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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

London, 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growing trend for outsourcing value creation to suppliers, the report warns traditional procurement models have become outdated as short-term cost saving methods continue to be rewarded at the expense of true partnerships.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.”

Against conventional thinking

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.

  • Dependency on emerging countries for low cost outsourcing is growing as the value of exports from Eastern Europe and Central Asia was growing 2.5 times higher than from advanced economies in 2012
  • Swedish firms e.g. created 35% of the companies’ value from internal sources 20 years ago, today that figure is 20%

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.

To read the full article, please download the BearingPoint Institute paper “Will your suppliers turn from strategic to catastrophic?” which can be found at https://www.bearingpointinstitute.com/en/will-your-suppliers-turn-strategic-catastrophic

About the BearingPoint Institute

Founded in 2009, the BearingPoint Institute is an incisive, authoritative voice on business-critical topics, which brings together the finest minds from both within and outside the BearingPoint organisation. We strive to:
Advise business leaders to understand the evolution of the global economy at a deeper level
Explore new thinking, going beyond straightforward “Thought Leadership”
Propose new points of view about strategy and organisational change, and stimulate debate
This is achieved by offering practical, real-world advice from:
A leadership team composed of senior BearingPoint Partners, representing geographical diversity and a wealth of capabilities
An independent Advisory Board formed by recognised business leaders and academics
Studies made by experts illustrated with real-life highlights

More information:

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About BearingPoint

BearingPoint consultants understand that the world of business changes constantly and that the resulting complexities demand intelligent and adaptive solutions. Our clients, whether in commercial or financial industries or in government, experience real results when they work with us. We combine industry, operational and technology skills with relevant proprietary and other assets in order to tailor solutions for each client’s individual challenges. This adaptive approach is at the heart of our culture and has led to long-standing relationships with many of the world’s leading companies and organizations. Our global consulting network of 9200 people serves clients in more than 70 countries and engages with them for measurable results and long-lasting success.

For more information, please visit: www.bearingpoint.com

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