I can’t seem to get Dr. Robert Handfield’s recent, astonishing Wall Street Journal out of my head. In “United They Stand,” Handfield argues that buying companies should proactively help critical suppliers avoid financial failure. He argues that the traditional response of “standing by while your supplier fail” or even causing further damage by pushing for price reductions or extended payment terms when a supplier is foundering – are the wrong responses.
Conceptually, I couldn’t agree more with Handfield. In practice, I think his advice is deeply flawed. A few thoughts:
- Many if not most companies simply do not have the funds available to provide financial assistance to suppliers. If you have a choice between keeping your own folks employed and your supplier’s employed – well this is probably not going to be a tough decision.
- Many troubled suppliers simply require too much assistance for any one customer or even group of customers to get them on their feet again. I’m sure AIG was a key supplier to many financial services companies – but I never heard a customer bail-out even considered.
- Some of the most vulnerable suppliers are those that populate a severely troubled industry. We all know that tier-1 auto parts suppliers are facing great difficulty because of the dramatic decline in car sales. When an entire industry of suppliers is in trouble – well – how can the buyer help them all?
- Last but not least, a supplier that has systematic issues achieving profitability isn’t the best candidate for a “strategic supplier” anyway. Buyers have a duty to screen prospective strategic suppliers for financial viability – and those that don’t pass the test should be passed over in favor of a less risky option. Without this approach, buyers needlessly expose their organizations to risk.
What do you think? Am I missing something here?