Monitor Financial Distress in Your Supply Chain

While American manufacturing has experienced a resurgence in recent years, some manufacturers continue to face challenges. Witness for example the recent chapter 11 filings of Colt, Boomerang Tube, and Everyware Global. Sometimes, manufacturers struggle because a supply chain partner—a major supplier or customer—is struggling. In order to manage supply chain contracts, manufacturers need to watch for early signs of financial distress in their customer or supplier base. Then, they may quickly react to red flags and garner an advantageous position.

Trouble in the Supply Chain?

Manufacturers should watch for supplier requests to increase prices or accelerate payment terms. Similarly, cash-strapped customers may ask for financing support. In addition, a manufacturer’s deteriorating market position, failure to effectuate cost reductions, and changes in key management positions all may indicate financial distress. Manufacturers should employ tactics in order to secure continued supply when faced with a financially troubled supplier. By managing contracts after identifying a troubled supplier or customer, manufacturers can often mitigate risks, or even improve their positions.

Manufacturers should prioritize, understand, and address troubled supplier situations with advance awareness. That’s why companies should continually analyze their contracts to maximize leverage, and understand available legal options. To alleviate the pressures of financial distress, manufacturers should exercise common law and statutory remedies in order to purposefully tweak standard terms and conditions of new contracts (or negotiate changes to existing contracts). The terms of these contracts significantly impact the manufacturer’s ability to re-source production to a healthier supplier, recover tooling, and utilize certain remedies.

Read more at Monitor Financial Distress in Your Supply Chain

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