This post is based on the following 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!
Once you’ve executed a supply strategy and carried out the appropriate negotiation, supplier implementation becomes the next hurdle. The faster an organization can implement suppliers, the sooner savings can drop to the bottom line. But supplier implementation comes with many risks of its own. Implementation can take longer than expected, or, in the worst of cases, can fail entirely. In either case, the organization can lose time and money through a botched implementation and potentially affect revenue if supply is at all impacted from the supplier changeover (or introduction, in the case of new products or outsourcing).
A number of factors affect implementation risk, including:
- Poor cross-functional collaboration internally and externally: Companies often fail to collaborative effectively with internal stakeholders—from design engineers to plant managers—and external constituents—including suppliers and customers.
- Poor internal coordination: Organizations that are not effective at coordinating, scheduling, and planning global supply management activities face significant implementation risk. Poor coordination and planning can lead to missed deadlines and high part defect rates, among other things.
- Technology and communication challenges: The technology and communication challenge during the implementation phase can introduce significant risk, driven by insufficient language translation, bandwidth, systems, and lack of common processes. Technology and communication challenges can both slow the time it takes to ramp production and affect product quality and specifications.
- Lack of on-site expertise and local market execution capability: When companies go global with their supply management programs, this challenge is magnified. In low-cost countries, such as China, the risk is even greater. Lack of local expertise can dramatically increase the time it takes to ramp production while bringing part quality and defect rates to acceptable levels, among other areas.
- Insufficient project management resources and skills: Companies often lack the project management resources and skills necessary to drive implementation projects.
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: