The process of identification, assessment and management of the risk to which an organization’s business strategy is exposed is referred to as strategic risk management (Frigo, & Anderson, 2011). With the rising competition and rapid transitions in the global market patterns affecting businesses, the risk assessment is gaining significance among the firms. This study intends to present an analysis of the risks faced by one of the leading coffee and baked goods chain of the world, Dunkin’ Donuts in the categories of supply chain and country specific risks. Relevant measures to mitigate the identified risks are also provided.
Assessment of Risk Exposure
Supply Chain Risk
Dunkin’ Donuts operates its business across 32 countries with 10,083 Dunkin' Donuts stores across the globe serving over 5 million customers. With around 52 varieties of donuts and over a dozen coffee beverages, an array of breakfast sandwiches, bagels and different baked goods the brand reveals the delivery of wide range of food items to its customers (Dunkin’ Donuts, 2018). It implies the execution of a number of supply chain processes to procure the variety of raw materials required for producing this wide range of food items. Studies revealed that Dunkin’ Donuts operate a complex supply chain globally (Dunkin’ brands, 2015).
The analysis of the supply chain executing at Dunkin’ Donuts reflects the risk of supply chain disruption and slowdown of the processes in the long-term due to the increasing complexities associated with the supply chain operations at the brand (Dunkin’ brands, 2015). The brand is seen to expand its supply chain further by opening 9th distribution center in McDonough, Georgia in 2017 (The Barcode News, 2017). The constant expansion of the supply chain can be assessed to be contributing to the complexities in their supply chain thereby exposing the brand to the risk of managing their supply chain processes effectively.
As stated by Bird (2016), in current times the organizations are vested with the responsibilities for the actions of their suppliers. The inappropriate actions of the suppliers can expose the brand to the risk of losing brand reputation among the customer base. However, the complexities in supply chain posits challenges for brands to manage the activities of its suppliers efficiently (Yang & Yang, 2010). With a complex supply chain Dunkin’ Donuts is exposed to the risk of lacking supplier management capability resulting in reputation loss among its client base due to inappropriate activities of its suppliers.
Dunkin’ Donuts is seen to operate its global businesses majorly through the strategy of franchising (Dunkin’ brands, 2015). The franchising strategy is associated with the risk of incurring adverse reputation of the brand due to the inappropriate performance of the franchisees (Queensland Government, 2018). Therefore, it could be assessed that Dunkin’ Donuts is exposed to the risk of losing its market leading reputation in the coffee and baked good makers’ sector due to the inefficient performance of any of its franchisee. However, the franchisees of Dunkin’ Donuts are involved into agreements to purchase their supplies for the restaurant chains including product materials, equipment, packaging and other dry goods from National DCP, LLC (NDCP) (Dunkin’ brands, 2015). On the other hand, not all franchisees are bound in the agreement. International franchisees of the brand are seen to be responsible themselves for their sourcing activities but in compliance with the standards set by Dunkin’ Donuts.
The standards of certain raw materials for food varies from one country to another (Korinek & Kim, 2011). It can be analyzed that the standards set by Dunkin’ Donuts may vary from the national standards of the country in which the franchisee operates. It therefore exposes the brand to the risk of legal consequences for non-compliance with the national governmental regulations. Simultaneously, it could be assessed that binding the suppliers to source from NDCP only restricts them from accessing any opportunities of reducing operational cost in the supply chain or improving efficiency by relating to other available potential suppliers. It exposes the brand to the risk of losing competitive advantage over rivals at times of crises.
The country risk exposure of Dunkin’ Donuts in the US market depends specifically on the political, economic and sovereign conditions of the country along with its exchange rate. As a part of the coffee industry, which is actually a component of the US food industry, Dunkin’ Donuts needs to adhere to the rules and regulations of the Food and Drug Administration (FDA). The FDA has labeled coffee as a non-nutritional food item and has limited the amount of use of coffee for commercial purposes (FDA, 2013). Moreover, the tolerance level of consumption of caffeine in the form of a food item has been limited to 0.02%. The regulation has been developed in such a way that the manufacturers using caffeine as their raw material needs to get FDA approval for importing the ingredient (Thorne, 2017). This has exposed the business process of Dunkin’ Donuts to serious risks in the US.
The policies of the US FDA are developed under the guidance of the government. Currently, the governing body has set the very low tariffs on the exports of coffee to the US. The import of coffee beans are also duty free in the country (Wiig & Kolstad, 2005). However, the companies importing coffee to the US need to quality check the beans for chemical residues, contaminants and microbiological pathogens (NCBI, 2010). It is also the regulation of the FDA that coffee companies operating in the US need to meet the minimum price requirements per pound of coffee beans. However, there is no limit set regarding the amount of coffee that can be imported to the country for commercial use (Wiig & Kolstad, 2005). This implies that in case Dunkin’ Donuts exceeds a certain amount coffee import, the company has to face serious regulatory issues thus exposing the business to a risky situation.
Apart from the regulations of FDA and the US government, Dunkin’ Donuts often face problem due to economic unrests. This is because the instabilities identified recently in the global economies, both developed and developing countries, the exchange rates are fluctuating frequently. Drastic fall or rise in exchange rate leads to serious risk of the company. This is because in the international market, fluctuations in exchange rates leads to variation of price of coffee along with equity security rates and interest rates. In order to reduce the effect of the aforementioned economic instability, the US government has recently taken a number of restrictive actions that in turn are affecting the foreign investments to the country (Leibtag, Nakamura, Nakamura & Zerom, 2007). Insufficient foreign investment, along with the policies of the new Republican government of the US, is resulting to reduction in the immigration and increase in emigration rates of America (Dougherty, 2016). As a result, Dunkin’ Donuts is facing risks in terms of staffing and retaining skilled and cheap foreign labor, along with development and management of foreign operations.
Apart from the rules and regulations of the US FDA and the government of America, Dunkin’ Donuts has to adhere to the foreign policies of the national governments of other countries during international business. In this context, it can be stated that the international business of Dunkin’ Donuts is solely dependent on franchising. This implies that the company does not have to face the implications of change in ownership. However, the franchisees need to adhere to the policies of the national governments. The company is often adversely affected by the political and economic unrest in both developed and developing countries all over the world. Hence any change in the regulations of the national organizations, which are not in line with the business policies of Dunkin’ Donuts, leads to risks for the company.
Suggestions for Risk Mitigation
Supply Chain Risk
The supply chain risks identified in Dunkin’ Donuts are in dire need to be mitigated as early as possible to prevent the incurrence of disruptions in their business processes or reputational damage to the brand. Dunkin’ Donuts is identified to target the middle income consumers (Chang & Carroll, 2018). It is therefore suggestive to the brand that they focus on cost reduction in their supply chain for which, they need to allow their suppliers to source raw materials, equipment and other resources for the restaurant chain from potential low cost options available in the market other than sourcing from NDCP only. Therefore, to mitigate the risk of losing opportunities to develop competitive advantage over rivals, it is recommended to Dunkin’ Donuts that they include a specific clause of providing their franchisees with eth freedom to source from appropriate suppliers to execute cost reducing supply chain processes at their business.
The strict adherence of the franchisees’ to the standards set by Dunkin’ Donuts for the food and equipment used at the restaurant chains of the brand is suggested to be made more stringent to ensure quality of the sourcing materials and supplier activities. It would mitigate the risk of hampering brand reputation due to inappropriate supplier activities accessed by the franchisees of the brand. The supply chain complexity is a major concern for Dunkin’ Donuts as recognized through the study. It is therefore suggested for the brand to utilize technology for mitigating this risk. The Information Technology (IT) is an effective tool to simplify the complex processes at a business (MH&L, 2017). It is however essential that the technology is aligned closely with the processes executed at the brand to achieve the desired outcome.
Supplier-consumer understanding is a major way to mitigate the supply chain complexities for a firm. Dunkin’ Donuts being a global brand can be assessed to work with a huge number of suppliers. As opined by Stadtler (2015), the understanding of each suppliers’ concerns is a challenging task for the firm when it works with several suppliers but it can be executed successfully through effective technological utilisation. Dunkin’ Donuts is thus recommended to use the IT systems and ICT technology to connect with their suppliers efficiently and develop adequate understanding among the firm and the suppliers.
The main country risk to which Dunkin’ Donuts has been exposed is due to the labeling of coffee, the main raw material of the company, as a non-nutritional food item by the US FDA. This has in turn resulted to a bar in the amount of coffee to be imported for commercial purposes. As a result, the main business operation of Dunkin’ Donuts is being hampered. In order to mitigate this risk, Dunkin’ Donuts needs to involve the use of the nutritional food items, in some form or the other, in the variety of coffee served at the company outlets. In fact, the company should apply for FDA approval of using caffeine in its deliverables so as to avoid serious lawsuits that can affect the overall business process of Dunkin’ Donuts in the US.
In order to adhere to the US government policy of maintaining optimum level of nutrition and hygiene in the imported food items, Dunkin’ Donuts is suggested to quality check each and every consignment of coffee beans imported and submit the report to the US government and the US FDA. Moreover, the company can concentrate in using decaffeinated coffee for its business in the US (CBI, 2018). This will help the company in mitigating risks to due to import policies of food items to America.
Apart from the FDA rules and government import policies in the US, Dunkin’ Donuts is exposed risks due to fluctuating exchange rate. In order to mitigate this risk, the company needs to short investment (through foreign business development) to those countries the currencies of which are likely to fall in the near future. On the other hand, import of coffee from countries with undervalued currencies can prove beneficial for Dunkin’ Donuts. Apart from this, the company can aim at importing coffee from those countries that has higher interest rates than that of America.
In order to adhere to the foreign policies of the national governments of the countries in which Dunkin’ Donuts set up business, the company should develop its human resource plans in such a way that it can match the human resource policies of almost all countries where the company operates. Moreover, the company should ensure to disclose important information about the corporation to the government of the concerned foreign country so as to mitigate risks of being law suited by the administrative bodies.
Considering the supply chain of the company, it could be identified the same as a very complex process. Constant expansion of business of Dunkin’ Donuts has been exposing the company to severe supply chain risks. More specifically, it has been identified that the suppliers of Dunkin’ Donuts are bound through NDCP thereby restricting them from accessing any opportunities of reducing operational cost. This in turn is lacking supplier management capability resulting in reputation loss among its client base. In order to mitigate this risk, Dunkin’ Donuts has been suggested to include a specific clause of providing their franchisees with the freedom to source from appropriate suppliers to execute cost reducing supply chain processes at their business.
Considering the country risks of the company in the US, it has been identified that the business of Dunkin’ Donuts is being adversely affected by the declaration of coffee as a non-nutritional item and that only 0.02% caffeine can be used in food items. In order to mitigate this risk, the company has been suggested to use nutritional food items, in some form or the other, in the variety of coffee served at the company outlets. The company is also exposed to risks due to import regulations of the US government. In order to mitigate this risk, Dunkin’ Donut needs to quality check each and every consignment of coffee beans imported. The risks due to fluctuating exchange rate has been suggested to mitigate by short investment to countries with undervalued currencies and importing of coffee from countries with higher interest rates than that of America. The aforementioned policies can be expected to reduce the risk exposure of Dunkin’ Donut.
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