Hidden risk in supply chains: Analytical study finds no link between expenditures and supply-chain risk
A new study by CEE Professor David Simchi-Levi helps explain why risk in a complex supply-chain network often remains hidden. There’s no correlation between the total amount a manufacturer spends with a supplier and the profit loss it would incur if that supply were suddenly interrupted. This counterintuitive finding defies a basic business tenet that equates the greatest supply-chain risk with suppliers of highest annual expenditure. When applied to Ford Motor Company’s supply chain, the quantitative analysis shows that the supply firms whose disruption would inflict the greatest blow to Ford’s profits are those that provide the manufacturer with relatively low-cost components. Read a news release.