Inside many companies, the recession has caused supply risk to move from a secondary issue to a primary concern. Despite this interest, many companies are approaching the topic from a narrow scope, considering only supplier financial viability as a risk driver in their supply chain. According to Spend Matters' affiliate site, MetalMiner, the Chilean 8.8 magnitude earthquake shows that supply disruptions can take many forms--and not just from suppliers going bust or cutting corners. According to MetalMiner, the "disaster serves as a reminder that supply risk in the form of supply disruption remains alive and well for many metal markets." But geographic risk from proximity to moderate or high probability disaster extends beyond the metals markets.

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Spend Matters would like to welcome back Sherry Gordon, our resident supplier performance management expert – and my co-conspirator in getting to the bottom of supply risk technology.

There has been a lot of discussion lately on Spend Matters about supply risk. One very challenging area within this arena is sub-tier supply risk. It can be hard enough to find out what's going on with direct suppliers, but what about their suppliers and their suppliers' suppliers? Understanding sub-tier supplier risk is an important challenge, and has long been an area that the aerospace and defense industry has been trying to address. One failure to conform to DoD rules or one supplier problem can adversely impact multiple prime contractors. This situation occurred when an existing government regulation, the Berry Amendment (regarding metals that go into DoD products) was suddenly enforced. It caused over 50 suppliers in violation to be put on a stop-payment list.

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There's been a lot of chatter in the market these past few weeks about acquisitions. Some larger players are clearly headed to Costco to look for warehouse bargains (smaller formats and Ma and Pop shops aren't worth the time for these larger players, it seems). As someone pointed out to me the other day, Ariba has clearly spent quite some time attempting to clean up its top line to show higher-quality SaaS revenues--perhaps to argue for a higher valuation in the SaaS multiple range--while quietly pushing increased CD upgrades in Q1 to show the installed base is still alive. Might Ariba be on the shopping list for these larger players? I'd be surprised if wasn't, but then again, it has been for some time. It's just a question of valuation.

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The other week, I had the chance to catch up with an old friend and colleague, Paul Martyn, who runs marketing in North America for BravoSolution. According to feedback I've heard from several parties who've looked at their tool recently, BravoSolution has one of the stronger supplier performance-management (SPM) solutions in the market, tied to an integrated sourcing and spend analysis suite (I've not seen a demo of it in the past year, so I won't pass judgement on the current version). Yet like other providers, including Emptoris, which also has a solid performance mousetrap in this area, BravoSolution has found it somewhat challenging to build high-growth momentum around just supplier performance management independent of other solutions like, say, e-sourcing or spend visibility, which are often discrete purchases. One of the fundamental questions here is whether SPM should stand alone as a separate (yet integrated) technology and process, or whether it should be an extension of other areas. Quantifying the value of SPM is also a constant challenge.

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In the first column in this prediction series on building supplier transparency, I focused on the area of financial and business transparency. But this is only one type of supply chain transparency on which companies will focus on building in 2010, however. Spend Matters' research suggests that an increasing number of organizations will also focus on building two additional kinds of supplier transparency this year: social transparency and performance transparency. With each, as with financial and business transparency, it's important to remember that building transparency represents a more significant initiative and investment than enabling visibility into a single indicator or information type; transparency implies a new level of continuous insight to supplier actions and behaviors.

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Over on Supply Chain Management Review, an article by two Wipro consultants suggests that business intelligence (BI) software, such as the kind acquired by SAP and Oracle in recent years, is key to building supply chain visibility. The two argue that "BI capability allows monitoring of supply chain performance and helps in capturing new insights into all aspects of the businesses, fostering innovation." Moreover, "BI allows driving performance improvement in individual functions, business processes that span across multiple functions and in the extended supply chain through collaboration with customers, vendors and other trading partners delivering significant benefits in terms of cost reduction, customer service improvements and lower inventory levels." While this is a great vision, perhaps it's better for those in the implementation and advisory ecosystem than for the actual customer that's got to pay to make it all work.

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Over the last several weeks we blogged on running phone surveys with InstantLoop, and doing basic research on consumer-purchase behavior with Bundle. This week we'll look at a low-tech option for simple reverse eAuctions.

- Ryder Daniels, Capsaicin, LLC

Six years ago, I began running some simple MRO reverse eAuctions for a client unprepared to take the plunge on licensing new software. This method can work for very simple reverse eAuctions involving just a few suppliers. It's designed to drive price reductions through live bidding, which essentially accelerates the negotiating process from phone calls, emails, and meetings into a single 20-minute auction. Much has been written about the success and failure of eAuction strategies. A quick trip to Google provides a number of viewpoints; suppliers, academics, practitioners, and software providers have weighed in on the various pros and cons. Despite the lively debate, reverse eAuctions arguably can often provide a fast, market-driven approach to achieve further price optimization faster than a traditional process. This simplified solution uses your Instant Message client (MSN, AOL, Yahoo, Google, Jabber, etc). Obviously, this doesn't compete or replace the offerings of major software providers; instead, it's designed to help you test the waters with a constrained (read: zero) budget.

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Spend Matters believes that in 2010 transparency -- not simply compliance management or supplier on-boarding -- will begin to rule the supplier management focus. In recent years, many organizations have begun their supplier information management journey by attempting to solve singule issues, often in response to a particular regulatory, customer, or market demand. In some cases, these investments have allowed procurement organizations and the the business areas they represent to check the box on meeting standards requirements (e.g., RoHS in high tech, CFR requirements for traceability in medical devices, etc). Others have gone slightly further, providing new capabilities that actually improve business performance (e.g., supplier on-boarding systems that enable companies to bring more spend under management faster). In nearly all cases, the desired result has been a specific goal rather than a broader level of transparency between the buying organization and its supply chain (potentially multiple tiers).

Spend Matters believes that, starting in 2010, we'll see leading procurement and supply chain organizations start to focus on building broader transparency into their supply base, not only to solve immediate requirements but also to stay flexible and nimble, the better to manage future requirements and to react to changes in the market. In this regard, companies will focus on transparency as a means to both current (and necessary) realized ends as well as future, potentially unknown ones, such as the need to rapidly implement and effect a successful supplier development effort in response to a crisis (e.g., quality failure, adulterated ingredients/parts, child-labor violation, etc.) In some cases, they'll rely on suppliers to partially or fully offset the costs of these programs by requiring a registration and/or annual fee. Our research suggests that there is significant polarization among organizations about whether to have suppliers offset transparency-program costs (or, in some cases, to make such programs a profit center).

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I'm pleased to report that after a weekend driving around in a Toyota Avalon, a model impacted by the recent acceleration recall, I'm alive and well. The same can't necessarily be said about Toyota's supply chain. According to a recent article in SupplierBusiness.com, "The global quality crisis now hammering Toyota has launched a debate about whether the blame should be placed squarely on the company's renowned system of supplier relations." The article considers the notion that perhaps "Toyota's deeply integrated ties with its parts makers actually permitted the problems with the pedal modules to occur" by suggesting that "Toyota can no longer maintain sufficient support and quality control, especially as it adds new suppliers around the world … Yet it still governs the design of key components." Moreover, "By relying so heavily on sole suppliers and using parts across multiple platforms and vehicles, the automaker increases its risks."

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MIT's Center for Transportation and Logistics has always served an interesting role somewhere between academia and the private sector. I've come to think of it as a more academic version of AMR Research (in fact, executives have moved between the two organizations). Most recently in Supply Chain Digest Chris Caplice, Executive Director of the Center, chimed in with his supply chain predictions for 2010. I'll quote a few here and provide my own commentary, but I'd suggest reading the entire column if you have a minute. Chris begins by noting that "the most obvious prediction for 2010 is that the level of uncertainty in the financial markets, commodity prices, consumer demand, and virtually every other facet of the economy that supply chain managers are concerned with will only increase." And this, of course, makes "all aspects of a supply chain manager's job more difficult. It increases the need for more flexible and sophisticated forecasting methods, contractual arrangements, operational models, sourcing strategies, etc."

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