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For John Pearce, risk management extends beyond the corporate boundaries of Fonterra Co-operative Group Ltd. In fact, doing business with Fonterra can mean that suppliers buy into the Auckland, New Zealand-based milk processing company's risk management approach.
“We have now stepped into pushing our risk management requirements onto key suppliers so that we can get better assurance that key suppliers will be able to meet our need,” said Mr. Pearce, who serves as Fonterra's general manager, policy and risk.
This includes, for example, getting assurances that key suppliers have adequate business continuity plans to be able to maintain supply, or that their property risk management is up to Fonterra's standards before Fonterra will agree to use their storage facilities, he said.
“For example, when we engaged a back-office IT support supplier based in India, built into that contract was a requirement for them to have a business continuity program that we signed off on,” said Mr. Pearce.
“If they didn't meet our standards, they didn't get a certain amount of their fee. One of my guys went to India to test that they met our standards, and when they did, we signed off and they got paid,” he said.
Mr. Pearce admits that “we do get some difficulties from taking this approach.” He said that when Fonterra insists on minimum risk management standards from suppliers, he is sometimes met with the reply “that if we want these standards then we have to pay for it.”
But he said even though that can present a difficulty, “it is probably not a bad one to have because it does force our managers to decide if they really want to do business with a partner who doesn't, for example, have adequate business continuity plans or whose storage facility doesn't meet our standards.”
He said that sometimes “commercial reality is that we will proceed. However, often we look elsewhere. Even if we proceed, we are proceeding in the knowledge of what the risk is rather than in ignorance.”
Fonterra Co-operative Group Ltd.'s philosophy of managing insurance is straightforward: None of the individual businesses within the Auckland, New Zealand-based milk processing company is allowed to buy its own insurance without approval from either the chief financial officer or John Pearce, general manager, policy and risk.