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What Happens if Your Supplier Goes Bust?

Last updated February 5, 2013
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All businesses have suppliers but have you thought what the implications are for your business if your supplier lets you down or worse still goes out of business?

The earthquake and tsunami in Japan disrupted everything; car production, photographic & electronics parts and a host of other industries where manufacturers were unable to supply components or finished goods to the market. This situation didn’t resolve itself over night either.

Reviewing your suppliers should be a regular task on your risk register and factored into the risk management plan, but sadly it’s overlooked all too often. Perhaps considering what might go wrong might help you to determine what areas you need to focus on. Here are some areas to think about.

1. Your supplier has a product recall. 

This situation should be covered in your contract or the terms and conditions under which you do business together. But so often it’s forgotten. What is it going to cost you,

  • to contact your clients
  • to collect the goods and potentially return them to the supplier
  • perhaps to provide alternative products to your customers
  • if you have to give refunds upfront to your customers before the supplier reimburses you
  • how much of your time will be wasted, non-productive time
  • in terms of your reputation and possible lost trade and turnover?

2. A supplier’s premises, stock etc. are destroyed by fire.

  • Is there an alternative supplier available?
  • Do alternative suppliers have equivalent products?
  • Are the substituting components and materials used in the manufacture of your product of the exact same quality or do you need to make manufacturing adjustments?
  • Will you be extended the same credit terms from the new supplier as the old one? This may impact your cash flow.

3. The suppliers service level drops or prices escalate.

  • How might this affect your manufacturing operation if, for example, deliveries are consistently late?
  • What is the impact on your profit margin of increased costs?
  • Do you need to seek an alternative supplier?
  • How much increased time will be spent chasing the supplier?
  • Can you manage a business with such unpredictability?

4. Key staff member leaves your suppliers employment.

  • How reliant were you on the knowledge, expertise and experience of that key person? Can someone else fill that gap?
  • Should you jump ship too and go with your main contact?
  • Can you build new relationships that are just as beneficial?
  • Does this unsettle you as a customer – why did that person leave?

5. Taken over by new owner.

  • How will this change impact you – are you now a small fish in a big pond?
  • Will the new owner change your trading terms and conditions?
  • Will this change affect credit, trade discounts, product range etc. This might have an upside.

Whatever happens you need to be prepared just in case you have to cope with these changes, time to start planning, just in case….

Shirley Mansfield
Master Business Problem Solver

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