Suppliers in trouble: know the signs and what to do

10 May 2009
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11 May 2009

Buyers must use all the powers at their disposal when assessing the danger of suppliers' bankruptcy and deciding what to do if a vendor goes under, delegates at the ISM conference heard.

These include tightening up existing contracts, closer vendor management and "knowing the signs", according to Kenneth Black, director of global sourcing strategy at US cleaning products giant Clorox.

He advised close attention to vendors' financial standing, and suggested checking with suppliers' lenders to gauge credit. He said that although "you should be aware of a vendor's financial stability when the contract was awarded, quarterly financial reviews and cost modelling to understand the supplier's margins" will also give you a better view of its situation.

He also stressed the importance of "knowing the signs" that a supplier is in trouble - a reduced willingness to invest, quality problems, reduced delivery accuracy, delayed payments, higher employee turnover and outdated facilities.

And he said in extreme circumstances: "If a supplier is vital you could also buy raw materials for them, especially if they are having credit problems, share your expertise with them or even make a loan." Contracts could also include "supply assurance guarantees that ensure your [consignments] are the last ones to be cut off if the company is in trouble".

And, should the worst happen and the supplier go out of business, inclusion of a "joint development agreement" will ensure you have access to the intellectual property you have invested in so that "when the supplier goes bankrupt the IP doesn't go with it".

SMmay2009

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