Companies that impose extended payment terms in this recession will kill trust and push suppliers into bankruptcy, a leading US academic has warned.
Rob Handfield, professor of supply chain management at North Carolina State University (pictured), said “short-sighted financial officers” in some big companies were delaying payments in a bid to improve their working capital.
But he warned that unilateral moves of this kind moved firms into “uncharted territory” and risked creating a spiral of failure along their supply chains.
“This is the worst time to be doing this kind of activity,” he said. “OEMs that are doing this are really not thinking this through carefully.”
Speaking during a webcast on SCM World, a new global community of purchasing, logistics, supply chain and operations executives, Handfield acknowledged that “it is difficult for organisations to think creatively and collaboratively in this environment”.
But they had to try if they were serious about maintaining good relations with their suppliers and emerging from recession in a stronger position, he said.
“Creative solutions” such as supply chain financing – where suppliers take advantage of a customer’s higher credit rating to get paid faster – and early payment in exchange for discounts should be looked at carefully.
A recent survey among 87 companies in the US and Europe found that only a third had met with suppliers to discuss such options, Handfield noted – even though almost half did not think their smaller suppliers were well prepared to withstand the recession.
Regular, open conversations with critical suppliers were essential, both to identify opportunities for mutual benefit and to gather intelligence on the health of these firms and their supply chains.
Handfield argued that suppliers “have a long memory”, and that customers that invested time and effort to find solutions now would reap the dividends through greater trust and goodwill in the long term.
For more information about SCM World and its webcast programme for 2009, visit www.scmworld.org