Are There “Zombies” in Your Supply Chain?
Here’s a new concern to add to your risk management agenda: the threat of the zombie supplier.
According to a post yesterday by James B. Kelleher, the recession has left the supply chain with possibly thousands of suppliers who don’t realize they are “dead.” As Kelleher describes it, these zombie suppliers were abruptly cut off by manufacturers months ago. Now, they are so undercapitalized and overleveraged that they won’t be able to raise the money they need to get their idle plants running again.
The problem for manufacturers is that they might not discover a supplier is in trouble like this until it’s too late. When demand for industrial products rebounds, manufacturers will be calling on their suppliers once again –and only then will they realize the “horror show” of dealing with a zombie.
“Until those companies have to produce something — and to secure raw materials, to make a part, to hire more workers — no one will know how weak their balance sheets and credit positions really are,” says Craig Giffi, the head of Deloitte’s U.S. consumer and industrial products practice, in the article.
What can you do to mitigate the threat of zombie suppliers?
It all boils down to how carefully you’re scrutinizing your supply chain. Right now, it’s worthwhile to devote special attention to your essential suppliers. Those may be suppliers that provide components that are vital to your operations, ones that offer a unique technology, or others that –because of their size, location, or some other factor –may be particularly sensitive to recent fluctuations in market conditions.
Be sure to investigate supplier financials from before the recession, as well. Even though we all know that past performance is not an absolute indicator of future success, a recent study by Experian shows that most businesses that were healthy before the economic downturn remain relatively good credit risks.
In short, building collaborative relationships with your suppliers can enhance value, lower costs… and significantly decrease the probability that you’ll unexpectedly encounter the walking dead in your supply chain.
