Risk – which suppliers should procurement be focusing on?

It is a well-known fact that more companies go out of business as we come out of recession than when we're in it. Things pick up, they over-stretch, thinking good times are back, and suddenly the cash has all gone.

So what happens, having come out of recession, if we then go back (or at least turn down again significantly) - the dreaded double-dip that Jason and I have written about recently?

I suspect that could be the nightmare scenario, with firms looking to expand then hit by the second downturn.  So procurement needs to be keeping a very close eye on critical suppliers,perhaps even more so than a year or two ago.  In addition (this is particularly true in the UK but does apply more widely), keep critical suppliers for whom the public sector is a major market under close watch. There is no doubt that the spending reductions are biting in the UK; I've talked to small / medium sized firms in consulting, IT and other industries who have seen orders reducing, sometimes dramatically, over the last few weeks.

Now I don't think it is firms like Serco and Balfour Beatty that are the worry.  Existing contracts are pretty secure and any pressure on margins will take time to work through, so firms with long-term commitments should be OK.   But any firm that relies on relatively short term contracts and / or doesn't have a substantial pipeline of business may be vulnerable.  A friend of mine - a Partner at a mid-sized, strongly public sector focused consulting firm - has taken her entire team off to work in the Middle East for 6 months because UK public sector work had just dried up.  (And well done to her and the firm for finding the business there).

So it is worth looking at your high criticality suppliers in that light and see if any are likely to be affected; as well as continuing or increasing your usual supplier risk management precautions.

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