How to survive when your suppliers go bust

With the recession continuing to decrease the stability of outsourcing firms and other suppliers, enterprises should make sure they are prepared for any risks resulting from a collapse.

He said a contract therefore had to be strictly managed to provide a client with levers for renegotiation, with firms not sitting on problems over a long period. "If it comes to a court case any court will just say 'tough' if you have just sat back and not done anything about a problem."

Evaluate risk

Mark Raphael, a managing consultant at PA Consulting Group, said firms should be proactive about evaluating the risks faced by their supplier portfolio and draw up an "at risk" list that can be considered for further action to protect the company.

"There needs to be an independent evaluation rather than one that gathers information from the suppliers," Raphael said. "A supplier will always give a 'good news' spin on financial problems. Once the evaluation is made, a realistic list of 'at risk' suppliers can be established and these become the focus for more detailed planning."

For these suppliers, said Raphael, the key actions that a buyer needs to take are reviewing the contract and understanding what the small print says about the supplier ceasing to trade or changing ownership.

They have to get the legal department involved early to consider issues such as ownership of assets and intellectual property rights (IPR).

Plan B

They also have to develop a 'Plan B' for each of the "at risk" suppliers' services. This could involve moving the service to another current supplier, finding a new supplier or bringing it in-house.

Critical factors here are a judgement of how "portable" the service is and how much unique intellectual capital rests with that supplier.

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