CASE STUDY: 2 ABOUT THE COMPANY ABC Agri Limited (herein after referred as 'the company') is a listed company, engaged in the manufacture of fertilisers and pesticides and markets its products through dealer network. The role of agriculture in the Indian economy is of utmost importance and the Government monitors the production and distribution of fertilisers across India. The Government also provides subsidy to the fertiliser manufacturers based on sales made to the ultimate end users who are the farmers. The subsidy amount is computed based on the nutrient content in the fertilizers. The Company has a strong Research & Development (R & D) team which is equipped with state of the art facilities. The R & D team is associated with multiple international crop research agencies and agriculture universities involved in the study of climatic changes, soil health testing, changes in cropping patterns and study of molecules enriching the agriculture yields, etc. ISSUES NOTICED More than 80% of the raw material requirements are imported by the Company, which includes rock phosphate & acids. Due to the war between Russia & Ukraine, there has been a manifold increase in the raw material prices and shipping costs which the Company is unable to pass on to the customers. In addition to steep increase in prices, the US $ conversion rates have also contributed to the increase in raw material costs, which required close monitoring of currency movements and focus on foreign currency hedge. PROPOSALS BEFORE THE COMPANY The company intends to introduce new-age fertilizers & pesticides with the help of the R & D team. R & D team assesses the performance of the new products in test environment. On satisfactory completion of the trials, the product combinations are released to the business & legal teams for necessary regulatory approvals and launching of the products. While the R & D team is coming up with new product portfolio, the marketing team have come up with an idea of marketing these new age products through e-commerce and direct delivery channels to the farmers. Prior to the launch of these products the marketing team would like to carry out a survey to understand the farmer's expectation, present gaps in meeting such expectation, market demand, regulatory compliances, supply chain challenges, etc., and appointed an external survey agency to carry out market research and give its recommendations. SURVEY FINDINGS The following survey findings were shared with the marketing team for taking necessary mitigation steps prior to the launch of new products : • The end customers are primarily farmers, who lack awareness of using mobile apps. and place direct orders on the mobile app. • The company may have to make investments, in supply chain & logistics, by way of setting up additional warehouses and procurement of trucks and delivery vans at remote locations and would require compliance with statutory requirements including licenses etc. • Branding of the new products via e-commerce channels is a challenging exercise. Farmers are not aware of the new product properties & its applications. • Company need to invest in IT infrastructure for application development/support "e-commerce portal". • Company to recruit additional manpower for demonstration and delivery of the products at the door step of the farmers. RISK MANAGEMENT BY THE COMPANY The Company has a robust ERM framework in place, which includes complete documentation of Risk Registers, establishing Risk Management Committee and Operational Risk Committees, risk scores, monitoring tools etc. covering Strategic and Operational activities. All activities of the company are systematically segregated into various functions starting from procurement to marketing supported by strategic and back office teams. The risks are classified into controllable and un-controllable risks. The inherent risk faced by the company is primarily monsoon. During the average monsoon period, the company achieves the production & sales targets. During monsoon failure scenario, the sales volumes reduces by almost 50%. The Board and the Leadership team are aware of the inherent risks faced by the company, against which mitigation procedures are put in place. There is also a strong team of Internal audit, which is aligned with the ERM framework of the Company. The internal audits are carried out based on the risk matrix to ensure key risks are integrated with audit execution. On a regular basis, the risks identified during process are shared by the Chief Risk Officer (CRO) with the internal audit team, who in turn considers the same during the planning and execution of various functional audits. SIGNIFICANT RISKS HIGHLIGHTED FOR MITIGATION During the presentation to the Risk Management Committee, CRO highlighted the following significant risks, against which mitigation procedures were also deliberated. • Significant volatility in the Raw material prices • Non-availability of ships for importing raw materials • Foreign currency fluctuations leading to high input costs • Storage space constraints within manufacturing locations • Lack of adequate gear to employees handling hazardous chemicals • High talent attrition. • Trade-marks/patent infringement by competitors • Finished products were awaiting sale due to delayed monsoons. • Over dues on account of monsoon failures. • Unauthorised access & hacking of the system Multiple Choice Questions: Choose the most appropriate answer from the given options.