Still stinging from the recession, many suppliers remain
averse to risk. How can manufacturers get suppliers to
add capacity to help meet demand? By reducing the risks
and sharing the rewards. One major reason suppliers are
wary of adding capacity is because they bear the
majority of the risks—even more so during a
recession—while the rewards are skewed toward
manufacturers. In the absence of appropriate
risk-sharing mechanisms, suppliers have little incentive
to add capacity ahead of demand, especially if adding
capacity requires large capital expenditures. It is
imperative for manufacturers—especially those in
cyclical industries—to provide suppliers with incentives
to add capacity. The question is: how?
