CHAPTER ONE

INTRODUCTION

1.1 Background to the Study

Over the past years there has been a backlash against globalization which was common in developing countries. However, this trend has become more complex and pronounced in developed countries like the US, UK and Germany. In today’s highly competitive environment, a goal-oriented supply chain needs a coordination to manage not only the interdependent activities of a supply chain’s partners but also between suppliers and consumers (Jayaram, 2015). According to Drechsel (2010) supply chain coordination can be defined as targeted and orderly adjusted actions of the supply chain partners in order to achieve shared goals and objectives. The aim of coordination in supply chain mechanism is critical in achieving performance.

It’s argued that supplier coordination strongly influences performance regarding production, quality of products and manufacturing flexibility. Studies have shown the performance of the supply chain is highly influenced by how well the supply chain partners work together, ignoring the individual contribution of each partner. In this joint view, the interdependent activities between supply chain entitles need to be coordinated to achieve the best fit among supply chain partners. It has been shown that poor performance among supply chain members and risky business environment has negative consequences on performance such as; inaccurate forecast, low-capacity utilization, excessive inventory cost, time to market, order fulfillment, response quality, consumer focus and satisfaction (Besterfield, 2009).

The basics of SCM (Supply Chain Management) assume a supply chain following process from suppliers to end users (Croxton, Garcia-Dastugue, Lambert and Rogers, 2001). Nowadays increasing an organization’s competitiveness is one of the goals of managing a supply chain. This can be done through a better coordination of material, finance and information flows (Stadler, 2000, Tang, 2006). Instead of competing companies, we now speak of competing supply chains. None of the single organizations or organizational entities as part of a supply chain are directly responsible for the direct service or product as received by the consumer making SCM a crucial part of increasing competitiveness (Stadler, 2000, Zzidisin and Ritchie 2000).

Supply chain evolution over the past years has been influenced by the developments of SCM trends and also increased complexity. In the pass decades four main trends were identified; the Just in time, Outsourcing, Global sourcing and Supply-based reduction (Behdani, 2013). Nevertheless, although these trends make supply chains more competitive, they also make them more vulnerable to risk (Spekman and Davis 2004). Looking at the impact of COVID-19 it can be seen that disasters no longer have just a national effect as they impact international manufacturers and suppliers and therefore have a higher risk of negatively affecting multiple supply chain performance. This greatly affects the Global Sourcing trend.

SCR (Supply Chain Risk) if not identified, managed and mitigated can lead to disruptions along the chain. These disruptions can take many different forms from transportation delay or poor communication to a natural disaster or a terrorist attack (Black Hurts, Craighead, Elkins and Handfield, 2005). The disruptions can greatly affect supply chain performance through; increasing cost, failing to meet customer’s demand (non-flexibility and stock outs). For example, Nike in the year 2001 went into a new and supremely complex supply chain planning system which caused them significant shortages and excesses. Nike had to slash its prices to get rid of inventory and ended up losing about $100M revenue and 20% off its stock price (Sean Ashcroft, 2021).

Also, due to recent trends in SCM, not only has supply chains become more vulnerable to disruptions in the form of risk these disruptions are likely to have an increased negative impact. Making SCRM one of today’s greatest business challenges (Black Hurst et al 2005; H. Christopher and Peck, 2004). Most manufacturing companies are prone to disruptions at each at and every level of their manufacturing process. Dangote like any other manufacturing company has had its own share of disruptions leading to a drop in sales, customer dissatisfaction amongst others. The main difficulty faced was the unforeseen political crisis in the Anglophone regions. This greatly affected the logistics department as they found it difficult to meet up with delivery time, lots of curfews, lockdowns which went a long way to disrupt movement. Environmental risk like COVID greatly affected raw materials supplies. These circumstances amongst others only bring out the importance of RM (Risk Mnanagement) Companies need to be able to understand supply chain trends and manage them properly to avoid disruptions along their chains. Customers nowadays are so difficult to satisfy. Competition along the supply chain has given them lots of varieties to choose from. Globalization too plays a major role in this. Chains need to be very flexible and agile to adapt to changing demands of customers. Supply chain managers have to come up with ways to identify, manage and mitigate risk to avoid disruptions along the chains.

1.2 Statement of Problem

SCM trends have made supply chains more vulnerable to disruptions increasing the need of RM in supply chains is becoming very vital in firms nowadays. The world today is becoming a hi-tech age, global organizations (globalization) has increased the size of supply chains making them more interdependent which exposes them to more SCRs. Suppliers and the manufacturing firms have to brace themselves with these fast changes which comes along with interdependency on one another (need for good supplier- manufacturer relationship), the risk involved in the respective processes and the consequences arising from those risk.

Dangote, like any manufacturing company has identified supply side risk as one of its key SCM priorities for the coming years because of the impact it has on its supply chain. Supply side risk does not only entail the supply of raw materials but also the supply of Also, it puts into consideration risk involved in logistics due to lots of setbacks in this domain. Clinker and Gypsum are the two raw materials imported by Dangote. They are imported from their suppliers in Spain, Morocco, Algeria, Egypt, Congo, France and Nigeria. The supply base for its raw materials is quite large but hoewever this does not pose any risk to the company as they already managed it by employing a broker in Dubai purposely for their management.and causes some delays along the chain which is one of the most important raw material in cement production is been imported from China failure in its prompt delivery had a drastic effect on the company as most of its production activities were put on hold for about 3weeks until a subsidiary supplier within the country was found to do the supplies.

The complexity of the entire production process especially the flow of raw materials increases the number of; processes, delivery patterns, geographical locations and economic structure of different firms which increases vulnerability in the supply chain. Risk increases as a result of extended material flows and total cost arising over the purchasing cost, increased regulations due to complexities in these chains as currency fluctuations, language, cultural and time differences until the product reaches the end user. There is need to identify loopholes along the supply chain to be able to prevent risk or reduce the outcome along the supply chain. Suppliers provide raw materials to Dangote which they use in the production of cement.

A supply chain is a network between a company and its suppliers to produce and distribute a specific product or service to its. There is a change in ownership of the raw materials, products or services, until they reach the end user. In this, risk is identified as the uncertainty that at any instance, the deviations from the expected results can cause companies financial consequences and a loss of the company’s value as well. Also, there are numerous Supply chain disruptions due to poor infrastructure, communication and technical failures. There is also long lead time due to slow processes and less use of modern technology. Security issues including political instabilities and potential terrorist activities. Hidden cost due to changes in tariffs and taxes.

Dangote customers are mostly not satisfied with delivery time. Goods are produced on time, store franchises- sell and order in a proper way but the major issue is coming from manufacturing and processing units. Also, there is poor coordination between Dangote and its suppliers hence raw materials are not supplied on time, this greatly affects operations and there are issues related to delivery, lead time and information sharing. The long distance between Dangote and its suppliers, fluctuations in exchange rates, the cost of the shipment’s security, natural and man-made calamities, financial position of suppliers and transportation create risks for the supply side of Dangote which impacts its overall goal and profitability.  Lastly, the impact of COVID-19 pandemic has created a lot difficulties in supply chain globally creating a lot of setback and uncertainty which most industries did not foresee. This is why the researcher has decided to investigate the impact of risk on modern supply chains.

1.3. Research Question

1.3.1 Main Question

• What is the impact of supply side risk management on the supply chain performance of Dangote?

1.3.2 Specific Question

• What kind of risks in the supply side of Dangote’s supply chain can be identified?
• How can the supply side risk of Dangote’s supply chain be assessed?
• How can the supply side risk of Dangote’s supply chain be mitigated?

1.4 Research Objectives

1.4.1. Main Objective                                         

• Improve Dangote’s supply chain performance through supply side risk management.

1.4.2 Specific Objective

• To be able to identify risk, and prioritize them depending on their impact.
• Identify appropriate measures for risk mitigation.
• Increase customer satisfaction and gain competitive advantage.

1.5 Research Hypothesis

1.5.1 Main Hypothesis

The main research question was answered by testing the hypothesis relating to the impact of supply side risk on the supply chain performance of Dangote

1.5.2 Specific Hypothesis

H1. The supply side risk of Dangote has no effect on its supply chain performance.

H2. Identifying and managing the supply side risk of Dangote will greatly improve the performance of the supply chain.

H3. Managing and mitigation supply side risk will improve supply chain performance.