While the economic recovery will pick up, many companies will keep cash flow considerations as a the top driver for planning. The impact of this strategy on:
- inventory levels: anorexic
- supplier stability: more failures
- contract length: smaller values and more frequent
- commodity pricing: dramatic and frequent swings
will all weigh heavily on the supply chain.
These efforts to avoid risk may in fact actually increase uncertainty and instability. Leaders will take a different path: moving beyond "price" myopia when it comes to sourcing and embracing a more flexible, granular and collaborative approach to working with suppliers. An advanced level of sophistication and "high-definition" sourcing will be the hallmarks of those organizations that ride out the volatility to emerge stronger by all measures.
In addition to evaluating non-price factors, leaders will develop the ability to analyze a multitude of scenarios that measure risk in hard dollars and then work with suppliers to create and execute strategies that mitigate exposure.
Communication, collaboration and visibility between supply chain partners will be the major themes that enable successful navigation of what promises to be a challenging 12 months. Those organizations that work at providing suppliers a better level of predictability through these themes will find suppliers much better positioned to support the customer. Critical to this will be a new model for contracting: flexibility in contracts to the point of accommodating conditional scenarios where different terms are built in to respond evolving market conditions will create supply networks that are nimble and limber enough to ensure continuity of supply -- regardless of what the economy brings.
Click below for the video which describes the impact that risk aversion will have on the business landscape in 2011 and how companies can best prepare.