3. How much risk is acceptable? Vendor mix, extent
of contractual coverage, regional spread of supply
sources, and availability of scarce materials all contribute
to the company’s supply risk profile. A company
can often take action to lessen unacceptable
risk. For example, a company that meets annual
materials requirements exclusively through longterm
contracts may achieve substantial savings
through the use of “evergreen” contracts (annual
agreements) that include a rollover option. Conversely,
a manufacturer that relies solely on spot purchases
may do well to mix spot purchases and supply contracts.