This post is based on the 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. Enjoy!
Also see earlier posts in this series:
As companies continue to depend more on global supply markets to meet their economic and strategic objectives, they must consider the implications that each supply decision brings. No longer is it possible to create and manage a supply strategy within the four walls of the enterprise. Companies that opt to brush aside supply risk open themselves to significant hazards that can dramatically impact both the top and bottom lines, which can actually increase total supply cost.
Future supply management professionals must become like portfolio managers who balance return and risk to achieve a desired outcome in the financial markets. Companies that can identify and manage supply risk on a global basis will be in a strong position to more actively lower total supply cost and to drive supply management results that extend far beyond line item cost savings. But creating and implementing a supply risk mitigation and management strategy is not as easy as it sounds. Successful enterprises must understand both the internal and external factors that drive supply risks, as well as develop scenario and contingency plans that take into account the market condition extremes.
While many organizations have strong supply management resources to contemplate these sorts of issues, a trusted partner can be an invaluable aid throughout the risk development process, helping to provide benchmarks, case examples, and risk mitigation and management best practices in developing an action plan. And once a plan is in place, a partner can help monitor global conditions and serve as additional eyes and ears, providing physical and virtual intelligence to help drive real-time supply management decisions. But regardless of the resources an enterprise includes in its arsenal to combat global supply risk, it’s critical to understand both the internal and external factors and decisions that can raise or lower risk. In the case of supply risk, what you don’t know—or choose to ignore—can cause tremendous pain later on.
Sometimes playing the odds is the right strategy. But when it comes to supply risk, it’s better to lower the odds in the first place by implementing the right risk mitigation strategies and processes. Consider your options. Consider the implications. And lower your total cost and reduce business risk through proactively managing supply risk on a global basis.
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.
Related Spend Matters research coverage: