Theoretical Framework

Theory of Supply Chain ManagementThe connections and nodes in a Supply Chain achieve functions that contribute to the valueof the goods transporting through the chain and thus its achievement. Any connection thatdoes not carry out well reduces the overall effectiveness of the whole Supply Chain. Thenotion of Supply Chain management as used in many research is usually linked with theglobalization of producing and the penchant for manufacturers to source their inputsplanetary, which necessitates management of profitable ways of regulating worldwide flowsof inputs or outputs. The principal focus of market competition in such situations is not onlybetween goods, but between the Supply Chains delivering the goods.

As competition in international markets is progressively dependent upon the of arrival timeof goods as well as their quality, coordination between suppliers and distributors has becomean important characteristic of the Supply Chain. As the customer satisfaction is a crucialbenchmark of the success of the Supply Chain, effective management of the linkingprocesses is crucial (Trkman, Stemberger and Jaklic, 2005). Additionally, market uncertaintynecessitates Supply Chains to be easily flexible to changes in the situation of trade. Suchflexibility in supply requires effective Supply Chain Management.

According to Grant, Lambert, Stock and Ellram (2006), Supply Chain management refers tocorporate business processes integration from end users through suppliers that provideinformation, goods, and services that add value for customers. Supply chain can be summedup as a series of interconnected activities which are concerned with planning, coordinatingand controlling materials, parts and finished products from supplier to customer (Lourenco,2001). The key success of SCM will rely on the incorporation of the activities of the supplychain, meaning cooperation, information sharing and organization throughout the entiresupply chain. The supply chain in the manufacturing industry is considered a complex onewhere there exists a linkage between upstream suppliers, downstream distributors,information capital and flow through the chain.

Contingency TheoryContingency theory is a class of behavioral theory that claims that there is no best way toorganize a corporation, to lead a company, or to make decisions. Instead, the optimal courseof action is contingent (dependent) upon the internal and external situation. A contingentleader effectively applies their own style of leadership to the right situation. William RichardScott describes contingency theory in the following manner: "The best way to organizedepends on the nature of the environment to which the organization must relate". The workof other researchers including Paul Lawrence, Jay Lorsch, and James D. Thompsoncomplements this statement. They are more interested in the impact of contingency factors onorganizational structure. Their structural contingency theory was the dominant paradigm oforganizational structural theories for most of the 1970s.




The Contingency Theory provides a foundation on which to prepare for and to minimize themagnitude of supply chain disruptions. The Contingency Theory is built on the premise thatan outcome is a “fit” or result of the application of multiple factors. Van (2010) argue thatfactors fit when internal and consistent patterns of a construct, such as organization, context,and structure, establish feasible structural alternatives. These are contingencies (which couldalso be called “emergency dependencies”) to the organizational design of the construct. Inapplicable situations, the theory provides two separate bases for building a communicationsnetwork for a relief effort during a supply chain disruption.

First, separate communication contextual factors must be considered for influencing benefitsaccruing to a relief organizational structure (that is, organizational structure depends onmultiple and separate factors). Second, separate communication factors come together toprovide contingent alternatives for advancing the relief efforts (Khazanchi, 2005). Hubermanand Hogg (1995) argue that the effectiveness of such a network, particularly when two ormore groups are involved (for example, Red Cross), depends on what happens before therelief work begins. A summarized list of such antecedents is degree to which theorganizations interact, Degree of interdependence between organizations, Load on eachorganization under the duress of the urgent situation (that is, % load and degree of urgency)and differences in skill level between each organization.

The theory provides a basis for building a collaborative communications network. Amathematical algorithm can be used to predict and explain the amount of value that is addedthrough the resulting organization of such a communication structure. Overall effectivenessfor responding to such a disruption is predicated on various groups coming together toorganize relief efforts. The degree of effectiveness for these efforts is bounded by the Nashequilibrium prediction that, at a minimum, all relief agencies will locally maximize theirrelief efforts. A successful supply chain integration effort is then posited to depend on long-,mid-, and short-term strategies and tactics that balance the differentiation of serial supplychain activities and the integrative effort applied. The appropriateness and effectiveness ofrisk mitigation strategies are contingent on the internal and external environments and thatthere is no one-size-fits-all strategy.

Pareto Analysis Theory (ABC Classification) of Inventory ManagementABC classification is a method of classifying inventory items according to the dollar value toa firm. Class A items though smaller volumes but tends to generate higher sales valuefollowed by the class B items. The class C items are of a very large volume but generate avery small sales value. Class A items normally range from 5% to 20% of all inventory itemsand account for between 50% and 80% of sales value. The class B items normally range from20% to 40% of all inventory items and account for 20% to 40% of sales value. The class Citems normally constitute 50% to 70% of all inventory items and account for 5% to 25%sales value (Roach, 2005). Fitzsimmons,( 2004) and Tanwari, (2000) reported that is the basisfor material management processes and help to define how stock is managed and is anappropriate technique for classifying inventory items according to the importance of theircontribution to the annual cost of the entire inventory system.




The classical economic order quantity (EOQ) model seeks to find the balance betweenordering cost and carrying cost with a view of obtaining the most economic quantity toprocure by the distributor (Onawumi, 2010). Roach (2005) explained that the EOQ formulahas been used in both engineering and business disciplines. Engineers study the EOQformula in engineering economics and industrial engineering courses. On the other hand,business disciplines study the EOQ in both operational and financial courses. In bothdisciplines, EOQ formulas have practical and specific applications in illustrating concepts ofcost tradeoffs as well as specific application in inventory. Schwarz, Leroy (2008) reported theEOQ model considers the tradeoff between ordering cost and storage cost in choosing thequantity to use in replenishing item inventories. However, Muckstadt and Sapra (2010)noticed that it is often difficult to estimate the model accurately. The cost and demand valuesused in models are at best an approximation to their actual values. Thus, there is somecontradict about the concept. There are many researchers that using the ABC analysis withEOQ to apply to their study.

Yusuf (2003) studied on the analysis of stock management in public utility companies thatsome of the problem facing with stores control systems were highlighted to include thedearth of qualified stores personnel, overstock and sometimes under stocking, pilferages,deterioration, obsolesced and insufficient store materials. Moreover, Siriporn (2005),Gonzalez and Jose (2010), researched on the inventory shortage problem that faced with thecause of sales loss as well as profit loss, they used ABC analysis technique, find a demandforecast for raw material in the next time using EOQ, reorder point and safety stock forsolving this problem. Furthermore, Eshun, et al. (2010), applying ABC inventory analysis tothe 23 products of the manufacturing and EOQ to determine ordering patterns for minimizetotal costs under uncertain demand.

Resource Base View TheoryResource based view has its roots in the work of Penrose in the late 1950s but was introducedin the in the field of strategic management in the field of strategic management and becamedominant framework in the 1990s. Resource Based View addresses why firms are differentand how firms achieve and sustain competitive advantage. The RBV framework combinesthe internal (core competence) and external (industry structure) perspectives on strategy.Like the frameworks of core competence and capabilities, firms have very differentcollections of physical and intangible assets and capabilities, which RBV calls resources. Asfrom the theory it is habitual to consider that those resources are in internal and externalfactors of the enterprises. The entrepreneur, by means of the strategy combines these factorsestablishing his distinctive competencies.

The investments in supply chain do not always provide an attractive return but are in manycases required to keep the refinery operating. How well suppliers harness these forces orrespond to market demands may be assessed through the Resource‐based View (RBV) of thefirm. While the resource‐based view is not empirically superior to others (for example,transaction cost, principal agent, network‐based) in explaining SCM, it nonetheless presentsitself as the most appropriate of existing theories of SCM for analyzing the capabilities—both manifest and latent—of firms and suppliers in managing knowledge; linking/interacting




with other actors in the supply chain, and in responding to external pressures and mandates tobe environmentally responsible.

Furthermore, the interrelatedness of these capabilities within the supply chain need to berealized by management and coordinated to reach the full potential of their resources Wu etal. (2006). How well firms and suppliers mobilize and manage resources, includingmanaging knowledge, dealing with internal and external networks, and responding to thechallenges of “greenness,” are of no less importance—in fact, perhaps even more so— thangovernment policies, exchange rates, labour laws, and external competition from the Far East(Soler and Lopez, 2005; Power, Sohal and Rahman, 2001). The performance of a firmdepends not only on how efficiently it cooperates with its direct partners, but also on howwell these partners cooperate with their own business partners. Here, the firm’s continuousinteraction with other players becomes an important factor in the development of newresources (Haakansson and Ford, 2002).




Conceptual Framework

Supply Chain Risks Mitigation StrategiesA supply chain is a network of organizations performing various processes and activities toproduce value in the form of products and services for the end customer. According to Li,Ragu-Nathan, Ragu-Nathan and Rao (2006) the dual purpose of SCM is to improve theperformance of an individual organization as well as that of the entire supply chain.Accordingly, to be fully effective in today's competitive environment, firms must expandtheir integrated behaviour to incorporate customers and suppliers. Thus SCM integrates bothinformation flow and the flow of goods seamlessly between trading partners as an effectivecompetitive weapon (Childhouse & Towill, 2003; Feldmann & Muller, 2003). The mainreason and objective of SCM is to provide a strategic weapon to build up and enhancesustainable competitive advantage by cost reduction without compromising customersatisfaction (Mentzer et al., 2001).Supply chain risk appraisal process can help to make strategic decisions and operationalplans to reduce the quantity of supply chain defects (Zurich Insurance Company, 2010). Theprocess of advancement in this regard is described in the way that, at first, organizations were


Capacity addition strategyProcurement of products Importation proceduresOperational effectivenessSC organization goals

Channel flexibility strategySupplier evaluation/selectionRelationship with suppliersSC planning and coordinationFlexible capacity

Inventory addition strategyReliable SC ISAdequate storage facilitiesProducts transportation Strategic relationships

Supply chain responsivenessSCR management leadershipComplexity in supply chainSafety management processesVisibility of supply chain risks

Supply Chain Risk Mitigation Risk identification Risk assessmentRisk treatmentMonitoring and review of risks

Independent VariablesDependent Variable



trying to produce the products with better quality and the least costs by standardization andimproving their own internal processes in order to increase their competitive power. In thepast, the dominant thinking was that the powerful engineering and designing and alsoharmonious and consistent production operations are the leading factor to access marketdemands and, as a result, to get more market share and, therefore, the organizations do theirbest to increase efficiency. In later years, with increasing of diversification in customer'sexpected patterns, the organizations were concerned with increasing elasticity in productionlines and development of new products for customer’s satisfaction.

By improving of production processes and using further engineering models, most of theindustrial managers found that to continue their presence in the market, it’s not enough tohave improvement in internal processes and flexibility in companies abilities(Sharafati,2009). But parts and materials producers should produce the materials with thebest quality and least costs and also products distributors must have a close relation withpolicies of market development of producers. By such a view point, the supply chainapproaches and its management were born. Most of the companies take different actions likecontracting to manufacture diversified productions to have cost advantage and market share.These actions may be efficient due to the stable conditions. But these actions by itself caneffect on supply chain by different kinds of risks. The risks like unsecure economic cycles,customer’s uncertain demands and human and natural events. So, in regard to moreincreasing of these actions, the need to study of different methods and strategies for supplychain risk management in the superior companies has also been put to agenda more thanbefore (Sharafati, 2009).

There are some kinds of risks in supply chain planning for employees depending to theirresponsibility. Also, for products distributor or service provider relating to this plan, there aremarket and purchase non-acceptance risk, and there are also some distrust for consumers toaccept products or services because of quality (Tavakoli.et al, 2007). Supply chain riskevaluation can protect business resources and trade mark of organization against basic andimportant meaning of supply chain defeat. The evaluation instruments should upgrade withcombination of supply chain and professional business risk in every some years. Here we cancome to the conclusion that business has some different levels of growth and perfection insupply chain risk management (Zurich Insurance Company, 2010). There are several types ofsupply chain risks facing firms in the modern operating environment.

Financial risk is a kind of risk which indicates that the organization has no enough money toface to its financial consequences. If the organization uses from a loan or credits, should beable to pay it back in due time, otherwise it will face to financial risk (Shenkir, 2007).Strategic risk means the profit at the present and in the future of organization. This kind ofrisk is subject to companies’ strategic targets. When the business strategies advance and fixresources are against them, strategic risk will appear (Brannan, 2007). The other type of SCrisk is operational risk. Nowadays, organizations are trying to upgrade the techniques formeasurement, monitoring and decreasing of operational risks.

The results getting from unsuccessful processes or a few equipment, inefficient employeesand systems in external accidents, damages are brought about from processes, improper




personnel and defective systems or accidents due to the companies outside factors are thoseto be mentioned (Litov.et al, 2005). There are two kinds of human resources risks: Theabsence of trained persons in order to apply management programs. The important necessarystrategy section to connect with risks is the intelligence of those who have to deal withunexpected accidents (Erven, 2007). Informational systems and organizational activities,automation, projects rebate, misunderstanding of share holder's role and technology'sposition are parts of technological risks. These risks should be recognized earlier, and a set ofactivities to avoid the serious problems proceeding from them be considered later on(Adams.et al, 2005).

Fame risk has been described as a current or future risk for earning and increasing capitalfrom different viewpoints of financial firms and commercial beneficiaries. The duty of allemployees is to keep organization fame. At any environment which is changeable, thesecontrolling laws can give confidence regarding the fact that identification, management andcontrol of any kind of controlling risks, now and in the future will be done. Control teams onlaws are including controlling experiences and especial risks management. Not only theyknow laws, but have also trained for contrasting, executing and accessing to risks (Brannan,2007). As per the foregoing, companies are therefore adopting various strategies to mitigatethe risks which include capacity addition strategy, channel flexibility strategy, inventoryaddition strategy and supply chain responsiveness.

Capacity Addition StrategySupply chain networks are considered as solutions for effectively meeting customerrequirements such as low costs, high product variety, quality and shorter lead times. Thesuccess of a supply chain lies in good strategic and tactical planning and monitoring at theoperational level. Strategic planning is long-term planning and usually involves selectingproviders and distributors, location and capacity planning of manufacturing/servicing units,among others. In the context of supply chain design we usually consider two aspects in theselection of partners: the qualitative aspect and the quantitative aspect (Erven, 2007). Thequalitative aspects are the primary selection criteria, such as the financial position of thepartner, quality policy, previous history, adaptability towards change of product type ormarket situations.

The supplier has limited capacity, and retailers are privately informed of their optimalstocking levels. If retailer orders exceed available capacity, the supplier allocates capacityusing a publicly known allocation mechanism, a mapping from retailer orders to capacityassignments. According to Govil and Proth (2002) in the face of continuing globalization andcomplexity of the international business environment it is vital that supply chain managersgain a lot more clarity on the factors causing supply chain disruption. Supply chaindisruption has caused the decline of many business enterprises, including the floricultureindustry, and affected many livelihoods across the globe. In this regard, supply chainmanagers need to gain deep practical understanding on the dynamics of the root causes ofsuch disruptions so as to be better placed to craft preventive and remediation strategies.




Shah (2009) indicates that supply chain uncertainty and disruption have not received enoughattention in the contemporary supply chain literature. Conversely, manipulable mechanismsmight precipitate an avalanche of orders, preventing the supplier from determining who trulyneeds the most stock. Some with high expected demand may receive too little and others withlow expected demand may receive too much. In the end, the system serves all retailerspoorly. For a given capacity level, they reduce the expected amount of idle capacity,increasing supplier profits. Since they reduce the probability of idle capacity, the suppliermay build more capacity than she would under a truth-inducing mechanism, benefiting allplayers. Nagurney et al. (2002) presented a network equilibrium model and discussedqualitative properties of the model.

According to Govil and Proth (2002) the growing complexity of supply chains, along withincentives to continually develop new products and reduce business costs, has createdproduct safety and security challenges. With these challenges, however, comes theopportunity to manage product counterfeiting by implementing various controls within thebusiness model. Proactively managing the counterfeit problem with a total business solutionstrategy may be one of the most effective ways to identify suspected counterfeit product inthe market place and help brand owners keep counterfeit products from entering thelegitimate supply chain.

Channel Flexibility StrategySuccessful companies are the ones that break the risk spiral by restoring supply chainconfidence throughout the chain. The benefits are much more than cost reduction, but also, aswe argued earlier, the reduction of supply chain risks leads to increase in sales and marketshare, penetration to new markets, and speedy new product introduction. The key toimproved supply chain visibility is shared information among supply chain members. Goviland Proth (2002) argues that traditionally companies have tended to subscribe to the viewthat ‘information is power’ and to interpret the phrase as meaning power is diminished if thatinformation is shared. In fact in supply chains the reverse is true. If information betweensupply chain members is shared, its power increases significantly. This is because sharedinformation reduces uncertainty and thus reduces the need for safety stock. As a result, thesystem becomes more responsive and, ultimately, could become demand driven rather thanforecast driven.

Most supply chains do not have a great deal of control once the order is released. Hence,even if a supply chain manager has visibility of some part of the pipeline, he/she often couldnot make changes in a short time. For example, even if information is obtained on demandchanges or on yield shortfalls, the supply chain manager may be helpless, since the suppliersmay not be flexible enough to respond to late changes, or there are no expediting optionsavailable, or the production line is inflexible and production schedule changes are notfeasible, etc. Semiconductor manufacturers are often faced with this problem of lack ofcontrol. In this industry, the long lead times required by foundries are such that, even if themanufacturer is made aware of sudden market demand changes, it takes a long time torespond so that the market opportunities are then missed (George, 2002).




Six sigma tools such as control charts and Failure Modes and Effects Analysis (FMEA) canbe very helpful in identifying the opportunities for reducing process variability in supplychains. However, these tools and methodologies are primarily of benefit within the businessfor the control of repetitive activities. In looking to improve control across the wider supplychain a more collaborative approach to control is required. The newly emerging field ofSupply Chain Event Management (Stiles, 2002) holds some promise here. The idea behindEvent Management is that partners in a supply chain collaborate to identify the critical nodesand links through which material flows across the network.

Inventory Addition Strategy Supply chains and distribution channels today battle more on the basis of time and quality,having defect-free products to customers faster and more reliably than the competitor is nolonger seen as a competitive advantage but just as a market place prerequisite. According toMcLaren and Barling (2001) customers constantly demand that products are deliveredquicker, on time, and with no defects. This is achieved with proper synchronization of effortsby connecting systems and processes to create synergy. Each of these demands bettercoordination with suppliers and distributors, and constitutes the linkage between SCM corecompetencies; strategy and SCM core capabilities, which are not easy to match. Thiscombination creates a competitive edge within the system that cannot be copied by thecompetitor in the market place; hence becomes core capability of the firm.

The global orientation and increased performance-based competition, combined with rapidlychanging technology and economic conditions, all contribute to market place uncertainty(Turban, 2008). This uncertainty requires greater flexibility on the part of the individualcompanies and distribution channels, which in turn, demands for more flexibility in channelrelationships. According to Alade and Sharma (2004) supply chain involves theconfiguration, coordination, and improvement of sequentially related set of operations inestablishments, integrates technology and human resource capacity for optimal managementof operations to reduce inventory requirements and provide support to enterprises inpursuance of a competitive advantage in the marketplace. A coordinated SC integratesprocurement, production, and distribution and links together suppliers, manufacturers,distributors, customers and carriers in a network system that allows for effective planning,information exchange, transaction execution, and performance reporting.

Throughout the supply chain, key operational metrics and status reports such as inventory,demand, forecasts, production and shipment plans, work in progress, yields, capacities,backlogs, etc., should be accessible easily by key members of the supply chain. Suchinformation should be accurate and timely, rendering it useful for all parties for planning andre-planning purposes. Thus, it is important that the key indicators are tightly managed andthat any updates are made as timely as possible (Tomlin, 2006) Insurance policies to protectagainst disturbance risk which involves using either inventory or sourcing strategies. Manydisturbances management strategies are in conflict with the organization traditional goals andprocesses, and vice-versa (Sheffi, 2006). Consider, for example, the trade-off betweenefficiency and redundant inventory. Building redundant inventory in the SC will function as abuffer to maintain continuous operations. According to Chopra et al., (2007) centralizationincreases dependency on a single facility, thus also increases the negative impact, in case a




disturbance occurs at this facility. But also, the geographical diversification increases SCcomplexity making it harder for an organization to react to SC disturbance (Hendricks et al.,2008).

The interconnectedness of these disturbances makes decision-making for disturbancemanagement difficult (Chopra et al., 2007) since they must balance the need of efficiencyagainst the risks and expected costs of disturbances. One of the main functions of supplymanagement is to ensure smooth and uninterrupted flows of goods and materials. Today,organisations operate in increasingly complex and uncertain environments with high risks ofsupply disruptions making supply management an increasingly complex task. Theenvironmental pressures and risks require companies to constantly and consequently analyseand reduce these risks (Ellis et al., 2010).

Supply Chain ResponsivenessIn an effort to manage their supply chain and reduce costs, companies are outsourcing theirlogistics functions. Outsourcing takes place when an organization transfers the ownership ofa business process to a supplier reliant on the services of third-party logistics companies formanaging their supply chains (Collins, 1999). Companies, however, took the outsourcingidea one step further and found that one way of outsourcing their logistics functions is to allyand collaborate with competitors. This form of collaboration is referred to as a systematiccooperative reciprocal barter (also called “swaps” or “exchanges”) of supplies, assets, marketshare, or even the entire business among competitors (Alperowicz, 2001; Sim, 2002).

Organisations need to consider the trade-off between efficiency and redundancy, by analysingthe benefits and costs of building in some redundancy into the network it is often found that asmall investment at this stage can result in a big return in terms of resilience. If existingsupply chains are being used mapping tools such as Time Based Process Mapping can help inthe identification of critical paths and bottlenecks in the supply pipeline. During the designphase the “Supply Base Strategy” needs to be considered. Supplier development programmescan contribute to risk mitigation, if single sourcing seems attractive working with thatsupplier to understand the impact of key risks can be appropriate.

Agility in the supply chain is dependent on sound supply chain design and also effectivecollaboration. It is founded on the need for high levels of transparency and the application ofTime Compression techniques in all critical processes. Agility reduces uncertainty andenables the supply chain to be more demand driven rather than operations driven. Throughhigh levels of transparency and increased velocity in information flows across the supplychain risk can also be reduced. To be resilient, with cost effective approaches, it is essentialto have a disturbance management culture (Tsiakouri, 2008). Additionally, a betterunderstanding and relationship with human resources can help avoid some disturbancesources, namely those that have basis on internal resources organization, for instance, strikes(Stecke and Kumar, 2006).

In the same way, to hold collaborative relationships with the others SC entities ensures thatthe response alternatives to a disturbance are more effective (Muckstadt et al., 2003). Supplychains cross all disciplines of the organisation and therefore a cross disciplinary supply chain




risk management team is required, this should meet on a regular basis to support the board. Achange in business strategy such as increasing the amount of items produced or sourcedoverseas can have a significant impact on the risk profile of an organisation therefore supplychain risk management needs to be considered formally within the decision making processesof the company.

Empirical ReviewA number of authors have studied supply chain risks or supply chain risk management.Norrman and Lindroth (2002) define supply chain risk management as collaborating withpartners to deal with risks and uncertainties caused by, or impacting on, logistics-relatedactivities or resources. Supply chain risk management (SCRM) can be defined as ‘‘themanagement of supply chain risks through coordination or collaboration among the supplychain partners so as to ensure profitability and continuity’’ (Tang, 2006). Jüttner et al. (2002)have observed that the use of the term “risk” can be confusing, and argue that risk should beseparated from “risk (and uncertainty) sources” and “risk consequences” (risk impact).

Risk sources are the environmental, organizational or supply chain related variables thatcannot be predicted with certainty and that affect the supply chain outcome variables(Norrman and Jansson, 2004). Jüttner et al. (2002) organized the risk sources relevant forsupply chains into three categories: external to the supply chain, internal to the supply chainand network-related. Johnson (2001) classified risks into two categories: supply risks (forexample capacity limitations, currency fluctuations and supply disruptions) and demand risks(for example seasonal imbalances, volatility of fads, new products).

Tang (2006) divided risk into operational risks and disruption risks. Operational risks areassociated with inherent uncertainties such as uncertain customer demand, uncertain supply,and uncertain cost, whereas disruption risks are associated with major disruptions caused bynatural and man-made disasters such as earthquakes, floods, hurricanes, terrorist attacks, etc.,or economic crises such as currency devaluation or strikes. He finds that the business impactassociated with disruption risks is much greater than that of the operational risks. Tang(2006) associated supply chain risks with four management areas, namely supplymanagement, demand management, product management, and information management.Supply management involves coordinating with upstream partners to ensure timely deliveryof supplies. Demand management involves coordinating with downstream partners toinfluence demand in a beneficial manner. Product management involves modifying theproduct or process design so as to make it easier to ensure that supply meets demand.

Information management involves an effort on the part of supply chain partners to improvetheir coordination, which may involve sharing various types of information that is availableto individual supply chain partners. There have been a number of key findings related tosupply chain risk. Chopra and Sodhi (2004) found that risk reduction can be expensive;pooling forecasted risk across partners may reduce the cost of mitigating risks. Harland et al.(2003) developed a supply chain risk management tool and tested it on a case study. Johnson(2001) presented risk reduction methodologies and listed the lessons learned from managingsupply chain risk. Other relevant literature on supply chain risk includes Huang et al. (2009),




Yang and Yang (2010), Kumar et al. (2010), Lockamy III and McCormack (2010), Wu andOlson (2010) and Canbolat et al. (2008).

Today’s marketplace is characterized by intense competitive pressures as well as high levelsof turbulence and uncertainty. Organizations require agility in their supply chains to providesuperior value as well as to manage disruption risks and ensure uninterrupted service tocustomers. Thus the cultivation of agility is approached as a risk management initiative thatenables a firm to respond rapidly to marketplace changes, as well as anticipated and actualdisruptions in the supply chain. Agility is of value for both risk mitigation and response. Thisstudy sought to investigate the supply chain risks mitigation strategies adopted bymanufacturing firms where the context of focus was Coca Cola Company in Kenya.

RESEARCH METHODOLOGY

Research DesignThe study applied a descriptive research design as the researcher intends to describe asituation or a condition as it is and offers the opportunity for a logical structure of the inquiryinto the problem of study. Descriptive survey method is used when a researcher intends todescribe a situation or a condition as it is. It offers the opportunity for a logical structure ofthe inquiry into the problem of study. According to Cooper and Schindler (2003), adescriptive study is concerned with finding out the what, where and how of a phenomenon.This research design has the ability to accommodate large sample sizes; ability to distinguishsmall differences between diverse samples groups; ease of administering and recordingquestions and answers; increased capabilities of using advanced statistical analysis; andabilities of tapping into latent factors and relationships.

This study required an in-depth understanding of the supply chain risks mitigation strategiesadopted by manufacturing firms where the context of focus was Coca Cola Company inKenya. This method concerns the intense investigation of problem solving situations inwhich problems are relevant to the research problem. The underlining concept is to selectseveral targeted cases where an intensive analysis identified the possible alternatives forsolving the research questions on the basis of the existing solution applied in the selectedfirm. The study attempted to describe and define a subject, often by creating a profile ofgroup of problems (Cooper and Schindler, 2003).

Target PopulationPopulation is the mass of individuals, cases, events to which the statements of the study willrefer and which has to be delimited unambiguously beforehand with regard to the researchquestion. According to Mugenda and Mugenda (2003), target population is the members of areal or hypothetical set of people, events or objects the researcher wishes to generalize theresults of in the research. The target population of this study was the management staff drawnfrom the Coca Cola Bottling Plant in Nairobi Kenya. The study targeted a population of 83,which included the top managers, their deputies and lower level management staffs at theCoca Cola Bottling Plant in Nairobi.




The structure in the Company has put staffs in three categories; top management levelconsisted of the executives (head of departments and the deputy heads of departments);middle management comprises functional heads (tactical level of management and comprisedall the senior and middle level officers in all departments of the company who are taskedwith the responsibility of implementing policies made) while low level management ismainly unionisable staff (accounting and customer attendant officers whose main duty isperforming daily tasks which are routine and repetitive in the Bottling Plant). The targetrespondents included the 83 management staffs from the Company Nairobi. For purpose ofthis study the target population was stratified through top level, middle level and low levelmanagement. Mugenda and Mugenda (2008) explain that the target population should havesome observable characteristics, to which the study intends to generalize the results of thestudy. This definition assumes that the population is not homogeneous.

Sections Population (Frequency) Percentage %Top management 10 12.0Middle level management 27 32.5Low level management

46 55.4Total 83 100.0

Sampling DesignA sampling design refers to the part of the research plan that indicates how cases are to beselected for observation. This research used stratified random sampling. In this technique, thepopulation was divided into three mutually exclusive segments called strata. The nextprocedure was that simple random samples were then drawn from each stratum and thenjoined to form a complete stratified sample. A sample was drawn from 83 target populationincluding top, middle and lower level management staffs of the Bottling Plant in Nairobi.

Cooper and Schindler (2006) argue that if well chosen, samples of about 10% of a populationcan often give good reliability. Stratified random sampling technique was used sincepopulation of interest is not homogeneous and can be subdivided into groups or strata toobtain a representative sample. The study selected a section and particularly the top, middleand low level management staffs since they were the ones conversant with the supply chainrisks mitigation strategies adopted by Coca Cola Company in Kenya. From the abovepopulation of eighty three, a sample of 50% was selected from within each group inproportions that each group bears to the study population. This generated a sample of 42selected for observation. The Israel method of calculating sample size was applied.

Sample Size and Sampling TechniqueFrom the population frame the required number of subjects, respondents, elements, firms areselected in order to make a sample. The list for the sampling frame is made up of 83management staffs at top, middle and low level management levels of Coca Cola Bottlingplant in Nairobi. From the sampling technique, a sample of 50% was picked from eachstratum. This brought the total of 42 cases selected for observation. The cases were therepresentative sample studied. This made it easier to get adequate and accurate informationnecessary for the research. Israel (2009) proposes the following formula of sample sizedetermination;




n = N 1+ N P (e) 2 Where n = Sample sizeN = Target population sizeP = Proportion of the sample to be drawn from the population (50% =0.5)e = confidence level (0.03)By applying the formula the sample population was determined to be 42. Sections Population (Frequency) Sample Ratio SampleTop management 10 50% 5Middle level management 27 50% 14Low level management 46 50% 23Total 83 42

Data Collection InstrumentsThis research used primary data that was collected by use of questionnaire. The questionnairehad close-ended questions in order to provide more structured responses which thenfacilitated tangible recommendations. The first section contained questions on demographicinformation of the respondents while section two contained questions to achieve theobjectives of the study. Likert scale was used where appropriate. The questionnaire consistedof close-ended questions in order to provide more structured responses which then facilitatedtangible recommendations. Questionnaires were used because they give the researcherenough time for analysis.

DATA ANALYSIS AND PRESENTATIONBefore processing the responses, the completed questionnaires were edited for completenessand consistency. The data was then coded to enable the responses to be grouped into variouscategories. Data collected was purely quantitative and it was analyzed by descriptiveanalysis. The descriptive statistical tools such as Statistical Package for Social Sciences(SPSS) and MS Excel helped the researcher to describe the data and determine the extentused. The findings were presented using tables and charts. The Likert scales were used toanalyze the mean score and standard deviation, this helped in investigating the supply chainrisks mitigation strategies adopted by Coca Cola Company in Kenya.

Data analysis used frequencies, percentages, means and other central tendencies. Quantitativetechniques were used to the analyse data. The researcher made use of the statistical tools likeSPSS to generate statistics like percentages, frequencies, means and standard deviations. Theresults from the analysis were presented in tables, graphs and charts. To achieve theobjectives of the study, a multiple regression analysis was conducted. This generatedquantitative reports through tabulations, percentages, and measure of central tendency. Thisprovided the generalization of the findings on the supply chain risks mitigation strategiesadopted by Coca Cola Company in Kenya.

In addition, to quantify the strength of the relationship between the variables, the researcherconducted a multiple regression analysis so as to determine the supply chain risks mitigationstrategies adopted by Coca Cola Company in Kenya. The data was broken down into the




different aspects of supply chain risks mitigation strategies adopted by Coca Cola Companyin Kenya. This offered a quantitative and qualitative description of the objectives of thestudy. The regression equation was: Y = β0 + β1X1 + β2X2 + β3X3 + β4X4+ ε): Whereby Y = supply chain management, X1 = capacity addition strategy, X2 = channel flexibilitystrategy, X3 = inventory addition strategy and X4 = supply chain responsiveness. Further, β1,

β2, β3 and β4 = Regression Coefficients and ε = Error term.

DATA ANALYSIS AND INTERPRETATION Response Rate Response rate involves the computation of the response rate from the questionnaire returnedfrom the respondents. The study targeted 83 top, middle and low level management staffsworking in of Coca Cola Bottling plant in Nairobi. From this population, a sample of 42respondents from the target population in collecting data with regard to supply chain risksmitigation strategies adopted by Coca Cola Company in Kenya. Response Frequency PercentageResponded 34 81.0Not responded 8 19.0Total 42 100.0According to the results depicted in Table above, 34 out of the 42 respondents from CocaCola Bottling plant in Nairobi respondents filled in and returned the questionnaire. Theresponse rate achieved for the questionnaire was 81.0%. This response rate was quitecommendable and was made a reality by the fact that the researcher administered thequestionnaires by himself to Coca Cola Bottling plant in Nairobi. This was valid and reliablerepresentation of the targeted population hence adequate for the study analysis. According toMugenda and Mugenda (2003) 50% response rate is adequate for analysis in descriptivestudy. This is further supported by Creswell (2003) who provides guidance that a 40%response rate is adequate. The questionnaires that were not returned were due to reasons like,the respondents were not available to fill them in at that time and with persistent follow-upsthere were no positive responses from them. The response rate demonstrates a willingness ofthe respondents to participate in the study.

Supply Chain Risks Management StrategiesFrom the study, 56.9% of the respondents indicated that Company faces supply chain risks inthe current business environment to a moderate extent, 29.4% of the respondents indicated toa great extent, 8.8% of the respondents indicated that Company faces supply chain risks inthe current business environment to a little extent, while 4.9% of the respondents indicatedthat Company faces supply chain risks in the current business environment to a very greatextent. These results imply that supply chain risks are experienced in the firm in its variousareas of operations and therefore some strategies are required to mitigate these risks.According to Li et al., (2006) supply chain risk mitigation process can help to make strategicdecisions and operational plans to reduce the quantity of supply chain defects.

According to the study, majority of the respondents recapped that the firm focuses onidentifying internal and external environments to a great extent as shown by a mean of3.9549, continual monitoring and review of risks and their treatment to a great extent as




shown by a mean of 3.6875 and risk identification and assessment to a great extent as shownby a mean of 3.3750 while Coca Cola Company focuses on risk treatment to a moderateextent as shown by a mean of 2.7500 in management supply chain risks. From the results, theOrganization is trying to upgrade the techniques for measurement, monitoring and decreasingof operational risks. According to Tavakoli.et al, (2007) identifying internal and externalenvironments, risk identification and assessment, risk treatment and continual monitoring andreview of risks and their treatment can protect business resources and trade mark oforganization against basic and important meaning of supply chain defeat. The evaluationinstruments should upgrade with combination of supply chain and professional business riskin every some years. Sharafati (2009) adds that to continue their presence in the market, it’snot enough to have improvement in internal processes and flexibility in companies’ abilities.

Capacity Addition StrategyAccording to the study, majority (39%) of the respondents stated that Coca Cola Companyhas adopted capacity addition strategy in the mitigation of supply chain risks to a great extentand 33% to a very great extent while 23% said that Coca Cola Company has adoptedcapacity addition strategy in the mitigation of supply chain risks to a moderate extent.According to 4.5% of the respondents, Coca Cola Company has adopted capacity additionstrategy in the mitigation of supply chain risks to a little extent. These results indicate thatCoca Cola Company has adopted capacity addition strategy in the mitigation of supply chainrisks to a great extent as shown by majority of the respondents, 72%. These results concurwith the findings by Govil and Proth (2002) that the growing complexity of supply chains,along with incentives to continually develop new products and reduce business costs, hascreated product safety and security challenges. With these challenges, however, comes theopportunity to manage product counterfeiting by implementing various controls within thebusiness model. In the face of continuing globalization and complexity of the internationalbusiness environment it is vital that supply chain managers gain a lot more clarity on thefactors causing supply chain disruption.

From the study, majority of the respondents agreed that the organization has attainedeffectiveness in the overall procurement of products as shown by a mean score of 3.6828 andsupply chain management is key to operational effectiveness in our company as shown by amean score of 3.5428. On the other hand they remained neutral on that the organization hasattained effective procedures in the importation of products as shown by a mean score of3.3714, the organization goals are geared towards achievement of operational effectivenessas shown by a mean score of 3.2972 and highly qualified employees are key to havingeffective supply chain management as shown by a mean score of 3.1422. The results coincidewith the views of Nagurney et al. (2002) that for a given capacity level, supply chain risksreduce the expected amount of idle capacity, increasing supplier profits. Since they reducethe probability of idle capacity, the supplier may build more capacity than she would under atruth-inducing mechanism, benefiting all players. Accordingly, supply chain managers needto gain deep practical understanding on the dynamics of the root causes of such risks so as tobe better placed to craft preventive and remediation strategies.

Channel Flexibility StrategyFrom the study, 57% of the respondents indicated that channel flexibility strategy influences




mitigation of supply chain risks faced by the Coca Cola Company to a moderate extent, 29%of the respondents indicated to a great extent, 8.8% of the respondents indicated that channelflexibility strategy influences mitigation of supply chain risks faced by the Coca ColaCompany to a little extent, while 5% of them indicated to a very great extent. The resultsimply that in general there is a moderate influence of channel flexibility strategy inmitigation of supply chain risks faced by the Coca Cola Company. According to George(2002) due to the inflexibility of supply chain channels it is very helpful for firms to identifythe opportunities for reducing process variability in supply chains by exploring the flexibilityoptions that make the market opportunities viable. These can be very helpful in identifyingthe opportunities for reducing process variability in supply chains and improve control acrossthe wider supply chain in a more collaborative approach

According to the results, the respondents reiterated that better planning and coordination withsuppliers, supplier evaluation and selection and supplier development programme affectmitigation the supply chain risks faced by the Coca Cola Company to great extents as shownby mean scores of 3.5528, 3.5428 and 3.5423 respectively while flexible capacity andstrengthen and build trust with suppliers affect mitigation the supply chain risks faced by theCoca Cola Company to moderate extents as shown by mean scores of 3.3322 and 3.1000respectively. The supply chain structures in firms demand better coordination with suppliersand distributors, and constitute the linkage between SCM core competencies, strategy andSCM core capabilities. According to Chopra et al., (2007) channel flexibility strategy ensuresthat time and quality aspects are assured, defect-free products are delivered to customersfaster and more reliably and thus a competitive advantage for firms that are able to take theadvantage of the opportunities of channel flexibility strategy. To ensure these results,McLaren and Barling (2001) posit that proper synchronization of efforts by connectingsystems and processes to create synergy demands better coordination with suppliers anddistributors, supplier evaluation and selection, strengthening and building trust withsuppliers, better planning and coordination with suppliers and supplier developmentprogramme.

Inventory Addition Strategy According to the study, 56.9% of the respondents indicated that inventory addition strategyaffects mitigation of supply chain risks in Coca Cola Company to a moderate extent, 29.4%of the respondents indicated that inventory addition strategy affects mitigation of supplychain risks in Coca Cola Company to a great extent, 8.8% of them indicated to a little extent,while 4.9% of the respondents indicated that inventory addition strategy affects mitigation ofsupply chain risks in Coca Cola Company to a very great extent. The study findings concurwith those of Turban (2008) that this uncertainty in the inventory requires greater flexibilityon the part of the individual companies and distribution channels, which in turn, demands formore flexibility in channel relationships. In addition, Alade and Sharma (2004) argue thatinventory addition strategy involves the configuration, coordination, and improvement ofsequentially related set of operations in establishments, integrates technology and humanresource capacity for optimal management of operations to reduce inventory requirementsand provide support to enterprises in pursuance of a competitive advantage in themarketplace.




Majority of the respondents agreed that long-term strategic relationships with other suppliershas positively affected transportation of coca cola products as shown by a mean score of3.9007, the transportation infrastructure of the organization is adequate and reliable as shownby a mean score of 3.6250, management information system of the organization is reliable asshown by a mean score of 3.5976, the marketing infrastructure of the product is adequate andreliable as shown by a mean score of 3.5845 and long-term strategic relationships with othersuppliers has positively affected storage as shown by a mean score of 3.5423, while theyindicated neutrality on that the storage facilities of the organization are adequate as shown bya mean score of 3.2083. From the available literature, the geographical diversificationincreases SC complexity making it harder for an organization to react to SC disturbance asindicated by Hendricks et al., (2008) and that effective inventory visibility and control resultsinto reduced inventory problems. As such supply synchronization in the system throughmarketing infrastructure, storage facilities and strategic relationships reduces both excessinventory and is essential to avoid the costly bullwhip effect that is still prevalent in so manyorganisations.

Supply Chain ResponsivenessFrom the results, 60.8% of the respondents indicated that supply chain responsivenessstrategy influences mitigation of supply chain risks in Coca Cola Company to a great extent,21.6% of the respondents indicated that supply chain responsiveness strategy influencesmitigation of supply chain risks in Coca Cola Company to a little extent, while 17.6% of therespondents indicated that supply chain responsiveness strategy influences mitigation ofsupply chain risks in Coca Cola Company to a moderate extent. This implies that supplychain responsiveness strategy has a significant influence on the mitigation of supply chainrisks in Coca Cola Company. According to Somuyiwa (2012) characterization of the currentbusiness practices by variation in demands and differences in customer requirements hasmotivated many firms to be responsive.

According to the results, majority of the respondents agreed that supply chain complexityhinders visibility of supply chain risks in the industry as shown by mean scores of 3.6828, theincreasing complexity in a supply as shown by mean scores of 3.5528, supply chainmanagement processes in the firm are bad as shown by mean scores of 3.5428 and that thesafety management processes in the company is good as shown by mean scores of 3.5423. Inaddition the respondents neither agreed nor disagreed with the statements that there is lack ofcomputerized risk management system as shown by mean scores of 3.3322 and that there islack of supply chain risk management leadership teams in place as shown by mean scores of3.1000. According to Tsiakouri (2008) through high levels of transparency and increasedvelocity in information flows across the supply chain risk can also be reduced. With costeffective approaches, it is essential to have a disturbance management culture. Muckstadt etal., (2003) added that the response alternatives to a disturbance are more effective ineliminating bad supply chain management processes, poor supply chain risk managementleadership, and complexity in a supply, ineffective computerized risk management systems,poor safety management processes and supply chain complexity/visibility hindrances.




Regression AnalysisTo establish the relationship between the independent variables and the dependent variable ofthe study the study conducted inferential analysis. The study sought to complement thedescriptive analysis by carrying out a multiple regression analysis. The researcher applied thestatistical package for social sciences (SPSS) to code, enter and compute the measurementsof the multiple regressions for the study. The model Summary for the regression is shown intable below. Model R R Square Adjusted R Square Std. Error of the Estimate

1 .908a .825 .789 .65323

Coefficient of determination explains the extent to which changes in the dependent variablecan be explained by the change in the independent variables or the Percentage of variation inthe dependent variable (supply chain risks mitigation) that is explained by all the fourindependent variables (capacity addition strategy, channel flexibility strategy, inventoryaddition strategy and supply chain responsiveness). The four independent variables that werestudied, explain 82.5% of the supply chain risks mitigation as represented by the R2. Thistherefore means that other factors not studied in this research contribute 17.5% of the supplychain risks mitigation at Coca Cola Company Kenya. Coefficient of determinationModel Unstandardized

CoefficientsStandardizedCoefficients

t Sig.

B Std. Error Beta1 (Constant) 1.112 1.223 0.917 0.367 Capacity addition strategy 0.210 0.104 0.157 1.081 .0198 Channel flexibility strategy 0.396 0.204 0.155 2.560 .0158

Inventory addition strategy 0.220 0.096 0.215 1. 922 .0182 Supply chain responsiveness 0.260 0.056 0.453 1.967 .0167

The researcher conducted a multiple regression analysis so as to determine the relationshipbetween the parameters of supply chain risks mitigation strategies adopted by Coca ColaCompany in Kenya and the four variables. As per the SPSS generated table, the equation (Y= β0 + β1X1 + β2X2 + β3X3 + β4X4 + ε) becomes:Y= 1.112 + 0.396X1+ 0.210X2+ 0.220 X3+ 0.260 X4

According to the regression equation established, taking all factors (capacity additionstrategy, channel flexibility strategy, competitive strategy and supply chain responsiveness)constant at zero, supply chain risks mitigation strategies adopted by Coca Cola Company inKenya will be 1.112. The data findings analyzed also shows that taking all other independentvariables at zero, a unit increase in channel flexibility strategy will lead to a 0.396 increase insupply chain risks mitigation strategies adopted by Coca Cola Company; a unit increase insupply chain responsiveness will lead to a 0.260 increase in supply chain risks mitigationstrategies adopted by Coca Cola Company, a unit increase in inventory addition strategy willlead to a 0.220 increase in supply chain risks mitigation strategies adopted by Coca ColaCompany while a unit increase in capacity addition strategy will lead to a 0.210 increase insupply chain risks mitigation strategies adopted by Coca Cola Company.These results infer that channel flexibility strategy contributes more to supply chain risksmitigation at Coca Cola Company, followed by supply chain responsiveness, then inventory




addition strategy, while capacity addition strategy contributes the least to supply chain risksmitigation at Coca Cola Company. At 5% level of significance and 95% level of confidence,capacity addition strategy had a 0.0198 level of significance, inventory addition strategy hada 0.0182 level of significance and supply chain responsiveness had a 0.0167 level ofsignificance, while channel flexibility strategy had a 0.0158 level of significance hence themost significant strategy in mitigation of supply chain risks at Coca Cola Company.

SUMMARY OF FINDINGS The general objective of the study was to investigate the supply chain risks mitigationstrategies adopted by manufacturing firms where the context of focus was Coca ColaCompany in Kenya. According to the results the Company faces supply chain risks in thecurrent business environment. As such, the firm focuses on identifying internal and externalenvironments to a great extent, continual monitoring and review of risks and their treatmentand risk identification and assessment to a great extent while Coca Cola Company focuses onrisk treatment to a moderate extent. The results are in agreement with the literature reviewed.They are in line with those of Li et al., (2006) that supply chain risks are experienced in thefirm in its various areas of operations and therefore some strategies are required to mitigatethese risks.The study found that Coca Cola Company has adopted capacity addition strategy in themitigation of supply chain risks to a great extent. There was agreement that the organizationhas attained effectiveness in the overall procurement of products and supply chainmanagement is key to operational effectiveness in the Company. In addition, there wasneutrality on that the organization has attained effective procedures in the importation ofproducts, the organization goals are geared towards achievement of operational effectivenessand highly qualified employees are key to having effective supply chain management. Ingeneral, the success of a supply chain lies in good strategic and tactical planning and capacityaddition. These results concur with the results of Govil and Proth (2002) that the supplierallocates capacity using a publicly known allocation mechanism, a mapping from retailerorders to capacity assignments. The growing complexity of supply chains, along withincentives to continually develop new products and reduce business costs, has createdproduct safety and security challenges.The study also found that channel flexibility strategy influences mitigation of supply chainrisks faced by the Coca Cola Company to a moderate extent. In this regard, it was clearlyshown that better planning and coordination with suppliers, supplier evaluation and selectionand supplier development programme affect mitigation the supply chain risks faced by theCoca Cola Company to great extents. On the other hand, flexible capacity and strengthen andbuild trust with suppliers affect mitigation the supply chain risks faced by the Coca ColaCompany to moderate extents. These results coincide to those of George (2002) that sharedinformation reduces uncertainty and thus reduces the need for safety stock and that partnersin a supply chain collaborate to identify the critical nodes and links through which materialflows across the network. The study further found that inventory addition strategy affects mitigation of supply chainrisks in Coca Cola Company to a moderate extent. There are various aspects of inventoryaddition strategy that are relevant in mitigation of supply chain risks in Coca Cola Company.They include that long-term strategic relationships with other suppliers has positively




affected transportation of coca cola products, the transportation infrastructure of theorganization is adequate and reliable, management information system of the organization isreliable, the marketing infrastructure of the product is adequate and reliable and long-termstrategic relationships with other suppliers has positively affected storage while it is unclearwhether the storage facilities of the organization are adequate or not. Organizations are keento managing inventory as a step towards minimizing operational costs. In concurrence withMcLaren and Barling (2001) that monitoring of inventory at all stage production is necessarytoward achieving high levels of production optimization. In addition to maintaining controlof the volume and movement of various inventories, inventory management also makes itpossible to prepare accurate records that are used for accessing any taxes due on eachinventory typeOn supply chain responsiveness strategy, the study found that supply chain responsivenessstrategy influences mitigation of supply chain risks in Coca Cola Company to a great extent.The respondents agreed that supply chain complexity hinders visibility of supply chain risksin the industry, the increasing complexity in a supply, supply chain management processes inthe firm are bad and that the safety management processes in the company is good. On theother hand, there was neither agreement nor disagreement with the statements that there islack of computerized risk management system and that there is lack of supply chain riskmanagement leadership teams in place. Somuyiwa (2012) also found that supply chainresponsiveness plays a pivotal role in reduction of costs and increased efficiency in thesupply chain function. The main goal and important aspect of supply chain is leveraging theexpertise, experience, skills and capabilities of the supply chain professionals who comprisethis competitive network. Tsiakouri (2008) further adds that businesses are counting on theirsupply chain responsiveness to lower costs, improve quality, and develop innovations fasterthan their competitors’ suppliers can.From the inferential analysis, the four independent variables that were studied, explain 82.5%of the supply chain risks mitigation as represented by the R2. The regression equationestablished show that taking all factors (capacity addition strategy, channel flexibilitystrategy, competitive strategy and supply chain responsiveness) constant at zero, supply chainrisks mitigation strategies adopted by Coca Cola Company in Kenya will be 1.112. Further,channel flexibility strategy is the most significant strategy in mitigation of supply chain risksat Coca Cola Company, followed by supply chain responsiveness, then inventory additionstrategy while capacity addition strategy is the least significant strategy in mitigation ofsupply chain risks at Coca Cola Company.

ConclusionsThe conclusions of the study are drawn from the most significant factors presented in thepreceding sections. To begin with, the study concludes that the Company faces supply chainrisks in the current business environment faces supply chain risks in the current businessenvironment. Accordingly, the firm focuses on identifying internal and external environmentsto a great extent, continual monitoring and review of risks and their treatment, riskidentification and assessment risk treatment in management supply chain risks. Mitigatingsupply chain risk is a critical component of a company's overall risk management strategy.The study concludes that Coca Cola Company has adopted capacity addition strategy in themitigation of supply chain risks. In this regard, the organization has attained effectiveness in




the overall procurement of products and supply chain management is key to operationaleffectiveness in the Company, the organization has attained effective procedures in theimportation of products, the organization goals are geared towards achievement ofoperational effectiveness and highly qualified employees are key to having effective supplychain management. Accordingly, the suppliers and the company have adopted an open bookconcept to continuously explore areas of product and cost improvement, thereby sellingproduct at competitive prices as compared to their competitors.From the study findings, it is concluded that channel flexibility strategy influences mitigationof supply chain risks faced by the Company. It was ascertained that better planning andcoordination with suppliers, supplier evaluation, selection and supplier developmentprogramme, flexible capacity and strengthen and build trust with suppliers affect mitigationthe supply chain risks faced by the Coca Cola Company. The company has ensured that itssupply chain is able to provide the needed service required for satisfying its teemingcustomers who are the backbone of the company. Due to its strategic supplier partnershiprelationship and investment in suppliers, the supply of raw materials considered as critical tocontinuous operations is secured.The study also concludes that inventory addition strategy affects mitigation of supply chainrisks in Coca Cola Company. The various aspects of inventory addition strategy that arerelevant in mitigation of supply chain risks in Coca Cola Company include that long-termstrategic relationships with other suppliers has positively affected transportation of coca colaproducts, the transportation infrastructure of the organization is adequate and reliable,management information system of the organization is reliable, the marketing infrastructureof the product is adequate and reliable, long-term strategic relationships with other suppliershas positively affected storage and that the storage facilities of the organization aremoderately adequate. The free flow of adequate information through established channelsinternally to make information available exactly when is needed by any member of thesupply chain has been instrumental to their progress.The study also concludes that supply chain responsiveness strategy has a significantinfluence mitigation of supply chain risks in Coca Cola Company. The study deduced thatsupply chain complexity hinders visibility of supply chain risks in the industry, the increasingcomplexity in a supply, supply chain management processes in the firm are bad, the safetymanagement processes in the company is good, there is lack of computerized riskmanagement system and that there is lack of supply chain risk management leadership teamsin place

RecommendationsFrom the foregoing, supply chain risk management can help an organization identify,quantify, and prioritize the risk inherent in its supply chains. Paying more attention to riskand to managing that risk is critical as new technologies, regulatory requirements, consumerdemands, and potential disruptions combine to make the petroleum industry supply chain riskmanagement increasingly complex. Supply chain/Risk managers therefore shouldcontinuously access the types of risks to supply disruption in the manufacturing industry ingeneral and Coca Cola Company in particular.The study further recommends that since channel flexibility strategy influences mitigation ofsupply chain risks faced by the Coca Cola Company, the stakeholders in the supply chain are




advised to view supply chain management as a strategic activity, rather than just mereoperational activity. Manufacturing firms like Coca Cola are recommended to engage inemployment of appropriate professionals with the expertise requisite to manage the channelat every stage of the process. This is because professionals in SCM are expected to improvedelivery dependency as the demand increases which also has positive influence onperformance. Improvement in social infrastructure to facilitate communication with supplychain partners by governments and policy makers.Based on the research findings, it is recommended that the company should have plans toinvest in good communication infrastructure to avoid any failure in inventory management.This will also help in mitigating the inventory management risks. Similarly demandforecasting is should be done with the help of professionally qualified agencies so that theproblems with volatile demand and declines in demand can be mitigated. The inventoryaddition strategy will help in creating long-term strategic relationships with other suppliers,as well as ensuring reliable inventory management information system of the organization,adequate and reliable and long-term strategic relationships with other suppliers and ensuringthat the storage facilities of the organization are adequate for efficient mitigation of supplychain risks in Coca Cola Company.The study established that supply chain responsiveness strategy influences mitigation ofsupply chain risks in Coca Cola Company where supply chain complexity hinders visibilityof supply chain risks in the industry, the increasing complexity in a supply, supply chainmanagement processes in the firm are bad and that the safety management processes in thecompany is good. As such, to avoid problems at the supplier end, there is need for theCompany to create a department for supplier selection and evaluation. The requirements ofthe Company should be conveyed earlier to the suppliers and steps taken to reduce thelikelihood of a shortage in raw materials. The Company should in addition place high priorityon building long term partnerships with suppliers and seek to ensure that there iscomputerized risk management system and supply chain risk management leadership teamsin place.

REFERENCES

Chopra, S. & Sodhi, M. (2004). Managing Risk to Avoid Supply-Chain Breakdown, MITSloan Management Review 46, 53-61.

Claire, R. (2002), The changing face of distribution: as all players in the supply chain work toreduce their costs and improve their efficiency, distribution has come increasinglyunder the spotlight during the past year, Food Engineering & Ingredients, Vol. 27No.2, pp.25-6.

Juttner, U., Peck, H. & Christopher, M. (2003). Supply Chain Risks: International Journal ofLogistics 6, 197-210.

Kangogo, J., Wario, G., Bowen, M., & Ragui, M. (2013) Supply Chain Disruption in theKenya Floriculture Industry: A Case study of Equator Flowers. European Journal ofBusiness and Management, ISSN 2222-1905 (Paper) ISSN 2222-2839 (Online) Vol.5,No.7, 2013.

Lambert, D.M. and Pohlen, T.L. (2001), Supply chain metrics, International Journal ofLogistics Management, Vol. 12 No. 1, pp. 1-19.




Mitroff, I. & Alpasan, M. (2003), Preparing for Evil, Harvard Business Review, April 2003,109-115.

Naude, M.J. & Badenhorst-Weiss, J.A. (2011) Supply Chain Management Problems at SouthAfrican Automotive Component Manufacturers. Southern African Business ReviewVolume 15 Number 1 2011

Norman, A. & Lindroth, R., (2004). Categorization of Supply Chain Risk and RiskManagement, in Supply Chain Risk, C. Brindley, Editor, Ashgate, pp 14-27.

Nyangara, C. A., & Aila, F. O. (2011). Adding customer value through effective distributionstrategy: the case of Coca-Cola’s Equator Bottlers Limited, Kenya. Saarbruecken:VDM Publishing.

Oganga, O.M., (2013) Performance Measurement Practices and Maintenance Improvementamong Coca Cola Bottling Plants in Kenya. An MBA Project. University of Nairobi

Ruteri, J. M. & Q. Xu, (2009). Supply chain management and challenges facing the foodindustry sector in Tanzania. International Journal of Business and Management, Vol.4 no. 12, pp70-80.

Scott, W.R. (1981). Organizations: Rational, Natural, and Open Systems. Englewood CliffsNJ: Prentice Hall Inc.

Somuyiwa, A. O. (2012) Firm’s Competitiveness through Supply Chain Responsiveness andSupply Chain Management Practices in Nigeria. University of Lagos.

Van Heeringen, B. B. (2010). Risk Management in Regional Humanitarian ReliefOperations, Open University.

Yusuf, Y.Y., Gunasekaran, A., Adeleye, E.O. & Sivayoganathan, K. (2004), Agile supplychain capabilities: determinants of competitive objectives, European Journal ofOperational Research, Vol. 159 No. 2, pp. 379-92



SUPPLY CHAIN RISKS MITIGATION STRATEGIES ADOPTED · PDF fileSUPPLY CHAIN RISKS MITIGATION...

Documents

Transcript of SUPPLY CHAIN RISKS MITIGATION STRATEGIES ADOPTED · PDF fileSUPPLY CHAIN RISKS MITIGATION...