SCDigest Editorial Staff

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The supplier should be a critical, strategic supplier, and truly need the financial assistance. What Do You Say? Click Here to Send Us Your Comments Click Here to See Reader Feedback

In these challenging times, a growing number of companies across industry sectors are concerned about the health of their suppliers.

A growing number of companies are looking at various financing options, ranging from loans, purchasing raw materials on behalf of suppliers, and shortening payment terms. (See If Suppliers are Struggling Financially, What Should Procurement Organizations Do?)

But in which suppliers should a company consider making such investments?

It goes without saying that the supplier should be a critical, strategic supplier, and truly need the financial assistance. But do procurement organizations have that analysis at the ready and updated as times and conditions change?

The graphic below is a simple matrix that can be used to segment suppliers based on their strategic level and current operational and financial health.

In normal times, the “Health of the Supplier” evaluation can refer not only to financial health, but also other attributes, such as reliability, process excellence, and quality. A critical supplier could have problems with these basic operational issues that make it “Unhealthy.”

(Sourcing and Procurement Article - Continued Below)

Now, however, the “Unhealthy” status is more likely to be related to the company’s financial position. Still, financial pressures can impact more than just a supplier’s viability; they often bleed over into operational shortfalls as well.

As shown in the chart, critical suppliers deemed as Unhealthy are candidates for investment, whether that is in a financial sense (most likely right now) or in other ways, such as providing expertise or other resources to help improve operational issues.

Conversely, Unhealthy but non-critical suppliers are strong candidates for ending the relationship, and certainly the development of ready contingency plans at the very least. Healthy suppliers that are either critical or not critical can fall into general Continuous Improvement relationships.

Do you use a supplier segmentation scheme such as that provided above? How can it be made more sophisticated? Are you making such investments in your supply base? Let us know your thoughts at the Feedback button below.