Creating Supply Risk — For Your Competitors

In every discussion I've had with procurement and operations practitioners about supply risk of late, the subject inevitably turns to what else they can do to proactively manage risk besides simply monitoring supplier operational and financial stability (which is only one piece of the supply risk management equation). Well, one controversial thought that I'll toss out is how they can go about creating supply risk. Yes, that's right, creating it. But not for their organization -- for their competition. Just as Apple now famously locked up supply for flash memory for its iPod line, blocking its competitors, there are numerous ways to think about reducing supply risk for your organization that also drives it up for your competitors.

Proactively securing supply in a constrained environment where absolute capacity over a finite time period is limited is a great strategic thrust to not only reduce your risk -- but to drive up that of competitors. Another example here is Boeing's move to lock-up material portions of the world’s titanium supply for its 787 airliner. By doing so, Airbus and others will have to think twice about using the same metal in future designs in the coming decades. Instead, they will have to rely on substitute alloys or pay the price for higher titanium should they choose to go down the same design path.

Another way of driving up supply risk for competitors is to create favorable and exclusive deals in developing economies -- where governments are more likely to respond to such requests, if it's possible to make things in their best interests by doing so. Just remember that even written exclusivity or preference will only get you so far -- it's the execution and adherence to the agreement that matters.

Along the same lines, by looking closely at export and logistics capacity -- and monitoring your competitors moves in developing regions -- it might be possible to intentionally engineer the bumping of someone's cargo by concentrating a larger number of your own shipments (which you would need to make more lucrative to the carrier or 3PL) around the exact timeframe in the same port. Or take this concept back to the source by figuring out which suppliers in developing countries -- or even domestically -- are supplying to your competitors and signing deals which give your production items more favorable treatment when capacity is constrained.

Without question, there are ethical boundaries to be wary of when thinking about the concept of engineering supply risk for your competitors. But it's certainly possible to turn your competition's lack of risk management controls against them in an indirect manner. Just be careful about how you do it.

Jason Busch

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