Question

Supply Chain Risk

A substantial portion of the Company’s product assortment is sourced from foreign suppliers, lengthening the supply chain and extending the time between order and delivery to its DCS. Accordingly, the Company is exposed to potential supply chain disruptions due to foreign supplier failures, extreme weather events, geopolitical risk, labor disruption or insufficient capacity at ports, and risks of delays or loss of inventory in transit. The Company mitigates these risks through the use of advanced tracking systems and visibility tools, effective supplier selection and procurement practices and through strong relationships with transportation companies and port and other shipping authorities, supplemented by marine insurance coverage.

Does Canadian Tire face supply chain risk? If so, explain.

Answer 1

Every successful business understands the various risks which are inherent in any process/function. No function can be ever made risk-proof, only the probabilities can be managed. Thus, risk assessment and mitigation is one of the key functions which should be practiced with as much finesse as possible.

Any supply chain involves flow of material, money and information. Thus risks associated with supply chain involve risks in inventory planning, supply planning, logistics, IT infrastructure, finance etc.

• Canadian Tire works on a version of Vendor Managed Inventory (VMI) model as they dont carry inventory by themselves and the store owners make the buying decisions. A typical Canadian Tire retail outlet houses thousand of SKUs in categories like automotive, fixing, seasonal, gardening, apparel, sporting goods and other household items. VMI models help in passing the risk away, towards the vendor, but then vendor's capabilities must also be managed and improved to maintain continuity in supply chain. Canadian Tire has done that by developing mobile apps, e-commerce capabilities and in-store inventory level monitoring systems. This would some extent mitigate the risk associated with inventory and supply planning but ultimately, the decision lies with the store owner. Any mistake from their part can lead to availability issues. Similarly, to ensure adherance of suppliers and other partners, strongly enforced supply contracts can only to an extent help in mitigating the risks of non-compliance but wont do much in case of disruptions due to natural disaster and geopolitical reasons.
• Risks associated with logistics are always present and the best way to mitigate them is by having multiple transportation partners and strongly enforced contracts which would complement the digital and electronic capabilities that Canadian Tire has developed.
• IT infrastructure related risks is about building capabilities and strengthening the existing infrastructure. With the ever growing technology, new threats are always developing and hence pose a risk.

Thus, it can be concluded that while many organizations might have taken commendable steps in ensuring mitigation of risks associated with their functions (in this case Supply Chain), in this ever growing world new threats are always incubating and the only way to be risk-proof is by continuous review of existing system, processes and compliance to them.