PKF International

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How can Retailers Manage Supplier Risk?

08 Jan 2016

Tyrone Courtman, Head of Restructuring at PKF Cooper Parry, looks at the best ways of preventing supply chain disruption.

The UK retail market is incredibly competitive as supermarkets challenge each other for market share to compete for their customers’ hearts and cash.

Suppliers also face challenges from this competition with growing demands for products and shortened lead times stretching them in different directions.

In a report published towards the end of 2014 by Moore Stephens, it was pointed out that 146 food producers had entered insolvency, an increase of 32 from the previous year. Worryingly this has been increasing over the last five years, a time when the total number of business failures have reduced.

Supplier failure could cause issues for retailers, particularly if shelves are empty and customers are left unhappy, making the rival supermarket across the road more appealing because they are fully stocked.

However, there are a number of ways which retailers could mitigate these risks by careful planning and monitoring, and bringing in experts to help when required.

In our experience there are a few key points to remember to ensure a successful outcome:-

Contractual arrangements
Ensuring that your rights are protected is important, particularly in the cases where a supplier does fail and goods haven’t been delivered or are on a sale or return basis; having a contingency plan in place can also avoid being held to ransom for just in time supplies.

Management information
Having good quality management information available will allow retailers to spot the problem quickly. Identifying and measuring the key drivers in a supplier’s business is critical both before entering into any new contracts and then through regular monitoring once the contract commences. Ensuring that buyers understand this is very important, as they are often the main point of contact with a supplier and will have the first opportunity to pick up on any issues.

Act early
Hoping the problem will go away is rarely a good strategy; the earlier you act the greater the range of options and the less damage is done to key relationships.

Be objective
You need to make sure you focus on causes rather than symptoms. Missing delivery slots or juggling cash could well be down to bigger issues that will not be solved by short term fixes. The greater the pressure on management the harder it is for them to move their focus away from the immediate crisis to take the bigger decisions needed to make a real difference.

Have a plan and stick to it
Suppliers need to understand that demonstrating you understand the pressures facing a business shows strength not weaknesses. If retailers genuinely want to work in partnership with a supplier and that supplier is important to their business, a more transparent approach will be of great benefit to both sides.

We can bring our experience to add value in customer/supplier relationships from performing a health check on new suppliers, monitoring financial information, obtaining new or better funding, developing or implementing a plan, and managing other key stakeholders. It’s great to see our successes out there still trading.

Martin Firbank, Chair of PKF Global Retail, commented that “in a competitive market, being able to rely on suppliers – either those supplying products to sell or services to assist your business, such as logistics and storage – is incredibly important to a retailer’s success. Retailers don’t want to be let down as this will alienate their customers who could vote with their feet. Getting experts in to help with managing these issues can be incredibly beneficial to a business and the knowledge and experience of Tyrone and his team in these matters put them in a fantastic position to add value to retail businesses.”

For more information please contact Tyrone Courtman of PKF Cooper Parry on tyronec@pkfcooperparry.com

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