Evaluating Holdup Risks in Supplier Relationships PPT

This PPT slide, part of the 23-slide Make-or-Buy Decision Analysis PowerPoint presentation, focuses on "Holdup Risks," which arise when a supplier may take advantage of a customer's dependency on their services or products. It emphasizes the importance of evaluating various outsourcing options before entering into contracts. The structure presents 4 distinct strategies, each with associated advantages and disadvantages.

The first option is to control production through direct ownership or joint ventures. This approach offers the highest level of operational control, but comes with significant capital requirements and management efforts. The second option involves having multiple suppliers for each product or service, which provides potential backup and fosters competition. However, this can lead to higher costs due to redundant operations and may require more management coordination.

The third option suggests selecting a single supplier, but splitting the overall volume among multiple suppliers to stimulate competition. While this requires no capital investment, it may lead to challenges in maintaining economies of scale and necessitates careful management to ensure quality consistency. The final option proposes creating incentives for all parties involved, fostering a truly strategic partnership. This can keep costs low, but may also lead to a close-to-exclusive relationship, which could limit alternatives in the future.

Overall, the slide highlights that while outsourcing can present risks, these can be mitigated through careful selection of strategies. Understanding the trade-offs associated with each option is crucial for making informed decisions about supplier relationships.

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Make or Buy Decision Analysis Joint Venture Production