Supply Risk: Digging Deeper Into the Bankruptcy Numbers

Over on Supply Excellence, Tim Minahan recently posted some numbers that paint a rather brutish picture of the rising bankruptcy tide in North America. According to Tim's analysis using data from the American Bankruptcy Institute, "18,456 U.S. businesses filed for bankruptcy during the first half of 2008. That's a 42% increase over the same period last year." But the news gets worse. According to Tim, "if you consider that economists last week (finally) acknowledged that the U.S. has been in a recession for more than a year, ABI's records shows a whopping 106% increase in bankruptcy filings since this latest "R-word" era began." And that's only the start. I suspect the Q4 and Q1 numbers will look much worse.

What should companies do about mitigating the damage of potential supplier bankruptcies? Tim's course of action is a good prescription though by no means a cure-all (unfortunately, nothing is). Tim suggests carrying out detailed audits (financial, operational, balance of trade, etc.) of your best suppliers as well as looking for early warning signs of trouble. He also recommends increasing the "frequency of supplier performance reviews" and "automating your supplier management process". To this list I'd also layer a few ideas on top such as making supply risk a business issue -- not just a procurement one. Enlist the support (and budget) of internal audit, operations and the business units to join the firefight to battle the risk insurgency as it gains steam. And above all, don't discount the value of both internal and external information in the process.

- Jason Busch

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