Supplier failure ‘a major concern’ for manufacturers

Posted on 26 May 2009 by The Manufacturer

Research from The Economist suggests failure of suppliers’ businesses is the number one concern for manufacturers when it comes to the resilience of their supply chains, ahead of reduced access to capital, protectionism fears and cost volatility.

The Economist Intelligence Unit – part of the group which publishes the Economist magazine – says in its Manufacturing Confidence report that this reflects the sector’s heightened fear of corporate defaults.
Nearly two-thirds (63%) of manufacturers surveyed say the collapse of suppliers would have an immediate impact on their business.

In other findings, despite bleak figures from the manufacturing sector over the last six months, many firms have a high degree of confidence in their ability to find and recruit highly skilled workers and take advantage of good value merger and acquisition opportunities.
Still, stresses are being felt. The report, which is sponsored by Siemens PLM, shows that on many issues – access to capital, profitability, return on equity and ability to increase output – manufacturers do not believe they can achieve the targets they were reaching a year ago. But it also shows that many companies have clear ideas about implementing progressive strategies – not just to ride out the downturn, but also to emerge in a stronger position once economic recovery is in sight.

“Many manufacturers realise that simply cutting costs is a blunt instrument which can only go so far towards strengthening their competitive position,” says Iain Scott, a senior editor at the Economist
Intelligence Unit. “While most may be forced to trim expenditure in some way, leading companies recognise that taking more strategic steps can enhance their business both now and when the recovery materialises.”

Measures include rationalising supply chains and establishing robust relationships, seeking new sources of supplies, walking away from some businesses while embracing others, and viewing operational slowdowns as opportunities to eliminate inefficiencies from their processes.

More key findings from the survey include:

● Thirty-nine per cent expect conditions to improve for their company’s business within 2 years, compared with almost one-half (47%) for their sector as a whole.

● Forty-four per cent say staff and benefits cuts would do most to improve their cash positions, followed by new partnerships with low-cost suppliers (41%) and reduced energy consumption (36%).

● Sixty-three per cent believe improvements to operational efficiency, both externally by rationalising supply lines and internally by using downtime to work on enhancing process efficiency, will do most to enhance their company’s competitiveness. Forty-six per cent cite changes to their organisational structure.

● Forty-five per cent of respondents see the growing availability of talented workers as helping their business, compared with 42% who point to the advantages of reduced competition as other companies in their sector fail.

Manufacturing confidence is available for free download from