27 February 2009 | Andy Allen
Buyers are beginning to shift from low-cost country sourcing to UK suppliers in response to the economic crisis, a survey indicates.
In Ernst & Young's study, Opportunity in adversity, responding to the crisis, 46 per cent of the 337 companies surveyed said they had narrowed their supplier base to obtain better terms.
And 42 per cent had broadened their supplier base to cushion the impact of the possible failure of an individual supplier.
According to Steve Varley, head of advisory at Ernst & Young, both approaches tended to favour UK suppliers at the expense of overseas sourcing.
He said the past five years have been characterised by businesses adopting low-cost country sourcing strategies, but recently there has been a move back to purchasing from the domestic market. "One reason is currency - the pound doesn't buy that much abroad any more. The other is the supply chain risk of failure of delivery."
Varley said a company might supplement overseas vendors with domestic suppliers in one area, which would also help insure against disruptions in delivery. In other areas it might consolidate its supply base around one UK-based supplier at the expense of vendors in different countries, "to make sure that supplier has the best chance of surviving the recession".
Ernst & Young's survey also found that 31 per cent of suppliers had terminated contracts with "high risk" customers. In addition, some 19 per cent of respondents reported that customers had terminated contracts with them.
Over a quarter of firms said key suppliers were experiencing signs of financial distress.