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Risk management system is an integrated part of GCG which aims to minimize the potential risk of negative events and to maximize the probability of positive events.
The Company manages all risks effectively and efficiently and ensures business growth sustainability by managing risks proactively, focusing on the most important risks, and carrying them out in a coordinated and integrated manner. In carrying out risk management, the Company always innovates to find more effective and efficient ways.
The Company’s risk management framework refers to best practices, including the following actions:
Monitoring of the risk management system is carried out by the Audit Committee assisted by the Internal Audit Unit, which is responsible for ensuring that risk management activities have been implemented effectively in providing appropriate guarantees for the achievement of organizational goals. The Audit Committee discusses the risks faced by the Company and responses to these risks in the Audit Committee’s periodic meeting.
In managing risk, the Company must provide up-to-date and objective information to all management levels to identify and mitigate risks and determine strategic steps. The Company identified several risk profiles, but not limited to the potential risks that might arise in the future. Risk management policy is reviewed regularly according to changes in the Company’s business conditions and other factors.
The Company’s main risks related to its operational activities and mitigation are as follows:
In 2022, the risk of COVID-19 pandemic was still a risk to be mitigated even though the COVID-19 pandemic in Indonesia is getting under control and the government has relaxed the policy on wearing masks for people who are active outdoors or open areas. However, the Company believes that there is a need for gradual transition efforts by paying attention to the community’s immunity to COVID-19 considering that the Corona virus continues to mutate and give rise to new variants that need to be watched out for.
To mitigate this risk, the Company always adheres to the health protocols set by the government, supports, and encourages the first, second and booster COVID-19 vaccinations for all employees and the community and implements transmission prevention guidelines for all employees.
To ensure that operational activities can run well, the Company maintains the level of availability of raw materials and carries out production and distribution processes with health handling measures.
The Company uses the main raw materials from natural ingredients (herbs) obtained from farmers or suppliers. If there is a change in weather and unfriendly natural conditions, as well as seasonal risks, affect the availability of these raw materials and the sustainability of the Company’s production process.
In addition to the sustainability of the production process, the availability of raw materials also affects production costs. The scarcity of raw materials can increase the price of these raw materials. In addition to the increase in production costs due to the high price of raw materials, the scarcity of raw materials also has the potential to increase the Company’s operational costs because it must look for alternative sources of raw materials supply.
To mitigate this risk, the Company implements a policy of inventory levels and merchandise orders tailored to the demand and lead time for each type of product and always maintains good relations with all stakeholders, including a number of suppliers of the Company’s raw materials. In addition, the Company is promoting the cultivation of vital raw material plants by utilizing modern technology and cooperating with farmers.
The promising growth and prospect of the traditional medicine industry encourage business players to continue to innovate the best products. Business competition is becoming increasingly competitive because competitors are trying to create products that are similar to the Company’s flagship products that have become market leaders, such as Tolak Angin, Tolak Linu, and KukuBima Ener-G! Several competitors have even demonstrated the competitiveness of their products against the Company’s products through the taglines displayed in their advertisements. This shows that the competition in the herbal medicine industry is increasingly competitive.
In the global market, the Company also has to compete with traditional medicinal products developed by export destination countries, such as ginseng, a traditional medicine from Korea. In addition, the Company has to compete with the pure pharmaceutical industry to seize market share for medicinal products, which requires more effort considering the public’s mindset towards traditional medicine still needs to be fully appreciative.
To mitigate this risk, the Company continuously improves services to consumers and maintains good relations with each agent/distributor and consumers. Furthermore, the Company continues to innovate in product development and maintain consistency in the selection and use of suitable raw materials in terms of type, quantity, and quality, so as to produce flagship herbal medicines and other products to be able to face the increasingly competitive business competition.
Most of the Company’s products are distributed through wholesalers, supermarkets, agents, stalls, and retail traders throughout Indonesia. Disruption of the downstream distribution chain can affect the sales of the Company’s products.
To mitigate this risk, the Company cooperates with all agents/distributors to provide input regarding consumer preferences for types, models, and product packaging.
In carrying out marketing activities, the Company regularly places advertisements in the mass media, one of which is television. If the marketing activities are unsuccessful, it can result in financial losses and impact the Company’s business activities.
To mitigate this risk, the Company always carefully compiles concepts, themes, selects talents and media, and the right timing to conduct marketing campaigns according to the characteristics of the products and their target markets.
Damage to factory machines used in the production process can disrupt the smooth running of the Company’s production activities. This can result in a decrease in production performance, affecting the achievement of the Company’s production targets.
To mitigate this risk, the Company performs predictive maintenance and routine replacement of spare parts for machinery and production equipment so that it can be anticipated as soon as possible in the event of a breakdown. In several important areas, the Company always prepares spare capacity.
The disruption of the production system allows the occurrence of finished products that are not in accordance with the Company’s production standards. This risk can occur due to inaccuracies starting from the procurement of raw materials to the packaging process. Considering that the products are closely related to health problems and medical health treatment, to avoid the risk of these damaged products, the Company must withdraw the products circulating in the market if these products experience the following incidents:
Withdrawal of products from the market can result in significant losses, damage to inventory, and loss of product sales opportunities due to product unavailability within a certain period.
To mitigate this risk, the Company continuously conducts quality monitoring and testing and always stores samples from each production batch for three years.
Human resources (HR), both senior management and welltrained operational employees, are one of the factors that need to be maintained by the Company to continue the Company’s production and operational activities. A lack of qualified HR may affect the Company’s business activities, results of operations, and prospects. The Company also relies on its ability to find and retain qualified HR in order to continue the growth and success of the Company’s business.
To mitigate this risk, the Company conducts recruitment to meet HR needs and regularly provides training/ competency development programs to maintain and improve the skills of the existing HR. The Company also carries out regeneration and promotion on an ongoing basis and implements a fair and open performance appraisal system to reward employee performance.
To support its business activities and production processes, the Company requires a large number of people. In the event of a mass strike, it will disrupt the production process, which may result in the non-fulfillment of the Company’s production targets.
To mitigate this risk, the Company always maintains good industrial relations and pays attention to employee welfare by providing rights in financial and non-financial forms as stipulated in the Collective Labor Agreement (PKB).
Natural disasters and fires are unpredictable risks. If this happens, raw materials, factory machinery, and production facilities may experience disruption or damage, thereby disrupting the production process and affecting the Company’s financial performance.
To mitigate this risk, the Company designs factories and infrastructure facilities in such a way as to take into account various aspects of disasters and emergencies. In addition, the Company also insures its buildings and factory facilities with insurance whose types and amounts are reviewed periodically to anticipate changes that occur so that losses that may arise can be properly covered.
The Internal Audit Unit evaluates the effectiveness of risk management. The evaluation is carried out by reviewing the implementation of SOPs/policies that regulate related activities. SOPs/policies will continue to be developed to minimize the impact on risk.
The evaluation results of the effectiveness of risk management in the Company are reported and discussed by Internal Audit Unit with Audit Committee. The discussion results become recommendations for improvement from the Audit Committee to the Board of Commissioners. The Board of Commissioners will deliver the recommendation to the Board of Directors in a joint meeting of the Board of Commissioners and Board of Directors.
The Board of Directors has followed up on several recommendations for improvement, and the Board of Commissioners considers that the risk management system implemented is adequate and effective in preventing problems that can disrupt the Company’s operational activities.
At the end of December 2022, the Company, including the Board of Directors and the Board of Commissioners, was not involved in any material cases, civil, criminal, bankruptcy, tax, state administrative, or cases under Indonesian National Arbitration Board.
In 2022, the regulators or capital market authorities imposed no administrative sanction on the Company.