As suppliers come under increasing financial pressure, the question arises as to how the larger manufacturers are going to react to protect their supply chains?
Failure of small and medium size suppliers could have a damaging affect on many leading manufacturers, particularly in the automotive and engineering sectors. Will manufacturers hold out a helping hand to those they rely on? And if they do, will they be pro-active or reactive in this highly volatile environment?
With the banks in a poor state, who better for hard strapped suppliers to turn to when financial hardship strikes than their larger customers. In many instances key suppliers are now closely integrated into new product development programmes with their major customers and through these collaborative arrangements are now considered more than mere suppliers – they are more often than not regarded as members of a tightly integrated team.
Under these circumstances, it would seem to make perfect sense for the manufacturer to acquire the supplier in order to ensure the future supply of components and also to safeguard ongoing product development. Or would it?
Vertical integration under these circumstances may offer the best short-term solution to the problem of ensuring availability, but could it hamper the long-term creative interplay between the two organisations. Many suppliers derive creative input from their wide association with their customer base. Might it not be better to help the supplier through improving purchasing terms and enabling them to receive payment earlier than previously arranged.
For suppliers, opening discussions with a key customer early could keep the wolves from the door and ensure a safe future for both the workforce and shareholders. From the manufacturer’s side it would appear prudent for them to watch their suppliers closely and to be proactive in offering support, and even financial assistance, early rather than when things become critical.