Supplier Relationships - How Should I React to a Supplier Facing Financial Difficulties?

CIPS 22 April 2020

If a supplier is experiencing financial challenges or is at risk of going out of business, it is sensible to seek alternatives to secure your supply – but you should also consider the longer term benefits of helping suppliers deliver on their commitments. This could take several forms, such as payment in advance, upfront payment for raw materials, or agreeing new terms. Shorter payment periods may particularly help SMEs and independent suppliers secure necessary resources, while extended payment periods for larger or more robust organisations will give you more financial flexibility.

CIPS group CEO Malcolm Harrison says the key to resolving supplier problems is “regular and clear lines of communication” to maintain business continuity and keep supplies moving. When the Covid-19 crisis passes, supply chains built on stronger relationships will find it easier to scale up and adapt.

Although there are contractual obligations to bear in mind, one of the most important considerations is to jointly manage the relationships and to avoid exploiting capacity to place companies into a supply auction, or damage relationships that may later compromise your ability to recover.

Logistics & Supply Chain Strategy Professor at Cranfield School of Management, Richard Wilding, says: “Keeping these supply chains functioning is really important - everyone is going to need to be supportive. I think the only way we’re going to be able to get through it is to be collaborative.”

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