Surviving a breakup with your supplier
As the saying goes, we don’t always appreciate a relationship until it ends. This is just as true in life as it is in manufacturing—especially when it comes to manufacturer/supplier relationships.
While it's important to focus on establishing solid supplier relationships in the first place, you should also be prepared in case the relationship goes sour. If you and your supplier stop working together, do you know how to protect your business from the hit?
To help, we compiled some tips from an article by Bijan Dastmalchi, an Arena friend and co-founder of Symphony Consulting—a management consulting firm specializing in sourcing, procurement and supply chain management.
Three ways to prepare for the demise of a supplier relationship
#1: Classify your products based on their importance to your business
Understanding which products bring the most value to your business will help you determine how to best allocate your remaining resources and energy in the case of losing a supplier.
You can determine the importance of your products based on various attributes such as gross margin, revenue potential, position in the product lifecycle and your competitive position in the market. The key is to make sure that you have a basic understanding of your business at the product level before you start investigating suppliers and components.
#2: Identify complex, single-source components that would be difficult to re-source with other suppliers
Do you have any special technology components that are critical to product functionality and are also sourced by a single supplier? If so, any supply disruptions could lead to months of redesign and qualification activity, jeopardized shipments in the interim and unexpected costs.
By understanding where your risk lies and keeping an eye on the health of your hard-to-source parts, you can better prepare for an unexpected supplier shutdown. Arena’s recent article on reducing single source component risk provides proactive steps to get you started.
#3: Familiarize yourself with the financial health of your suppliers
To get a good sense of a supplier’s financial health, do some research into its plans going forward. What are your supplier's financial projections and how could that impact plant closures, cash and credit availability, and the headcount required to support your business? How much mindshare do you have as a customer?
If you want to conduct a thorough financial analysis with the numbers on your supplier’s balance sheet and income statement, you can request audited financial statements directly from your supplier. For publically traded suppliers, this information should be available online.
When it comes to maintaining healthy supplier relationships and preparing for their dissolutions, knowledge is power. Make sure to encourage clear and open lines of communication, and don’t be afraid to ask those hard questions.