How to manage suppliers in difficulty?

Why do we need to assess suppliers?

It has always been important for people in our profession to be aware of the financial health and trading position of suppliers. With the increasingly challenging and uncertain conditions currently faced by many organisations, it is more important than ever that we are close to our suppliers and spot any signs of suppliers in difficulty.

If a critical supplier, one whose products or services are essential to the continuing operation of our own organisation, goes out of business with no apparent warning, what are we going to do?

It’s better to be in a position of having identified the supplier’s problems early on and having agreed a course of action before suppliers are in difficulty.

What types of risk do we need to assess suppliers for?

When managing risk for your organisation, it is important to consider all the risks that a supplier may pose to your organisation; these are some areas to consider:

• Financial
• Reputational
• Cyber security
• Modern slavery/ethics/CSR
• Environmental impact

• Health and safety/legal compliance
• Supplier/category/country risk
• GDPR (General Data Protection Regulation) compliance
• Supplier/workforce diversity/equality/HR
• Accreditations/ISO standards

How do we manage suppliers in difficulty?

There is a lot you can pick up from “day to day” dealings with a supplier. One of the most effective ways of assessing a supplier’s position is through regular visits to their premises. These visits should increase in frequency if some suppliers are in difficulty.

In addition to this, you can undertake a risk analysis in the form of a supplier questionnaire. It’s important that these questionnaires are not always done remotely and merely as a ‘tick box exercise.’ If you can audit critical suppliers on their premises, you may become aware of some unseen challenges that may not present themselves from conducting an assessment from a desk.

What are the signs to identify a supplier in difficulty?

Businesses rarely fail without some outward signs of suppliers in difficulty. However, some suppliers will attempt to reduce outward signs of any difficulty to maintain an air of normality. They often do this in the hope of not setting off ‘alarm bells’ with customers, suppliers and staff, who may decide to abandon ship if they believe the business to be in trouble.

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