Despite the recent recovery in global trading conditions, a significant risk from supplier failure still exists.

Despite the recent recovery in global trading conditions, a significant risk from supplier failure still exists. Indeed, the experience from past recessions is that the most dangerous time for widespread bankruptcies is in the first stages of recovery. Although credit availability may be a little better than it was a year ago, the financial security of many suppliers remains an open question. Buyers face the continuing risk of a supplier going under, maintaining the prospect of interruptions or failure in the supply of critical components and services. Even worse, if a supplier goes bust, who owns the part completed or fully completed goods? Retention of title clauses can make for complex situations that may become very messy.

If a supplier is vulnerable it is worth knowing about it in advance. That way an alternative supplier may be sought, or if the supplier is a single source for a vital component or service, action may be considered to help that supplier. Either way, predictive financial tools and up-to-date credit ratings on suppliers is the only way of reducing exposure to this very real risk. Despite the existence of many established and well known products, these have been developed largely for short term use by sellers and are neither accurate nor up to date. For buyers they are particularly inappropriate as buyers need to look during the lifetime of a project, supply contract or even a piece of machinery or IT programme which is often dependent upon continuing support, maintenance as well as the provision of expensive warranties.

However, gaining a clear view of your supplier base, with access to pertinent information that has been qualified, evaluated and monitored, need not be complex and stressful. Working in collaborative communities within industrial sectors, much of the work associated with updating information and monitoring suppliers can be undertaken by an independent, specialist third party for the betterment of the entire community. Furthermore, tools and processes for identifying and ranking supplier risk in the supply chain can be used to understand and manage the risks in a controlled way whilst giving access to more up to date and more specialist information..

Mitigating risk is all about understanding your supply chain. Companies that manage risk successfully will continue to reap the benefits; companies that mismanage it will expose themselves to a far greater chance of failure, or equally as bad, will become far less competitive as recent events in several industry sectors demonstrate.




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Colin Maund is CEO of supplier management service provider, Achilles Group.