Womble Carlyle Supply Chain Management Blog

Following legal issues related to supply chain management.

Wednesday, September 9, 2009

Supply, Demand and Finance - Managing Supply Chains in Uncertain Times

Supply chain management originated as means of fostering growth by making businesses leaner, more efficient and more responsive. But in the ongoing economic downturn, the old adage of “A chain is only as strong as its weakest link” has proven to be true about supply chains as well.

For many businesses, the difficulties are manifesting themselves at the end of the chain, as customer orders plummet. But economic problems at the front end of the supply chain also have created difficulties—for example, Best Buy recently noted that they could have sold more electronics in the first quarter, but suppliers were unable to provide the goods. Companies in the middle of the chain find themselves getting pinched at both ends.

As a result, risk assessment and risk management now must extend beyond a company’s own boundaries to include suppliers, distributors, creditors, customers and other business partners. Contributing editor Russ Banham addresses these risks, and how to address them, in an excellent article in CFO Magazine.

Banham found that companies now must perform much more intensive due diligence on assessing the financial security of their suppliers. Some businesses, such as Corning, are using the same methods that they previously have used to scrutinize customers to vet suppliers.

“We also talk to the suppliers’ suppliers,” Michael Kramer, CEO of Kellwood Co., is quoted as saying in the article. “We'll ask them flat out, ‘Are you getting paid?’ If they're not, it could be an indication that their customer — our supplier — has financial problems.”

Some companies are turning to outside consultants, such as the Insight Sourcing Group, for help in consolidating their vendor base, rationalizing SKUs and otherwise keeping their supply chains lean and functional. Insight is compensated based on the savings they generate for their clients, and they have a track record of success in reducing costs and improving EBITDA (earnings before interest, taxes, depreciation, and amortization).

- Jackie Camp