No decision is without risk. I understand that there is a pharmaceutical in short supply becuase one of the manufacturing steps requires a chemical that is a bi-product of a certain manufacturing process in the automotive industry. There are a lot of layers to my previous sentence, not the least of which is the fact that the sole source for a key is a bi-product of an industry in decline. Who would have been able to predict that at the time of setting up the supply contracts? Given that it is a bi-product, it would be tough to make the chemical at a cheaper price, so procurement would have been asked a lot of questions about a more expensive sourcing strategy at a time when the chemical was plentiful.

That there is an outbreak of swine flu is Mexico doesn’t change the long-term cost advantage of sourcing from Mexico. The same issues can occur in the US. What about the salmonella in peanuts? What about the earthquake in China? I don’t think there is a risk-free sourcing strategy. I think what needs to in place is not only risk mitigation, but also risk response. How quickly do you know when an unforeseen event occurs that will cause harm to your supply chain, and how quickly can you respond? I don’t think any and all risk can be “designed” out of the supply chain.

Similarly, “maverick” spend is always a potential issue. I would distinguish though between spot-buying and “maverick” buying. Spot buying is an structured process for buying materials from a supplier off contract. “Maverick” buying is the deliberate subverting of purchasing and supply chain processes, usually to achieve a local target while under-cutting wider targets. SO I do not believe “maverick” buying can be stopped, but I do believe it should be minimized and that there should be strong incentives (or simply an alignment of metrics) to achieve this.

When talking about the global supply chain single source aggregation can substantially increase the risk of supply interruption given global weather, shipping, geo-political and wild card conditions.

As an anecdotal point, how do you think manufacturers that aggregated their supply into Mexico are feeling about the risk in that decision right now?

Aggregation can be incredibly effective, but only in concert with contingency and/or multi source supply plans.

Here’s a question. Do you really believe “maverick” spending can be stopped in a manufacturing environment?

No 1 of Consequence

Nevertheless No1ofCnsqnc makes a valid point. My original reply to the article in Supply Chain Digest advocates for a bigger role for supply chain in the establishment of supply contracts in order to address more than the price and payment terms in the contract.