Organizational Structures, Supply Chain Risks Analysis Report

This report provides a comprehensive analysis of suitable organizational structures for a company expanding globally, specifically recommending a transnational structure due to its adaptability and ability to foster cooperation across different departments and geographical locations. The re...Read More

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Lloyd's and the Lloyd's Crest are the registered trademarks of the Society incorporated by the Lloyd's Act 1871 by the name of Lloyd's.

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Table of Contents
1. Introduction............................................................................................................1
2. Possible organizational structures.........................................................................2
2.1. A Multi-Divisional structure..............................................................................2
2.2. Matrix structure................................................................................................3
2.3. The holding company structure.......................................................................3
3. Recommended organizational structure................................................................4
3.1. Transnational structure....................................................................................4
4. Potential risks in supply chain and recommendations...........................................5
4.1. Outsourcing and marketing risks.....................................................................5
4.2. Financial flow risk............................................................................................6
4.3. Environmental risks.........................................................................................8
5. Conclusions............................................................................................................9
References...................................................................................................................9

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1. Introduction
Structures in organizations refer to the relationship between different elements of the
organizations as a whole. The concept behind structure can be used for many things
such as describing responsibility or show a linkage between line managers reporting
in organizations. Since the firm is expanding its business in new geographic
locations, this report will identify possible organizational structures such as multi-
divisional, matrix and holding company structures, however, the transnational
structure seems to be most appropriate among all. Considering supply chain risk is
also essential due to the complex supply chain the firm may face under new
structures, this report will identify the three greatest supply chain risks the firm may
face along with making recommendations to eliminate them.
2. Possible organizational structures
2.1. A Multi-Divisional structure
A multi-divisional structure is one of the organizational structures which aligns
organization according to sperate divisions that are based on products, services or
geographic location. According to Ahmady, Mehrpour, and Nikooravesh (2016), in
the path of organizational development or growth, if the functions or units are
developed, it can be transformed into a multifunctional division to reduce the
decision-making responsibility by top executives. A multi-divisional structure
organization follows a separate functional criteria’s which reports to its head or
primary business unit. The central staff shows responsibility for management and
supervision of organization functions to align with the present business environment
needs and strategies. In this sense, the company can implement its manufacturing
units and offices in North and South America, South Africa and South East Asia so

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that they can quickly respond to changing consumer preferences and market
competition within their respective locations while the decision-making authority will
lie with its primary head office situated in the Netherlands.
2.2. Matrix structure
This structure can be created in the company to create a structure which is based on
manufacturing and distribution function of its primary division. Matrix structure in
organizations provides a combination of flexible functional structure and
multidivisional structure sensibility which is not only based on a geographical or
customer-centric approach but based on logic behind functional dimension within the
multidivisional organizational structure. This structure replaces formal reporting
between authorities between subsidiaries, however, the major decision making may
take a longer time as compared to other structures (Ahmady, Mehrpour, &
Nikooravesh , 2016). Overall, matrix structure can provide the firm with effective
knowledge transfer as it allows management to share distinctive knowledge across
organizational boundaries i.e. to its subsidiary units.
2.3. The holding company structure
A holding company can be defined as a company which consist of shareholdings in
several individual business units. Usually, the subsidiaries of organizations operate
independently with different and outside shareholders, however, retain the name of
the original company. The main function of a holding company is to manage, acquire
and sell and make investments in group companies, primarily its subsidiaries to
provide organizational and transactional flexibility within the group companies
(Legwaila, 2013). In the context of group’s business, the company can develop an
intermediary holding company where an appropriate jurisdiction will enhance the

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transactional flexibility of groups’ or subsidiaries manufacturing and product
distribution units and assist new facilities in establishing a strong offshore group
structure. However, controlling a holding company may prove difficult due to remote
management style besides rights given to outside shareholders. Moreover, sharing
information between subsidiaries also becomes difficult and the opportunity to
recognise potential benefits from other subsidiaries becomes very limited.
3. Recommended organizational structure
3.1. Transnational structure
When the business starts expanding its operations internationally or across the
national boundary, the business structure needs to be planned in a way that can
provide the organization with efficiency and smoothness in business activities. This
will require the organization structure to be multi-dimensional as well as enabled with
systematic differentiation between geographical areas, functions and business
objectives. With transnational structure, organizations can develop an effective and
functional relationship between different departments or business units based on
cooperation and interdependence ( Kang & Hwang, 2018). With this type of
structure, the company can establish a global strategy that will be supported by a
global product manufacturing and distribution strategies and new subsidiaries will
support multi-domestic strategies. Every national unit will then operate independently
however; the main source of the idea or strategy development process will be
undertaken by the head unit i.e. the Netherlands office. The head office will be able
to manage every subsidiary situated across borders by establishing a specific role
like manufacturing and distribution and maintain systems, organizational culture and
relationship between them to establish a smooth business network. However, Kang

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& Hwang (2018) argues that transnational business environment can bring additional
issues and risks for the organizational capabilities to compete profitably in dispersed
locations. Therefore, organizations need to consider managing risks before enabling
transnational structure like making investments in corporate social responsibility
projects.
4. Potential risks in supply chain and recommendations
4.1. Outsourcing and marketing risks
Offshoring or outsourcing is the primary step in the international supply chain which
leaves open room to optimise the manufacturing process and improve efficiency in
the organization. But then, any dynamic change seen in supply costs affects the
negotiation in sourcing contracts. This generates a noticeable issue like effective
utilization of sourcing strategy. Since the company plans to extend its branches in
four new countries, any unstable or uncertain domestic volume seen in individual
models can create issues for the new structures due to increased consumer choices.
Furthermore, uncertainty about future demand instead of current demands can add
another supply chain risk. This demand may add offshoring risk regarding future
uncertainty along with supplier switching which may influence the decision made in a
central unit on initial capacity investment. Channel management is another
significant aspect between supply chain and marketers where any issue seen in the
manufacturing unit can directly impact sales channel together with independently-
owned distribution channels (Li, 2014).
Recommendation
To ensure that outsourcing and marketing risks are eliminated, the competencies
and skills across the supply chain need to be secured by improving functional skills

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in every key area so that in-depth execution of tasks is undertaken. This will enable
the firm to look beyond primary functions and into the holistic relationship between
actions performed and its impacts on the other functions. The performance of the
new units can be measured by measuring across the organization and top-down
where the supply chain is rooted, analyse how risk is been assessed and addressed
every day along with evaluating how the supply chain is performed in every stage.
Dubey & Gunasekaran (2015) cites that to build a sustainable supply chain, firms
must focus on hard and soft skills possessed by managers. This means the supply
chain managers must know how to appreciate social, economic and environmental
dimensions by enabling soft skills like effective leadership, communication and
teamwork spirit. Training can further help them in gaining knowledge of outbound
and inbound modules. Inbound training can include theoretical inputs like necessary
quantitative skills required to manage daily needs and future predictions to eliminate
issues recognised in outsourcing and marketing activities in new structures.
4.2. Financial flow risk
Financial flow, also known as cash flow refers to the cash spent and received in
business. Disruption in finances reflects inability in organizations to make improper
investments and ineffective payment settlements. In particular, a global outsourcing
strategy has a huge impact on flexible supply chain due to uncertain exchange rates
which may affect the quantity required by suppliers. According to Musa (2012),
sourcing strategy can be divided into two approaches, first is based on switchover
costs and next is based on quantity and time flexibility. While quantity, time and risk-
sharing contracts can arise issues during selection of suppliers and determining
product quantity, constant switchover cost can make firms select expensive suppliers
to mitigate trade-off risks. Financial handling is another risk which arises due to

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ineffective cash management and improper handling of the firm's investments in
dispersed geographic locations. Since the firm is approaching global outsourcing
strategies, it may increase the quantity and velocity of payments. This may demand
the adoption of supply chain financing which includes early payment policies,
consignment financing and inventory ownership. Further concerns such as
commercial laws, bank clearing systems in the individual country and cross border
security measures requires considering appropriate strategies that can mitigate
complicated financial flow systems.
Recommendation
Creating Ownership Beyond Silos can be recommended here through which
individual units can be provided with ownership of the supply chain that may allow
them to tackle risks associated with complex structures. A narrow view on quality
development can result in misalignment of supply chain elements which requires the
firm to develop an understanding of detailed functional knowledge to reach the end
goal. Senior management can make decisions which address top-level executions
rather undertaking operational executions. A dynamic pricing strategy can be
implemented to maximise profits in the firm and perceived cash inflows, particularly
when the firm has a limited number of suppliers in any country or when the
competition is high. Using information technology can further help new structures
share real-time processing pieces of data with the main unit such as information
related to competitor's strategies and customer's demand (Musa, 2012). In this
sense, dynamic pricing and the ownership beyond silo can control supply and
demand by adjusting prices based on changing circumstances thereby eliminating
the financial burden of the main unit besides optimising revenue due to increased
sales volume.

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4.3. Environmental risks
One critical issue that remains in the mind of business practitioners while
outsourcing its operations globally is regarding supply chain and logistics
management that can affect environmental activities. This is particularly more
concerned within international supply chains due to which the activities become
more visible to people belonging to regional or local areas. According to K &
Palaniappan (2014), environmental risks in the supply chain can be associated with
internal and external factors due to the company's uncontrollable events. The events
may consist of uncertainties which arise due to environmental interactions, logistics
and supply chain. Natural or manmade incidents may include environmental
disasters, regulatory changes, strikes and terrorism. To gain advantage and
increased market share, the firm may implement several initiatives like product
variety and transportation which can affect a stable environment. This makes the
supply chain more vulnerable to disruptions caused by uncertain natural and
manmade disasters, economic cycles and consumer demands which require to be
considered effectively.
Recommendations
Since the new structures are located in geographically dispersed regions, every unit
needs to evaluate the areas of risk individually while the primary or head office
needs to monitor the external and internal business environment. The individual risk
assessment will help the firm predict any upcoming riskier events while identifying
new risks which is interlinked with supply chain management. Periodic reports and
real-time metrics can assist managers in making decisions and statistical analysis of
key metrics which can assist the head office in making further strategies related to

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risk mitigations. Monitoring of risk assessment can include evaluation of qualitative
resources like weather or news reports that will identify incidents which are
precursors to supply risks ( K & Palaniappan, 2014). A framework can be
implemented that will support communication between different supply chain
partners to enhance the supply chain management besides enhancing global
networking between all the new and existing business structures.
5. Conclusions
As the present business environment is surrounded by several forms of
organizational structures and institutions, the firm must choose an organized
structure that is suitable for organizing every business demand. Therefore, this
report recommends a transnational structure for the company which will address key
organizational scope and objectives like manufacturing and distribution of products
within the new structure's geographical boundaries. Since complex supply chains
can bring in potential risks while operating under new structures, this report has
identified three critical risks: outsourcing and marketing risks, financial flow risks and
environmental risks. The recommendations provided for each case will not only help
the firm in gaining sustainable supply chain but also bring in a competitive edge in its
new structures.

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References
Ahmady, G. . A., Mehrpour, M. & Nikooravesh, A., 2016. Organizational Structure.
Procedia - Social and Behavioral Sciences, Volume 230, p. 455 – 462.
Dubey, R. & Gunasekaran, A., 2015. Shortage of sustainable supply chain talent: an
industrial training framework. Industrial and Commercial Training, 47(2), pp. 86-94.
Kang, E. & Hwang, H.-J., 2018. Strategic Management Plan for Transnational
Organizations. The Journal of Asian Finance, Economics and Business, 5(2), pp.
119-128.
K, F. & Palaniappan, P. K., 2014. Risk Assessment and Management in Supply
Chain. Global Journal of Researches in Engineering, 14(2), pp. 1-13.
Legwaila, T., 2013. The nature of a headquarter company: a comparative analysis.
De Jure, 46(3), pp. 798-813.
Li, X., 2014. Operations Management of Logistics and Supply Chain: Issues and
Directions. Discrete Dynamics in Nature and Society, pp. 1-8.
Musa, S. N., 2012. Supply Chain Risk Management: Identification, Evaluation and
Mitigation Techniques. [Online]
Available at: https://www.diva-portal.org/smash/get/diva2:535627/FULLTEXT01.pdf
[Accessed 28/12/2019].