Increasing Shared Risk is the Next Big Change in Supply Chain Management

How supply chain practices must change to manage new risks from new technology.

Big Data, Robotics, Connectivity, Cyber-Security—these are just four of the more obvious expensive and high-tech requirements that companies are putting on their suppliers. And rightfully so. But not all key suppliers can meet these expectations for those very reasons:  finances and skills.

Pity the small niche supplier who cannot afford the technology and certainly can’t afford to be wrong in what it chooses to acquire.

Pity the large company that doesn’t want to vertically integrate into that supplier niche, and isn’t willing to share the risk either.

The concept of customer/supplier partnerships … must soon expand to include the customer proactively taking on additional risks faced by the supplier.

This isn’t a question of insurance. It’s a question of available resources and imperfect decisions.

A small manufacturer must implement automation to maintain a safe environment, but doesn’t have the financial strength to do so.

A second small manufacturer must invest in robotics to assure the tolerances required by the market. He doesn’t have the money to be wrong in that selection nor the expertise to ensure he’s right, nor the know-how to keep it running correctly.

The exchange of confidential documents can no longer occur through email, but just how safe are they within the small company that pulls them from a portal?

According to Mark Fields, CEO and President of Ford Motor Company, “every car on the road produced about 25 gigabytes of data per hour.” Just exactly who is sorting that and performing the analysis that the data demands?  Is each supplier expected to do that?

The concept of customer/supplier partnerships has come a long way in the past few decades, but it must soon expand to include the customer proactively taking on additional risks faced by the supplier. It may take the form of financial support, technical resources, and/or capability acquisition.

What it cannot remain is a high stakes game for small valuable niche suppliers and customers that split their bets across multiple firms.

As published by IndustryWeek