This post is based on a FreeMarkets white paper (published in 2003) that I co-authored with 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. As context for this post, “market risk” is one of five drivers of supply risk we identified in this paper originally. The others are strategy risk (reference here and here), demand risk, implementation risk, and performance risk. Enjoy!
Typically, companies that face the greatest degree of market risk are those in the early stages of adopting global supply management software. This might include organizations introducing new sources of global supply for the first time into a negotiation event, or those who have only recently adopted new dynamic pricing formats and global sourcing into their supply management arsenal. For example, a tier-one automotive company brought a significant amount of spend online for the first time using a competitive negotiation format, but failed to provide enough data to the suppliers participating.
As a result, while the company observed millions of dollars in on-screen savings, they were unable to implement any of the results. When further information was disseminated post-market, suppliers claimed that they were unable to produce the parts at the prices they provided during the event because the initial, limited specifications did not provide them with enough information to make accurate quotations. All told, the organizations involved wasted thousands of hours of time on a supply management decision that could not be made.
Cisco Systems provides another high-profile example of market risk. In a lawsuit, Cisco alleged that Huawei Technologies Company, Limited, a large Chinese networking company, copied and misappropriated Cisco’s software, including source code, documentation, and other copyrighted materials. Cisco claims that Huawei’s products were such a close copy to their own that they shared the same errors and bugs as the vendor's own products in the same product category. While Huawei was not a partner with Cisco—at least at the time of the accusation—the incident highlights the potential risk of sourcing from global markets where IP might not be as carefully guarded.
Curious? Drop Sydney a line (email@example.com) 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: