Retailers must monitor health of supply base, says PricewaterhouseCoopers

Manufacturing News, Source : TheManufacturer.com
Published : 26 Apr 2002 9:01

UK retailers could become exposed to the onset of problems within their supply chain as both retailers and suppliers assess the consequences of the increase in labour costs brought about by the rise in National Insurance (NI).

According to the latest retail analysis from PricewaterhouseCoopers, retailers currently reviewing the costs on their own business should also assess the wider impact of NI increases and the likelihood of troubled or 'failing' suppliers emerging.

There is an increased risk of supply chain disruption for retailers as suppliers grapple with rising labour costs and price deflation on the high street. According to PricewaterhouseCoopers, as retailers switch to rely on a small number of preferred partners, the risk to supplier under-performance and the attendant loss of revenues and disruption to operations is heightened.

Richard Boys-Stones, retail partner in PricewaterhouseCoopers Business Recovery services practice, said: "The risk of key supplier failure is taking up significant amounts of management time in the UK retail sector. Disruption to strategic suppliers is not only harmful to customer loyalty but is an expensive diversion which senior management can ill-afford. In addition to focusing on the conventional achievements of quality, cost and delivery, retailers must now carefully consider their agility in reacting to changing trading conditions and cautiously assess the risks posed to them by supplier failure."

Supplier failure is unlikely to be immediate and retailers have the opportunity to harness suitable mechanisms both to identify and manage financially constrained or troubled suppliers. Retailers must be increasingly sensitive to the early warning signals, such as declining quality control, missed deliveries and management instability. Retailers should also be alive to contingency and scenario planning in order for them to prepare for, limit or even circumvent the risks presented by supplier collapse.

PricewaterhouseCoopers has highlighted a number of steps retailers can take to limit the risks of supplier failure:

· Assess and quantify suppliers by the level of risk that they pose to business operations.

· Identify the likely impact of strategic supplier failure upon the business.

· Identify why key suppliers are so critical and use scenario planning to design appropriate contingency plans with which to react to indications of potential supplier failure.

· In addition to monitoring 'best practice' supplier performance, develop mechanisms and reporting procedures with which to obtain information regarding the financial 'health' of key suppliers and overlay on the critical suppliers list.

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