Does Poor Supplier Performance Foreshadow Bankruptcy?

It is popular opinion to think that "the worst is behind us" with regard to the economic recession we've been in.

Do I agree? I'm not so sure.

I personally think that there is a risk - but not a certainty - of a "double-dip" recession. Why? Because there are a lot of companies that are hanging by the proverbial thread financially. Sure, a return to booming economic growth will take them off the edge but, if the economy ramps up more slowly than anticipated, these companies will not be able to make it.

Are some of these companies that are on the bubble (darn, I'm using a lot of cliches today) your suppliers? If so, don't get too comfortable that we're back to a healthy economy just yet.

A piece that Tim Minahan wrote for Supply Excellence a year ago is still as valuable today as it was then. In that post, Tim gives some tips for assessing the health of your supply base, writing "Look for early warning signs. Drops in quality or shipment delays can be indications that the supplier has cut too deep into its operations. More frequent requests for early payment or changes in sales and support personnel should also raise a red flag. While these symptoms may not necessarily belay supplier troubles, they should warrant further investigation."

So true. And I firmly believe that poor supplier performance does foreshadow bankruptcy.

Around the same time, Jason Busch at Spend Matters posted a "Supplier Bankruptcy Checklist" that also is still relevant today. One of the items in that checklist was "Aggressively monitor supplier performance (e.g., quality, on-time delivery, etc.). Performance related signals are often the most telling before a bankruptcy."

What got me thinking about this was the bankruptcy of a local moving company that bills itself as the official or preferred mover of the Pittsburgh Pirates, the Pittsburgh Steelers, and the Pittsburgh Penguins. You may remember from an earlier post of mine that I personally disqualified this mover from my own personal moving supplier selection because of publicly known performance issues in the form of bad reviews on the Internet and a whopping 41 complaints against them filed with the Better Business Bureau (actually, in the one month between my original post and this one, that company had seven more compliants filed).

Performance decline was definitely a leading indicator of this company's impending bankruptcy. Performance declines can be the procurement professional's best friend because they can alert you to a situation before it becomes a crisis so that you have time to address it and maintain continuity of supply.

Are your suppliers making you believe that a crisis is imminent?

To Your Career,
Charles Dominick, SPSM
President & Chief Procurement Officer
Next Level Purchasing, Inc.
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