Companies are drastically tightening their belts, driving down costs, reshaping business strategies and seeking alternative ways to improve liquidity in the current crisis.
This has led to increased pressure to squeeze all aspects of the supply chain as organisations call into question the creditworthiness of their customers and try to protect themselves from a supplier going bust.
In a recent report by the Economist Intelligence Unit for Ernst & Young, views were canvassed of almost 350 board members of international corporates, half with a turnover in excess of $10bn, on the current market. Most said that even some of their most important customers were in financial distress and delaying payments, while a third confessed they had ceased trading with customers perceived as high risk.
While reducing the supplier base has immediate appeal in terms of decrease in costs and complexity, it carries risks: 9% of respondents reported the loss of a key supplier.
For senior executives charged with managing the supply chain, this demands a deep and possibly renewed understanding of the complexities within the extended supply chain and the risks it holds.
But there are also some excellent opportunities for organisations with strong balance sheets to target both strategic customers and potentially suppliers for mutual and competitive advantage. If you have cash available, what better time to offer customers and suppliers enhanced terms to help achieve more space on shelves or more conducive deals?
Economic pressures can be enough to sever lifetime attachments to a company or brand and this must be a key consideration when balancing effectiveness with efficiency. If you get the balance wrong you could alienate traditional customers, which ultimately impacts on profits. Attracting and retaining customers beyond pricing is critical – value can be added without sacrificing margin.
Ultimately, the winners will be those who find new ways to leverage their balance sheets for competitive advantage. They will be the ones focusing on implementing bold, but calculated moves with agility.
Dan O'Regan is head of the supply chain & operations practice at Ernst & Young.
This has led to increased pressure to squeeze all aspects of the supply chain as organisations call into question the creditworthiness of their customers and try to protect themselves from a supplier going bust.
In a recent report by the Economist Intelligence Unit for Ernst & Young, views were canvassed of almost 350 board members of international corporates, half with a turnover in excess of $10bn, on the current market. Most said that even some of their most important customers were in financial distress and delaying payments, while a third confessed they had ceased trading with customers perceived as high risk.
While reducing the supplier base has immediate appeal in terms of decrease in costs and complexity, it carries risks: 9% of respondents reported the loss of a key supplier.
For senior executives charged with managing the supply chain, this demands a deep and possibly renewed understanding of the complexities within the extended supply chain and the risks it holds.
But there are also some excellent opportunities for organisations with strong balance sheets to target both strategic customers and potentially suppliers for mutual and competitive advantage. If you have cash available, what better time to offer customers and suppliers enhanced terms to help achieve more space on shelves or more conducive deals?
Economic pressures can be enough to sever lifetime attachments to a company or brand and this must be a key consideration when balancing effectiveness with efficiency. If you get the balance wrong you could alienate traditional customers, which ultimately impacts on profits. Attracting and retaining customers beyond pricing is critical – value can be added without sacrificing margin.
Ultimately, the winners will be those who find new ways to leverage their balance sheets for competitive advantage. They will be the ones focusing on implementing bold, but calculated moves with agility.
Dan O'Regan is head of the supply chain & operations practice at Ernst & Young.
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