10 Warning Signs of a Supplier in Peril

During this unique economic climate, relationships should be a truly collaborative process, with the supplier communicating well in advance of any anticipated failure or disruption.

Closely monitoring the financial health of suppliers has become an important part of the job for anyone involved in a company's sourcing efforts. During this unique economic climate, relationships should be a truly collaborative process, with the supplier communicating well in advance of any anticipated failure or disruption. Unfortunately, according to AMR Research, such ideal circumstances don't always occur.

Instead, the firm says companies (especially those that frequently buy from smaller, and potentially more vulnerable organizations) should be on the lookout for symptoms that a supplier might be unable to weather the current financial storm. AMR suggests keeping an eye out for the following 10 warning signs:

  1. The supplier has a large part of its businesses in depressed industries.
  2. It has raw material shortages or cannot meet the agreed lead times because of late purchase order placements.
  3. It has heavily cut investments in R&D, IT, equipment or resources.
  4. The quality of supply is deteriorating.
  5. The supplier has entered into significant contracts with new customers.
  6. Staff is being laid off, with your salesperson nowhere to be found.
  7. Additional discounts are offered for early payment or require cash in advance.
  8. The supplier is restating earnings and outlooks.
  9. It has high-labor content that requires a large weekly payroll.
  10. The supplier has absorbed heavy, upfront R&D and manufacturing tooling investments on new products that are delayed -- therefore extending the time to break even.

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