In my thirty plus years in Strategic Supply Chain, I have come to appreciate the constant evolution of our business. I'd like to share with you today my insights on three important questions.

1. What are the primary risks in Supply Chains?

You have to go back to the basic 3 components of any purchase transaction, those being

• Service
• Quality
• Cost

Like a 3 legged stool, you won't be successful without all 3. Service can be broken down further into delivery, technology, ease of doing business and certainly a few more specific categories. Quality is first, because in today's world of certified suppliers, and no incoming inspection, the next person to find poor quality is likely to be the consumer, which according to the old rule of thumb, costs 10X more at each transactional level, than if it had been caught at the previous level. With Supply Chains now extending halfway around the world, there would likely be 60 to 90 day's supply of material in the chain, and if determined to be defective, recovery time could present a business ending injury. And then there is the impact to cost, which should always be viewed as the total cost of ownership, not just the purchase price.

2. Is the negotiation process a win-win process?

It should be. Unfortunately business has moved to a more transactional approach in the last few decades, with intense global price competition, and new tools such as E-commerce and reverse auctions for major component purchases. It is difficult to quantify some of the more subjective elements that contribute to total cost of ownership, like access to emerging technologies, the ability to innovate, the availability of application engineering and other technical support. These factors may be overlooked, or not properly accounted for in a purchasing transaction as well as a reverse bidding situation.

3. Is "reshoring" of suppliers a reality?

"Reshoring" would seem inevitable given the rising cost of transportation driven by energy costs. Additionally, the rising standard of living in the current Low Cost Countries, as well as the falling standard of living in the USA (as much as I hate to say it), will continue to reduce the attractiveness of offshore alternatives. Certainly it will be quite a while before the living standards equalize, if they ever go that far, but as the exporting countries costs rise by 10%, the USA only has to fall by 10% to make a 20% overall advantage disappear. We have to question whether the manufacturing infrastructure will be available to accept the "reshored" business volume, and/or will there be a favorable enough regulatory environment in the USA to encourage the necessary entrepreneurial activity?

Editors Note: CR4 would like to thank Gordon Roberts of GEA Consulting, for contributing this blog entry.