BearingPoint Institute research shows: As the share of value add is increasingly outsourced, manufacturers need to make earlier decisions to abandon or support failing suppliers
Zurich, June 3, 2014 – Business networks are suffering from a lack of supply chain visibility according to a new BearingPoint Institute report. With the growing trend for outsourcing value creation to suppliers, the report warns traditional procurement models have become outdated as short-term cost saving methods continue to be rewarded at the expense of true partnerships.
Based on discussions with top European executives and BearingPoint’s project experience in resolving failing suppliers, the report highlights the need for increasing visibility on suppliers at a time when the effects of contagion have proven fatal. By identifying early signs of supplier distress laid out in the report, manufacturers maintain control on whether to support or abandon their supplier.
The BearingPoint Institute paper asks the question of how can a business identify and manage a situation where it is more expensive to abandon a supplier than support and sophisticate it.
Patrick Palmgren, BearingPoint Partner and author of the report, said: “We outline the warning signs businesses should be looking for to identify potentially failing suppliers and recommend the steps that should be taken to recovery.”
“The rapid spread of the global financial crisis showed businesses really are affected by those they surround themselves with. Nowhere is this more true than in supplier networks as Western business in particular seek to source value from low-cost countries.”
Dramatically inflating wages as well as other operating costs in emerging economies at the same time as manufacturers increasingly rely on low-cost suppliers for value creation is causing a sourcing dilemma for Western businesses. The balance of power is shifting towards suppliers as a lack of alternative sources and increased interdependency means the West cannot abandon failing suppliers so easily.
Against conventional thinking, the report advises businesses to forge closer ties to suppliers, particularly when suppliers are facing uncertainty, to build a more sustainable and strategic partnership for all parties. Sometimes this can mean taking larger stakes in a failing supplier and treating them as a CEO would a serious performance issue in an area of their own company.
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