IACCM — Blogging Live (Dispatch 3)

There comes a time in every consultant's life when he would love nothing more than to throw in the towel on his current practice area and try something entirely new. I'm not going there just yet -- after all, we're just starting to build Spend Matters Advisory Services and Azul Partners, my other firm, is set to have an excellent year -- but when I heard Robert Endres from Synaptic Decisions speak at IACCM yesterday on the topic of risk management and sourcing, I almost gave him my resume on the spot. What they're doing is that useful and innovative. Way back in 2006, I wrote about Synaptic Decisions in a previous post noting that "they use options pricing techniques, among other approaches, to understand pricing inefficiencies in the supply chain. As an amateur who was seduced by options trading in his youth, my light bulbs went off when they started to talk about their approach to contracting and risk management in complex supply market environments using financial modeling to uncover volatility, risk and pricing discrepancies. Their hypothesis that suppliers often do not price features or terms of a contract correctly -- after all, how many sales reps have studied Black Scholes options pricing theory -- creates opportunities for savings and risk reduction on the buy side. Fascinating stuff."

Well, in today's market, Synaptic Decisions is more fascinating than ever given the higher volatility and variability companies face across their supply and spend decisions. As an example, with copper prices fluctuating and rising at the rates they have, is it worth floating the underlying commodity price (through an escalation/de-escalation clause or a financial instrument) or letting suppliers assume the risk and price it into a contract (if they will -- which is not always the case)? That's a simple example, but Bob's presentation was an absolute geek's paradise for anyone involved in options theory and pricing and its applicability to sourcing and contracting. And in future posts I look forward to sharing more details on it. In the meantime, if you’re concerned about volatility on the sourcing side of the equation -- or the sales side for that matter – or you think there's an opportunity to profit from knowing more from pricing or trading the risk elements of the terms underlying a contract (even a complicated direct materials agreement) I'd strongly encourage you to get in contact with the firm. I've not come across any other organization doing similar projects on a regular basis.

- Jason Busch

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