Following legal issues related to supply chain management.

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Tuesday, October 7, 2008

Supply Chain Management and the Financial Crisis

We all know that the Emergency Economic Stabilization Act of 2008 (“EESA”) was signed into law last week. But none of us really know what effect it may have on the ongoing financial crisis, declining economy and credit crunch -- or when. It does seem safe to predict that the economic outlook and credit markets may remain bleak for some time now and that businesses would be wise to plan accordingly. Consumer spending for the just-concluded third quarter is expected to decline - the first quarterly decline in two decades, banks aren't lending, borrowers can't get credit and inflation seems likely to trend up.

In periods of economic uncertainty, supply chains are guaranteed to be stretched and disrupted and supply chain management becomes even more important. Many businesses will feel the impact on both ends. Buyers and consumers, who lack access to credit and have reduced spending in reaction to the soured economy, will be cutting back on, if not eliminating, discretionary purchases and flocking to lower cost alternatives where available. Buyers will likely stretch out payments, so that suppliers become their de facto credit source. Monitoring accounts receivable, assessing the credit risk of buyers and requiring credit support where appropriate will be key.

Likewise, businesses likely will experience difficulties with their suppliers. Suppliers unable to finance working capital will feel the impact on production and may find themselves delayed in meeting or unable to meet their buyers' needs. Businesses should plan ahead, if they have not already, and explore alternative sources of supply and ways to accommodate delays. Inventory management and warehousing may need to be reassessed. Businesses may wish to "grow" their inventory in indispensable items or items with single sources of supply. Product design may even need to be reassessed.

In short, businesses need to anticipate not only problems arising from their own difficulty in obtaining credit and operating in an economic downturn, but the difficulties that these conditions impose on their suppliers and buyers. For any business that has not mapped its supply chain, now is the time to do so. Identification of strategic suppliers, whether of design, labor or material, will be key, as will maintaining strong collaborative relationships up and down the supply chain.

-- Jackie Camp


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