Supplier Credit is Drying Up — Get Ready for Performance and Quality Problems

Over the past couple of months on Spend Matters, I've been preaching about the need to take a closer look at the impact of the credit crisis on your suppliers (and for consultants, your customers). Without question, many suppliers are increasingly feeling the double whammy of declining orders and shrinking or vanishing credit lines. A recent Bloomberg Story backs this up. According to the article, "For commercial loans, banks were reducing credit lines, increasing interest rates, requiring more collateral and lending for shorter terms." And good luck finding a bank that is not following this course: "record percentages of banks surveyed by the Fed said they had tightened credit standards for business loans … A record 85% of banks said they had tightened standards for commercial and industrial loans to large or midsize companies, up from 60% in the previous survey."

When credit disappears, your suppliers will cut corner to stay in business. They'll also often fail to tell their customers what's going on. This puts the onus on procurement and operations groups to closely monitor the health of suppliers. And no longer will a yearly or quarterly risk review cut it. So take action: start by continuously monitoring your supplier's health by looking closely at week-to-week performance data. Understand their banking relationships. And take action as soon as you know something does not appear right. Otherwise, it might be too late to avoid a significant drop in quality, supply disruptions or an outright bankruptcy.

- Jason Busch

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