27 February 2009 | Jake Kanter
Buyers must look out for early warning signs if they are to mitigate the risk of suppliers going out of business.
Speaking at a CIPS Central London branch event last month, two senior consultants from PricewaterhouseCoopers (PwC) warned purchasers to look out for common financial and operational indicators that a vendor is struggling.
Kalee Talvitie-Brown, a director at PwC, said typical signs include a breakdown in communication, falling share prices and senior managers leaving.
"You need to make your information as up to date as possible," she said. "Share price is a good example because it shows what the confidence in a company is like.
"Look at operational indicators too, if a contracting firm is not paying its labour force in time, that's a big indicator of its financial health."
She added that when a supplier stops communicating, or refuses to acknowledge financial concerns, buyers must recognise this quickly and react.
Assessing how vulnerable a vendor is can determine different types of action, Talvitie-Brown explained.
She said speeding up payments is a popular solution, or in more serious cases, if a supplier is forced into insolvency, purchasers must have a back up that enables them to switch supply quickly.
David Padwick, who leads the public sector procurement team at PwC, said buyers need to communicate with suppliers confidently to help them understand exactly what is needed.
He added there is a "clear correlation" between a well run supply chain and the financial and commercial success of a business.
"Managing supplier risk matters more now than ever. If the supply chain fails, organisations can't achieve what they want to, which makes this a top table issue, and it is potentially one way you can knock on the door and emphasise the value of procurement."