Recession, Credit
Crunch Make Supplier
Viability Top Risk
for Supply Chains
BY JEAN V. MURPHY
As the continuing economic recession and global credit crunch threaten many suppliers,
buyers are responding with increased supplier monitoring and risk management activities.
nyone reading the headlines in
the past couple of years knows
that globalization and outsourcing have led to greater supply
chain risk, particularly in the
areas of product quality and brand reputation. Those concerns remain, but they currently are taking a back seat to worries
brought on by the recession about supplier
financial health and viability.
“Supplier volatility driven by the recession certainly has introduced more risk and
we are seeing that manifested in supply disruptions and more suppliers disappearing
through bankruptcies,” says Jeff Miller,
industry group executive at CSC, a consulting, systems integration and outsourcing
firm in Falls Church, Va. “In many cases it
has been a double whammy for manufacturers. Not only are markets for their products weaker, but disruptions in the supply
lines upstream have caused them to have to
do things differently, incurring more costs.”
This impact is amplified because of the
A
lean supply chain strategies adopted by businesses in recent years, says Jim Lawton, senior vice president for supply management
solutions at D&B, Short Hills, N.J. “Today any
disruption on the supply side almost immediately propagates its way through the revenue
and planning side. When something bad
happens, there is little inventory buffer and
little time to recover.”
On the supplier side, the credit crunch is
deepening cash-flow problems, says Lawton.
Troubled U.S. suppliers that would normally
go into Chapter 11 bankruptcy and have a
methodical reorganization while continuing
to operate are increasingly being forced into
Chapter 7 proceedings, he says. “This immediately puts them in liquidation, which
means buyers have no access to parts they
were manufacturing. Suppliers in this category are increasing dramatically.”
The tight credit market “is the primary
risk right now,” in low-cost countries as
well, says Nathan Pieri, vice president of
marketing at Management Dynamics, a
global trade management company based
in East Rutherford, N.J. “A lot of companies
are doing business with undercapitalized
suppliers in emerging markets,” he says.
Another factor is the depth of this recession, adds Lawson. “Recessions normally
knock out the weak, but this one has been so
deep that many historically well performing
companies that usually are not threatened by
economic downturns are getting into risky
situations. So we not only have companies
near the edge getting pushed over, but many
others in difficult situations as well.”
The supplier risk exposure faced by Fortune 500 companies was highlighted in a
recent study by CVM Solutions, a provider of
supply management software and services
based in Oakbrook Terrace, Ill. These companies are doing business with a surprisingly
small number of common suppliers, according to CVM’s research, which drew on the
company’s large Master Supplier Database.
Through analysis of this data, which includes
customer/supplier spend levels, CVM identi-
