Managing Risk the Fresh Produce Way: A Case Study

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Every city has its ghosts. Thanks to the Kampala potholes exhibition, pond-sized potholes are no longer the city’s ghosts – some have been filled with soil, others fixed while others continue to expand. At least we know they exist and it is no longer a secret. The more you travel, the more you appreciate and fall in love with Kampala. The city is known for its fun streets and weather that can quickly change. And that is how Fresh Produce Ltd saw an opportunity: to make and sell homemade passion juice to the Kampalans. But this wasn’t just about selling a refreshing drink. It was also a way to explore agribusiness, which is all about how to grow food, make it into different things, and sell it.

Agribusiness is a big word that means lots of things related to farming and food. It includes the people who make the stuff farmers use to grow crops, the places that turn crops into food or drinks we can eat or drink, and the stores or people who sell those foods or drinks. For Fresh Produce Ltd, this meant they had to do a lot of things: find the best passion fruits, sugar, and water; make their passion juice; and then sell it to people in Kampala in different flavours who were thirsty. In this era of the increasing burden on the health sector of non-communicable diseases (NCDs), Fresh Produce Ltd have created different soft drink flavours to cater for different clients – no sugar passion juice, cocktail sugarless juice (from a mixture of different fruits mainly mangoes, oranges, pawpaw, watermelon, passion and guavas), power juice for blood circulation (a mixture of garlic, onions, beets, berries, citrus fruits, and leafy greens) and children joy drink – fruit juice with little sugar.

The new products helped Fresh Produce Ltd to tap into a new market which came with new challenges – sourcing supplies and unpredictable weather.  Kampala’s weather can be sunny one minute and rainy the next. This made it hard to sell passion juice outside. Fresh Produce Ltd watched the weather closely, using technology and even listening to local wisdom, to pick the best days to sell their passion juice. They also made sure they always had plenty of fruits and water so they could keep making passion juice no matter what.  As the business grows, there are more challenges – theft, non-compliance to the required health standards especially for the export market, poor quality handling, product spoilage along the supply chain, foreign exchange challenges, labour issues, and more.

The company management sought the services of a risk management professional to help identify risk for proactive management. To do so, the risk expert recommended the formulation of a risk policy, that defines Fresh Produce’s risk appetite. The policy defined acceptable risk as any risk at a level of 8 and below. An unacceptable risk is that with a risk score of 9 and above based on the product of the assessed impact and likelihood, see Appendix 1.

Also, there are several players in the soft drinks industry selling drinks, so Fresh Produce Ltd decided to make their passion juice in a special way that no one else did. They called it “the refreshing taste of Kampala. Your partner will love it.” It was so special and different that everyone wanted to try it. This shows how making something unique can make more people interested in what you’re selling. By selling passion juice, Fresh Produce Ltd learned a lot about agribusiness. They saw how important it is to have good and consistent supplies, to make your product special, and to find the best ways to sell it. They used new kinds of fridges to keep their passion juice cool and thought carefully about how to package it and get it to people. Due to sudden weather changes, they explored how to preserve the juice longer, probably for 30 days, which called for research and development partnerships with Universities and other international partners.  One of the founders started travelling to attend agriculture expos to learn new practices to add value to the fruits. Buying 502 acres of land on the outskirts of Kampala in 2012 was their best decision and a turning point. The company now grows all fruit varieties required to run their business. To support the community,  the company also introduced an outgrower support scheme, where nearby small-scale farmers are given training, seedlings, irrigation and other support to plant more fruits of the required varieties which they buy from them for processing or export.  The company is finding more opportunities from the export trade, especially for fresh fruits in the European and Asian markets.

Discussion

  1. What is Risk? How did Fresh Produce Ltd face different risks, like the weather changing or running out of supplies, and what did they do to deal with those risks?
  2. Why is it Important to Have a Special Product? How did making their passion juice special help Fresh Produce Ltd deal with the risk of competition?
  3. How Does Planning Help with Risk? Discuss how Fresh Produce Ltd planned for things like bad weather or not having enough supplies. How did this planning help them?
  4. From Fresh Produce Ltd’s story, what can we learn about preparing for and managing risks when running a business?
  5. Prepare a risk register for Fresh Produce Ltd
  6. Write a brief board report on the state of risk management at Fresh Produce Ltd.

Copyright Summit Consulting Ltd, 2024. Our fictional cases are written by Mr Strategy for board and senior management strategy and risk management training sessions.  You are free to use as long as keep appropriate attribution – “used with permission from Summit Consulting Ltd, www.summitcl.com.” For discussion pointers to the questions, contact strategy[at]summitcl[dot]com.

Appendix 1: Fresh Produce Impact and Likelihood Guide

Event Likelihood Assessment

  1. Event Level 5 – Virtually Certain: This category represents events with over 75% chances of happening. These are almost sure to occur in the given context or timeframe.
  2. Level 4 – Highly Likely: Events falling into this level have a 50-75% chance of happening. They are considered very probable and should be planned for accordingly.
  3. Level 3 – Moderate: These events have a 25-50% chance of taking place. While not as likely as higher-level events, they are still possible and warrant preparation.
  4. Level 2 – Unlikely: With a 10-25% chance of occurring, these events are less probable but not impossible. Contingency plans might be less urgent but still necessary.
  5. Level 1 – Rare: Events in this category have less than a 10% chance of happening. They are considered outliers but could have significant impacts if they do occur.

Event Impact Assessment

  1. Impact Level 5 – Catastrophic: Financial Losses: Above UGX 120 million. Reputational Damage: Severe damage that could lead to a loss of customer trust and market position, potentially irreparable. Project Closure: The project or operation is forced to shut down permanently. Failure to Achieve Objectives: Complete failure, with no objectives met and no feasible path to recovery or adjustment.
  2. Impact Level 4 – Major: Financial Losses: Between UGX 80 million and UGX 120 million. Reputational Damage: Significant damage that severely affects the company’s image and may take years to recover from. Project Closure: High risk of project suspension or long-term halt, requiring significant changes for revival. Failure to Achieve Objectives: Most key objectives are not met, with significant revision or reevaluation needed for future success.
  3. Impact Level 3 – Moderate: Financial Losses: Between UGX 40 million and UGX 80 million. Reputational Damage: Noticeable damage that impacts the company’s reputation but can be repaired over time with targeted efforts. Project Closure: Potential for temporary suspension or significant delays, but recovery and continuation are possible. Failure to Achieve Objectives: Some objectives are not met, necessitating adjustments and moderate changes to the approach or strategy.
  4. Impact Level 2 – Minor: Financial Losses: Between UGX 5 million and UGX 40 million. Reputational Damage: Limited damage that can be quickly addressed and has minimal long-term effects on the company’s image. Project Closure: Minor delays or adjustments are required, with no significant threat to project completion. Failure to Achieve Objectives: Minor objectives are not met, but overall project goals remain achievable with small corrections.
  5. Impact Level 1 – Negligible: Financial Losses: Less than UGX 5 million. Reputational Damage: Insignificant or no damage, with no noticeable impact on the company’s standing or customer perception. Project Closure: No impact on the project’s timeline or success. Failure to Achieve Objectives: All key objectives are likely to be met, with only inconsequential deviations from the plan.

 

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