Even the FT Calls Attention to Supply Risk

Even the Financial Times, a paper I've always found to be more markets than company/industry driven -- perhaps not as much as Investors Business Daily -- than the Wall Street Journal is beginning to cover the formally esoteric topic of supply risk. A recent article opines that companies should not treat their supplier as a bank. Even though, "In a recession, cash is king and suppliers can become unwilling providers of immediate free credit ... [the] failure to maintain fair payment policies can lead to loss of strategic suppliers or disrupt long term partnerships". The piece sites recent research from the Corporate Responsibility Index and the Economist Intelligence unit to make its case. The latter "cites failure of suppliers' businesses as the number one concern of manufacturers (63 per cent), ahead of lack of access to capital (56 per cent) and energy and material cost volatility (55 per cent)".

The FT also refers to a recent Accenture study of CPOs that found that "more than 70 per cent are monitoring the financial stability of their suppliers more closely". Incidentally, and not to pick on Accenture, why do they put out such excellent research yet I've personally not been able to find a former client -- at least in the manufacturing world -- who has worked with them in direct materials sourcing that has anything good to say about implementable results (they’re 0 for 3 in this regard in my recent research)? Alas, I digress, but it's an interesting point nonetheless. On a more important and germane note, the article cites the case of companies that are working to reduce supply risk and some of the techniques they're pursuing.

Take, for example, the case of "VT Group" who has identified at-risk defense industry suppliers and "helped by shortening payment terms" and committing to "longer-term orders that suppliers could take to their banks". In addition, VT is providing "business processes" as part of its effort in "keeping critical suppliers buoyant and building a reputation for effective partnering that will pay off in the long term". Another company the FT sites is "rationalizing [its] supply chains and establishing robust relationships, seeking new sources of supplies, walking away from some businesses while embracing others, and viewing operational slowdowns as opportunities to eliminate inefficiencies from their processes".

All in all, the article is chock full of useful advice on supply risk. Moreover, it's good to see a paper that I typically enjoy and refer to for capital markets advice tackling such an operational subject, providing a more useful survey on supply risk coping and mitigation tactics than most of the trade publications in the sector. Now, all we can hope is that CEOs and CFOs will read it!

Jason Busch

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