Keeping suppliers close is increasingly important, say specialists
Mar 16 2009 by Alun Thorne, Birmingham Post
Keeping suppliers close and exploring new ways of working together is increasingly vital and could help to limit the rising number of business failures, but using the recession as an opportunity to haggle with suppliers to reduce costs is unlikely to be in the long-term interests of the business.
As news of business failures continues to hit the headlines, assurance specialists at PricewaterhouseCoopers LLP’s Midlands office are urging local companies to take a closer look at their supply chains to ensure that a simple break in supply isn’t enough to put the business at risk.
Paul Norbury, assurance director in the Midlands, said: “When assessing business stability, we often come across situations where managers have not considered what could happen if a key supplier ceased trading.
“Businesses need to consider the entire supply chain – to ensure they know who their most important suppliers are and have access to some suitable alternatives, which can be brought on line if necessary.
“In particular, businesses need to consider how long it could take them to turn off one supplier and switch to another. For example, while working with a local business recently we discovered that it could take as long as 15 weeks to switch supplier. This knowledge allowed the business to make changes that would protect customers from any potential breaks in supply.”
According to assurance specialists, the economic downturn presents an opportunity for businesses in the region to strengthen supplier relationships and renegotiate the way they do business together to ensure maximum flexibility.
Mr Norbury added: “This definitely isn’t a good time to alienate suppliers by haggling costs down. On the contrary, the recession is an opportunity to get closer to key suppliers and to discuss ways to improve systems that will deliver improvements to customers.”
Improving supply chain knowledge can also bring benefits in other ways. For example, as cashflow issues come to the fore, it is increasingly important for businesses to be able to measure how long it takes for the average debtor to pay what they owe and for the business to pay its creditors.
“By measuring average debtor and creditor days accurately, businesses will be in a position to manage their cash-flow more effectively. As a general rule, companies should be aiming to ensure that they have no more than 20 per cent of debtors outstanding if they offer 30- day credit terms and no more than 10 per cent of debts outstanding if they offer 60-day credit terms,” he said.
“Making relatively minor changes to the way that debts are managed can significantly improve cashflow in some instances.”
