Do You Have a Stable Supplier Base? Are You Sure About That?
Author: Anthony Joh

Among the victims of the Great Recession were thousands of suppliers to major manufacturers, large and small. In a lot of cases, buyers of raw materials and key components had little warning that their sources were about to dry up. Expert monitoring services would downgrade the rating of suppliers after they went bankrupt. Big help.

If only there existed a magic formula for determining whether a supplier is about to fail. Unfortunately, the world is too full of unpredictabilities for that ever to be the case. One thing's certain, though: a vendor's basic financial statement won't always tell you the whole truth. Not unless you're looking for a really good rear-view mirror.

Some kind of early-warning system for supplier stability is essential - now more than ever. When it comes to the solidity of the typical supplier base, retailers and original equipment manufacturers these days are skating along on thin ice. To cut costs, they've consolidated vendors down to the barest minimum - sometimes just one for a given component or region. That's a fine way to boost buying leverage, but it also raises the risk of a major supply-chain disruption in the event of natural or economic disaster. The kind of thing that seems to happen every other week.

Making matters worse are the stretched-out lead times caused by outsourcing to Asia and other locations far from end markets. Companies that crossed the ocean in search of cheap labor are discovering how much tougher it is to solder a snapped link in the chain.

So how can manufacturers do a better job of detecting future failures among their suppliers? Start by realizing the limitations of traditional financial data. "It's one of the easiest things to [examine] - and the one that lets everybody down the most," says Jon Bovit, chief marketing officer with CVM Solutions. And when you do request a supplier's financial statement, don't stop with one. The best practice, he says, is to demand three years' worth of financials and credit reports on a rolling basis.


The following article has been published by Supply Chain Brain on April 18, 2011
    Author - Robert J. Bowman

For the full article, please click on this link

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