Your key supplier is struggling financially. How will you secure your raw material deliveries?

During initial supplier assessment there is a pillar of financial assessment too. There are three financial indexes which are noted and which triggers the financial health of the company. Before giving business to supplier this should be taken into account. If this situation is bypassed, ask for a action plan to improve in another 1 year, parallelly go for a secondary source as well.

Two ways we can solve this … 1. Immediate action , can be supported via reducing the payment days . 2. We can offer payment immediately via 1% discount method. 3. If Both the above option not suitable we can offer advance to procure the RM 4. Check the organisation financial outlook is it’s environmental factor or it’s real problem. If it’s due to temporary factor , we will support our supplier partner, like we did during Covid period. If it’s real financial mismanagement then we need to find the alternative simultaneously protecting the supply via above already explained ways.

My understanding is you must try to get new supplier as soon as possible, but make sure you keep on touch with the supplier who struggles financial once they are back you buy half stock and half stock of the current supplier as you don't know what will happen in future. In other you mitigate the risk by having two suppliers for same product.

Communication plays pivotal role while dealing with financial troubled suppliers. It establishes the he dialogues platform which is very important and mandatory to keep the thread intact. Considering the situation to be on critical path, transparency and trust should be on top of the agenda. Nature of hand holding and collaboration in such cases will be dependant on number of factors whether short term or long term partnership is to be forged.

Why is it necessary to communicate openly only in the case of problems? Open communicating with both suppliers and customers should be a standard practice. If you cooperate well, you will be more aware of potential problems in advance than other customers.

We can proactively engage in discussion with suppliers to understand their challenges, this will allow both parties to explore potential solutions before disruptions occur. Maintaining transparency about own business needs and concerns and establishing mutual trust can encourage suppliers to be equally transparent, making it easier to collaborate on finding a way forward. We can also discuss possible ways to support our supplier, such as renegotiating payment terms, providing financial support, or offering to prepay for orders.

It is important that both parties are open to communication and transparency. As a customer, it is important that the supplier is open about their struggles especially when it will impact the operations of their client for business continuity planning.

Communication must be relevant, effective, timely and in full disclosure to ensure informed decisions in the relationship with the financially distressed key supplier of raw material. Building trust through commitment to operational growth of both supplier and buying entity will facilitate communication of operational challenges with the view to mitigate the effects on the operations of both entities. Supplier may be reluctant to communicate details of operational challenges because of fear of losing business. However, a study of supplier's published statements of accounts will communicate trends and true state of the supplier's performance.

One of the best and low hanging fruit is to diversify sources if you are facing this kind of scenario which poses threat to your business targets. This calls for strategy formation involving CFT of all concerned stakeholders and having review ok defined frequency. We need to take utmost care in thorough validation of the sources being onboarded so as to ensure right process adoption and no bypassing.

Diversifying sources and maintaining open communication are keys to stable business and supply. The only question is about the level of diversification - all businesses must define themselves.

It’s recommended to develop and keep alternative sources around the globe especially for critical and bottleneck items to ensure continuous supply.

The proverbial "you do not put your eggs in one basket" is very relevant in this case of raw material supply disruption due to key supplier's challenges. Being key supplier implies the raw material is strategic to operations hence you do not depend on a single supplier although consolidation of demand on a one supplier will lead to trade discount and development of relevant skill and knowledge spillover. However, any disruption to supply of raw material has the potential to affect operations and profitability of the buying entity. Hence the order for raw material must be placed at more than one supplier without compromising quality and time to market.

Always explore more ways to put your eggs into many buckets: a principle in investment worth to exercise in supply chain. Here we mitigate and distribute the risk of supply lacks and at the same time increasing the odds for value addition related to suppliers scope and supply. Always aim at win win solutions for sustainable suppliers relation management, wish to emerge in victorius partnerships. However, be wise always in selecting whom to collaborate with in this endeavor.

Do this short term then source new raw material suppliers. Work with existing supplier to determine a proper course to follow.

Managing purchasing is a daily task for good purchasing managers. Not only react to lack of a stock or supply problems. It may be also good to implement S&OP procedure for stock planning. Taking lead times into account and adjusting purchasing behavior accordingly is necessary, because purchasing for 1 month considerably differ from purchasing for 6 months.

The concept of "Stock Holding" is driven by mitigation of the effects of "Stock Out" on profitability. In the case of the financially distressed key supplier of raw material, the buying entity must have optimal stock level of the raw material to ensure uninterrupted operations over a reasonable period. This optimal stock level of the raw material must be influenced by service level, lead time, total cost of ownership and perishability and/ obsolescence.

A "key supplier" can have a major impact to the business. Evaluate risks and come up with a short term and long term strategy. short term would be to secure supply to maintain supply continuity . long term would be to review alternate sources and the strategy to qualify the sources. More of a strategic role would be to ensure a risk assessment and mitigation is done for these key suppliers

The contractual clauses can safeguard the interests of both stakeholders. One of the best solution is to allow the supplier the partial delivery partial paymeny. 2ndly supplier can be offered advance payment against delivery.

Expect supplier to diversify their customers as well and cost optimisation model. Define contract terms to mitigate any financial reliability risk supplier may have on customers along side assess wherever possible can upfront payment to complete any pipeline project and services to mitigate any business continuity impact.

Expect supplier to diversify their customers as well and cost optimisation model. Define contract terms to mitigate any financial reliability risk supplier may have on customers along side assess wherever possible can upfront payment to complete any pipeline project and services to mitigate any business continuity impact.