Risk management comes in many forms. Supplier failure, quality defects, market fluctuations, technology advances, e-commerce, geo/political events, customer demands, weather, pandemics, or legal requirements.

As an industrial drilling company, you need to place an order for 40 diesel reciprocating compressors for a new project. These compressors would be delivered over the next 3 years. The value of the order is approximately US $2,478,000 per compressor, plus shipping and handling from Mass Air. You have purchased from Zag, Hawt Air, and Freeair on previous projects. These suppliers have had performance issues with ratings of 92%, 94%, and 93% respectively. Zags pricing is 10% less than Mass Air; Hawts pricing is 20% less than Mass Air; Freeairs pricing is 25% less than Mass Air.

A suggestion has been made to source the compressors from Mass Air, however; project budgets are tight. Your company has identified several elements of risk associated with imports from Brazil, India, and Vietnam. The risks are business ethics, consistency in product quality, on-time delivery, political stability, commercial experience in North America, adverse currency change, and a possible increase on labour costs of 5% from India.

Delays in deliveries of the compressors could lead to project delays and or rescheduling of materials and labour on the project. You are going to ask for quotes from other suppliers.

You will be assessed on your achievement of the following course learning outcomes:

- Assessment of multiple risks

- Develop a sourcing strategy which contributes to cost management and supports project deliverables

- Develop a risk mitigation strategy for your recommendation and an FMEA analysis:

1) Severity of impact in the event of a failure, how serious might it be? Severity Impact of if it happens (1 minimal, 10 disaster)

2) Probability of occurrence what are the odds the event might occur? Probability of occurrence ranking (1 unlikely, 10 probable)

3) Likelihood of detection do we think the checks and balances we have in place will detect the event prior to its occurrence or reduce its severity? Detection Likelihood of (1 easy, 10 difficult)

Instructions

Research Transparency International sources for record on business conduct

Identify all potential risk factors

Decide on how to evaluate and weight risk assessments in the decision

Develop strategic competitive bidding options which could have been considered

Make a final recommendation on the sourcing of the compressors

Conduct an FMEA on final recommendation for the sourcing of the compressors