Hillman's Learnings from Stanford's Supply Risk Forum
If you have a minute, I'd strongly suggest that you check out Mark Hillman's dispatch from Stanford University's Global Supply Chain Management Forum's Risk Management Roundtable. This piece is currently available for free to non-AMR subscribers, so download it while you can. Mark was both a participant and observer in the event. In the write-up, Mark highlights supply risk management and advanced sourcing strategies that Spend Management leaders Apple, HP, Motorola, On Semiconductor, Intel, Boeing, Fresh Express, Andrew, and Genentech are deploying today.
As one of the examples of advanced supply risk management strategies, Mark points to Intel, who "pays an option-type premium to reserve capacity [which provides] visibility to a supplier to begin production of the non-unique components of a piece of manufacturing equipment. At an agreed upon point of time, say six months, Intel would be required to specify the specific design requirement more granularly." As a result, "Intel gains flexibility by guaranteeing spending with a supplier, but reserving and postponing certain decisions like delivery location and final specification. It's a win-win arrangement that gives suppliers more forward visibility to Intel's demand, and gives Intel more visibility of supply availability, more flexibility, and more choice through postponement and the ability to divert spending across supplier product lines."
Kudos to Mark for another great supply risk piece. If you're an AMR subscriber, you should also check out his recent in-depth feature report, Managing Risk in the Supply Chain -- A Quantitative Study. The study is based on interviews with 89 supply chain executives across industries and is an outstanding piece of research into a subject which deserves far more attention than it currently receives.
- Jason Busch
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Mark's writeup of Apple is interesting: "In a need to assure the successful launch of its NAND-flash-based iPod nano line of MP3 players, Apple entered into forward-buying arrangements worth more than $1B to lock in adequate flash memory capacity.
Through its actions to assure NAND-flash supply for the iPod nano launch, Apple also seized a competitive advantage by locking up so much capacity that there was no opportunity for a competitor to launch a similar flash-based product in the same time period."
Several years ago, there weren't that many industry observers who foresaw the explosion in flash enabled by soaring capacities and prodigious price drops. Apple correctly perceived flash as a economically viable disruptive technology vs. ultrasmall HDDs and made the right call.
However, this is the same Apple featured in your 11/3/06 blog entry titled "Apple's Risky iPod Supply Chain". As good as Apple was at spotting a disruptive technology and using it to gain a competitive advantage, to those of us on the outside world it look like they had a huge blind spot related to the geographic risk of the Laguna Technopark. As you pointed out in your entry, "One wonders if Apple even considered the concept of supply risk before deciding to conduct a dual-source strategy from 2 competitors located less than a mile of part in one of the most geographically unstable parts of the world."
It just goes to show that Supply Chain risk is a multi-dimensional problem that requires a great deal of higher-order thinking. It's not just about technology risk…or supplier financial stability….or ranged forecasting…or scenario planning…or hedging.
Like reigning NCAA national basketball champion North Carolina demontrated in their game last night vs. Virginia, supply risk has lots of ways to beat you and lots of depth on the bench.