I recently chatted with Charles Dominick, who gave a talk at Corporate United's Synergy event in Chicago. He recently published a thoughtful post on his blog in late April that suggested Purchasing Magazine's demise can teach us something about insolvent suppliers. Charles opines, "evaluating Purchasing Magazine's demise made me realize that there are at least two different ways that companies (i.e., suppliers) approach their last days. The first is when they desperately scale back operations and lay off employees. And the second is when there's no warning at all."
Purchasing's demise was most certainly in the latter camp. As Charles writes, they "had really beefed up their online journalism, featuring lots of 'web only' content. They had launched, and then subsequently improved, their PurchasingBIZconnect social network. They had retained all of their highly talented editors. They introduced a number of bloggers. There was no external sign of to-the-bone cost cutting." All of this suggested a healthy business. Yet the parent company, Reed, opted to shut down Purchasing because they wanted to get out of this particular area of trade publications, along with over two dozen other titles.
Charles gives one opinion here: "Apparently, the publication was too small for the parent to bother with, so it just shut Purchasing down." This may or many not be true -- the fact that they opted not to sell it to interested buyers suggests that the title may have had some skeletons in the closet that could have unearthed during due diligence: making a rapid shutdown and list rental more appealing. But the more important question to ask, as Charles suggests, is: could such a situation happen to your suppliers? The answer: absolutely. Charles is right that in addition to financial stability, we must also consider factors such as industry dynamics in evaluating a supply base. "If you are using a supplier in an eroding industry, you need to be concerned," he suggests. I'm sure many companies who work with onshore integrated circuit and electronic component suppliers have faced a similar rapid change of events in the past twenty years when nearly all production rapidly moved offshore. The same example could be said for certain textile industries (e.g., shoes) as well.
Rapid industry change can suggest early signs of supply risk, but so can "the ownership structure of your suppliers." Here, Charles suggests examining corporate parentage. For example, if they're owned by a large parent company, are they large enough to be an important contributor to margin, revenue or growth, or are they just "a small, expendable component," as Purchasing turned out to be?
- Jason Busch