This post is based on the following FreeMarkets white paper (published in 2003) co-authored by Jason Busch and Mark Clouse, Global Supply Management: Strategies for Identifying and Managing Supply Risk. I recently dusted off the paper for my own research into supplier relationship management and found an analysis that was nearly every bit as relevant then as now. And since it’s not available online, drop us an email if you’d like a copy.
As context for this post, “strategy risk” is one of five drivers of supply risk we identified in this paper originally (the others are: demand risk, market risk, implementation risk and performance risk). Enjoy!
The first challenge companies face in managing supply risk is quite often an internal hurdle: strategy risk. Why? Fundamentally, having the right supply management strategy is about aligning requirements, supply market fundamentals, and overall business strategy. This is where a great degree of all supply risk is committed. The wrong supply strategy can mean higher costs, exposure to unnecessary market / financial risk, less-innovative designs, longer cycle times, and lost market share.
Before developing a supply management strategy, organizations need to understand how not having the right information or skills can cause them to go down the wrong path. Ultimately, strategy risk is a direct outcome of insufficient knowledge or skills inside the organization. Some of the drivers of strategy risk include:
- Poor corporate strategy coordination: Companies that fail to communicate their overall business strategy—and the role of supply management in the broader strategy—create unnecessary strategy risk.
- Inadequate visibility into enterprise spend (across divisions, functions, and systems): The lack of visibility into spend is a leading—if not the top—reason why companies develop the wrong supply management strategy. Gaining the right level of visibility into global spend is the first step for any organization in mitigating supply risk.
- Limited information about supplier capabilities: In addition to analyzing internal requirements, supply strategies depend on matching those requests with supplier capabilities. Consequently, companies need accurate and up-to-date information on their own capabilities, those of their current suppliers, as well as those of would-be suppliers.
- Lack of market information (supply and demand): This includes incomplete or inaccurate information, supply markets global demand, and the underlying economics driving both.
- Inadequate supply management skills: Many companies lack the internal resources and skills to fully develop, plan, and implement the right global supply management strategies.
Curious? Drop Sydney a line (firstname.lastname@example.org) and we’ll send you out a copy of this dusty old analysis! Some topics are timeless. And supply risk is one of them.
See additional Spend Matters research coverage below: