12 March 2010

Viewpoint : The Blog

Strength in the community

Published:: 09 November 2009
Article Type:: Viewpoint
Byline:: Nick Allen

If nothing else, this recession has emphasised the critical role supply chains play in the smooth running of the economy. As credit became more scarce, so buyers had to become more creative, and indeed, more supportive, of suppliers in order to secure their own well-being.

In many instances purchasers found themselves having to finance suppliers themselves to ensure supply of critical components. Back at the tail-end of last year, during some of the greatest shock waves of the financial crisis, Paul Lester, chief executive of UK defence company VT Group, told his top 100 suppliers that they should come to him for financial help. He was not alone, BMW, Daimler and other European companies made similar requests.

In many respects those enterprises with access to low-cost of capital had the advantage of being able to secure their supply chains and so gain competitive advantage in their markets. But these arrangements have created changes to the working relationships between buyer and suppliers, changes that may be more permanent. For quite a number of suppliers, their commercial independence may have been compromised or at least, their dependence on their key customer emphasised.

The net result of this hardening of the supply chain is the need for greater collaboration and communication between buyers and suppliers, with an increased requirement for the exchange of information between trading partners. From a buyer’s perspective, creating supplier communities – whether virtual, using internet technology, or physical, in working in close proximity – is going to be essential for future development. Financial security and commercial success will depend on the mutual welfare of all in the supply chain community.

In the North West of England, a scheme has been put in place to support local firms supplying the aerospace sector to the tune of £7.1million in cash – the result of a funding package from the Northwest Development Agency and the Northwest European Regional Development Fund. Interestingly, under the scheme those suppliers involved will be mentored by a representative from Airbus, BAE Systems, Rolls Royce or Aircelle.

Supplier communities working together in close collaboration with buyers will be the way of the future.

Comments

The following comments have been posted in response to this article:

It is interesting to hear the public positions describing the forms of supply chain financial (SCF) collaboration featured in your article. It would be even more interesting to know whether the second tier suppliers find the offers attractive and stay within the schemes. Some research we have been doing in the grocery sector suggests that when made transparent, many retailer-led schemes are just another way of building income and gaining leverage over suppliers. Better and cheaper SCF schemes are coming forward which deserve attention.

Posted by: Bob Wileman 12 Nov 2009

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