Masters in Procurement & Supply Management

PSM-522
Risk Management and Supply Chain Vulnerability
BRAC University

Assignment-1

Spring 2014 (Jan.-Apr. 2014); Batch # 3

Guidelines

1. This assignment is based on a case study (contents of which are purely fictitious and
resemblance to any organization or person will be purely coincidental).
2. Students are advised to go through the following case study very carefully, after which
they will be required to answer few questions relating to the study.
3. Questions should be answered in the context of the information provided.
4. Using references from class content, reference books, related theories or models would
be highly recommended; but must be structured in the context of the case study.
5. Students are strongly advised to demonstrate their understanding regarding the issues
they address, rather than simply paraphrasing the contents of the case study.
6. The assessment will take place for each student individually, not as a group work.
Hence students are strongly advised to prepare their answers with individual efforts.
7. The answer should be presented on A4 size scripts using both sides of the papers.
8. The top page should include necessary information like name and ID of the student;
title of the assignment; name of the course, batch, semester etc.

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Case Study-1

Despite the fact that many world economies are currently in recession, retailers are still
successfully promoting one of the worlds most precious gems diamonds. But behind the
glamour lies a complex and controversial business which is aptly illustrated by the forward-
thinking business philosophy being adopted by Ethical Gemstones Network (EGN), a newly
formed corporate entity whose vision is to realize superior revenue streams and profit
margins in the diamond industry by differentiating the way it operates from less scrupulous
companies. EGNs vision of success is to demonstrate that it can offer a more ethical
diamond product to the world markets than its competitors.

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EGNs five-year plan has already been set in motion with its acquisition of Diamond in the
Rough corporation one of the largest international producers of rough diamonds. The
acquired corporation has excellent global facilities, but its behavior and practices have been
less than ethical. These have included: (i) the use of child labor (ii) paying little regard to the
health and safety of its miners (iii) using non-accredited sources of diamonds (iv) failing to
monitor the integrity of suppliers across its supply chain etc.

Such weaknesses play neatly into EGNs plans to ensure an ethical brand is created with a
culture which will work towards embracing corporate social responsibility (CSR) principles.

EGN has already assessed that there are two main obstacles for buyers in the diamond
industry. The first is the small number of major diamond producers, which leaves buyers little
choice but to compete for supply. There is growing demand for diamonds, particularly from
China, India and the Middle East. This is combined with falling production and higher capital
and labor costs. Suppliers say that demand is being further heightened by the natural rarity of
diamonds, since no significant new discoveries have been made for some years.

The second issue, and one which buyers have to be particularly wary of, is so called conflict
diamonds mined in war zones and used by paramilitaries to fund their activities. The issue of
conflict areas is crucial in terms of adopting a CSR policy. In a market worth about $100
billion a year, not all diamond products are from accredited sources, and EGN knows that
only by having adequate controls in place can it offer customers the reassurance that products
meet the required ethical standards.

Jasper Jewel has been appointed as EGNs new head of CSR. He has extensive experience in
ethical procurement and change management from the energy sector, which has complex
international supply chain issues and CSR challenges not dissimilar to those faced by EGN.

Jasper, now three months into his new role, has had the opportunity to visit the key diamond-
producing sites and enter into discussions with key stakeholders. He feels he now has a good
grasp of the issues facing EGN in transforming the acquired corporation (Diamond in the
Rough) into a more ethical organization. In this regard, he has identified eight key
considerations regarding Diamond in the Roughs previous operations and related transitional
challenges. These are as follows:

1. EGNs final products must be ethical (uncut diamonds are often mined in countries
blighted by conflict).
2. Managing, auditing and tracking long and complex supply chains in low-cost countries
may be challenging however, practical means must be found.
3. The success of the venture will rely on supplier integrity through multiple supply chain
tiers.

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4. Scrutiny via the Kimberley Process (KP) Certification Scheme is essential. The KP
scheme is an international agreement mandated by the UN and Security Council to certify
diamonds are conflict free. It requires participating governments to ensure rough
diamond consignments are imported or exported in a secure container with a government
validated certificate.
5. EGN faces challenges around preventing the growth in the trade of illicit diamonds.
6. Good public relations will be crucial in upholding EGNs ethical reputation.
7. EGN needs to consider different markets (e.g. rough cut diamonds for industrial uses like
cutting tools, in addition to polished diamonds for jewelry)
8. Would the development of a CSR policy and code of practice be useful?

Ethical Gemstones board of directors is now seeking to focus on the next step, and on the
measures it needs to put in place.

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Questions

(Note: Both questions shall have equal marks)

1. EGN needs to develop a CSR policy for managing risk and vulnerability in its complex
international supply chain. Evaluate the issues which could influence how EGN develops
such CSR policy.

2. EGN needs to ensure that its CSR policy is complied with by its suppliers in order to
reduce risk and vulnerability. Recommend and justify appropriate measures for EGN how
it could ensure this.

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