Identifying and managing suppliers in peril

[Randy Littleson]

IndustryWeek has just published an article entitled “10 warnings signs of a supplier in peril“ that provides a list of warning signs to look for that indicate that your supplier may be in trouble (or at least that your relationship with that supplier could be at risk – see item 5).

1. The supplier has a large part of its businesses in depressed industries.
2. It has raw material shortages or cannot meet the agreed lead times because of late purchase order placements.
3. It has heavily cut investments in R&D, IT, equipment or resources.
4. The quality of supply is deteriorating.
5. The supplier has entered into significant contracts with new customers.
6. Staff is being laid off, with your salesperson nowhere to be found.
7. Additional discounts are offered for early payment or require cash in advance.
8. The supplier is restating earnings and outlooks.
9. It has high-labour content that requires a large weekly payroll.
10. The supplier has absorbed heavy, upfront R&D and manufacturing tooling investments on new products that are delayed — therefore extending the time to break even

These are all excellent pointers that, if followed, can increase the odds that you can respond BEFORE your supplier fails.


Of course, any supply chain risk management strategy must have a broader focus than this.

• You need to assess your purchased components, determining what end item parts they go into and the revenue for those parts
• Identify those components, and the suppliers of those components that are key to you revenue streams
• Then, you need to develop a mitigation approach should the supplier for those parts not be available, starting with the component or supplier that contributes most to revenue
• Finally, you need to ensure that the organization as a unit has the processes and tools to respond to a supply chain event that wasn’t anticipated. Because no matter how good a job you do identifying risks or creating mitigation strategies, there will likely be an event, large or small, that you didn’t think about, or where the mitigation strategy didn’t work. Those companies that can respond quickly will come out relatively unscathed.

What warning signs do you look for?

John Westerveld is a Product Manager for Kinaxis, provider of the on-demand RapidResponse service that empowers multi-enterprise manufacturers with the collaborative and integrated demand-supply planning, monitoring, and response capabilities.