EACG2708

Question 2.3 Suggested Solution

(a) Based on the information provided above, identify and explain five (5) business risks that XYZ Manufacturers
Ltd faces.
(b) For each of the risks identified in part (a), provide one (1) recommendation on how XYZ Manufacturers Ltd
could mitigate the risk.
# Business Risks
1. Competition Risk (1)
There is a risk that XZY Manufacturers fail to
keep up with technological advancements in the
manufacturing of parts. It could lose its
competitive edge, which results in a loss of
customers/sales. (1)
2. Product substitution Risk (1)
There is a risk that customers will source their
parts from cheaper manufacturers in China as
XYZ's parts are expensive, and the industry is
highly competitive. This can result in a loss of
customers/sales. (1)
3. Supply chain risk (1)
There is a risk that the entire supply chain could
be disrupted due to imported parts not being
available as they take longer to arrive. This will
result in delayed production and loss of
sales/future sales. (1)
Marks Recommendation Marks
The company should invest in research and
2 development to stay ahead of the competition and 1
differentiate its products from its competitors. (1)
XZY Manufacturers should enter into formal
2 agreements with customers to ensure continued 1
sales of their products. (1)
OR
XZY Manufacturers should investigate alternative
production methods to reduce production costs.
(1)
2 XZY Manufacturers should implement a 1
contingency plan using local suppliers instead of
foreign ones. (1)
OR

OR

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 EACG2708

# Business Risks Marks Recommendation Marks

The company sources its raw materials from XZY Manufacturers should implement a vetting
multiple suppliers, which can lead to supply process to ensure they only source from suppliers
chain disruptions if the suppliers do not deliver who deliver on time and quality parts. (1)
on time or deliver inferior quality parts. This will
result in delayed production and loss of
sales/future sales. (1)
4. Currency Risk (1)
XZY Manufacturers are exposed to currency 2 XZY Manufacturers should buy currency options 1
fluctuations due to importing raw materials from to buy foreign currencies at a predetermined price.
other countries and paying them in volatile (1)
foreign currencies. This could result in
currency losses, increased input costs, and
lower profits. (1)
5. Liquidity Risk (1)
XYZ Manufacturers has high fixed costs, such 2 XZY Manufacturers company should closely 1
as salaries and rent, which can become a monitor its cash flow and have a financial
burden if the company experiences a decrease contingency plan to manage unforeseen
in product demand. This could result in expenses. (1)
financial losses or cash flow problems. (1)
6. Environmental Risk / Reputation Risk (1)
As a manufacturing company, XYZ 2 XYZ Manufacturers should adopt environmentally 1
Manufacturers has a negative impact on the friendly practices and consider investing in green
environment. The impact on the environment technology to reduce their carbon footprint. (1)
can lead to legal action, fines, and damage to
the company's reputation. (1)

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 EACG2708

# Business Risks Marks Recommendation Marks

7. Transport Risk (Operational Risk) (1)
There is a risk that the parts being transported to
customers are damaged, resulting in a loss of
sales or the cost of replacing the damaged parts.
(1)
OR
There is a risk that these automotive parts, which
are generally expensive, are stolen/looted
while being transported. (1)
8. Regulatory Risk (1)
As a manufacturing company, XYZ
Manufactures is subject to several regulations
and laws that govern its operations. Any non-
compliance with these regulations can lead to
fines, penalties, and damage to the
company's reputation. (1)
9. Any other valid risk (1) and explanation (1).
Available Marks
Maximum Marks
2 XYZ Manufacturers should buy insurance on the 1
items being transported. (1)
OR
XYZ Manufacturers can use third-party transport
services that take responsibility for the items being
transported (insurance). (1)
OR
XYZ Manufacturers can require their customers to
make their transport arrangements to collect the
parts (transfer ownership). (1)
2 XYZ Manufacturers should stay up to date with 1
regulatory changes and ensure that all employees
are aware of the regulations that affect their work.
2 Any other valid recommendation. 1
18 Available Marks 9
10 Maximum Marks 5

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