When it comes to thinking strategically and creatively about ways to manage supply risk and to reduce overall financial exposure and volatility, HP stands as one of the most forward looking organizations in the world today. Recently, Tim Minahan penned a blog entry on Supply Excellence which examined some of HP's tactics in confronting supply risk management. He also managed to get his virtual paws on a framework that HP uses to evaluate its market exposure for given category and market situations.
According to Tim's sources within HP, the framework attempts to answer "three basic questions: How much should I buy? At what price? And for how long ... To answer these questions HP assesses the probability of its demand forecasts and of the cost or availability of supply required to support it. Based on this assessment, HP determines high, base, and low scenarios for its demand forecasts and the probability that each will occur."
Next, "the high-tech giant uses this probability analysis to define supplier agreements that share both risk and reward. Depending upon the probability and risk of a particular product or supply market, agreement terms range from a fixed quantity with a market-based discount to a fixed quantity, fixed price contract. HP may also use price caps and floors to protect parties even further." Now I'd call that truly advanced sourcing. If you're curious to learn more about HP's approaches to advanced Spend Management areas such as should cost analysis and sourcing, I wrote a short post some time ago that referenced an article by Patricia Moody which is more than worth your time to check out.