I found this
article from Supply Excellence this morning which indicated that according to Standard and Poors (S&P), the corporate bond default rate for January is at 4.96%, up 377% from last year! This is important because the default rate is a leading indicator of business bankruptcies. The news gets worse from there…according to S&P, the default rate is expected to rise to 13.9% by December, possibly as high as 18.5% if conditions are worse than expected. YIKES!!!
In a
previous post, I talked about the impact a supplier failure can have on a company’s delivery, revenue and margin. I don’t think that anyone wants to be in the position of explaining to your executive team and shareholders why, despite reasonable sales, you are posting a loss because of a supplier failure. If you haven’t done so already, now is the time to focus on supply chain risk management. I’ve covered these points many times in this blog and elsewhere, but it doesn’t hurt to go over it again;
- Assess your parts to determine which have single sources of supply.
- Assess your suppliers to identify which of these has the highest impact to your company’s revenues.
- Run a scenario to determine what the impact to revenue would be if your top supplier (in terms of revenue) were not available
- Take a hard look at the financials of your top suppliers to assess the risk of these suppliers going bankrupt. (this article provides an excellent data driven approach to supplier assessment)
- For those suppliers that have a high impact on revenue AND are at financial risk, bite the bullet now and find alternate sources of supply!
- Above all, make sure that your systems enable you to detect and respond to unanticipated supplier failures. No matter how good a job you do assessing supplier risk, it is not a perfect art. There is a very good chance that a supplier you thought was on a strong footing fails. You need to be able to react quickly to minimize the impact on your business.
What are you doing to protect your business from supplier failures? Are your business systems capable of helping you assess risk AND respond to unanticipated supply disruptions? Is this a concern for you? Comment on this post and let us know!
John Westerveld is a Product Manager for Kinaxis, provider of the on-demand RapidResponse service that empowers multi-enterprise manufacturers with collaborative and integrated demand-supply planning, monitoring, and response capabilities.
Hold on to your socks - the supply chain risk forecast just got worse!
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