The growing need for supply chain due diligence
I’m sure that I’m only getting part of the story here but it is worth reporting. A friend of the family is losing his job as a machine operator at a local machine shop. This in itself is not breaking news but seemingly a regular occurrence in an industry segment that has been under bombardment for the past decade. But it’s a supply chain story that bears telling.Their largest customer had moved all of their business to China in search of lower prices. This customer was 50% of their business and the loss was devastating to the machine shop. They were never able to recover and began to dissolve the business. However, the customer who moved their purchases to China was unhappy with the quality of the products they were getting and tried to resource back to the machine shop. It was too late. The shop was in the process of liquidation. The business went to the shop’s largest competitor who is fortunately hiring some of the operators of the defunct business.
It seems as if there is a lot of blame to go around. My first reaction was to berate the buyer for allowing themselves to be 50% of anyone’s business. The rule of thumb is 30-35% and even that is high in my opinion. Even if the supplier is unconcerned with becoming a captive shop the buyer should be keeping an eye on things. The buyer is cold, uncaring, or inexperienced. I hope it is the later.
Moving products to China is not done overnight. It can be a slow, tedious, and time consuming process that can take a year or more. Order quantities must have been getting lower and families of parts must have gone missing. The seller must have been aware that this was happening. But, again I am going to say that the buyer has the responsibility to notify the supplier of their change in sourcing. It is the responsible and ethical thing to do. Of course, the seller needs to replace that business. It seems as if they were unable to do so.
Our family friend said that they were all surprised by this turn of events. To me, this was a problem incubating for a long time.
A sad outcome? Yes.
A surprise? Hardly.
TR Volpel commented:
A couple of points from one who has seen both sides of this play out a number of times. First, I feel for the machine shop's other 50% customers as they lost a supplier through no action of their own. Most competent Purchasing pros would have seen this coming months before the machine shop closed. Managing supplier health and viability is an important but often overlooked or undervalued activity. Often a simple site visit can open our eyes to a vendor with lots of spare capacity and intelligent questioning can gain information.
To say that the supplier "must have" been aware maybe too simple. Probably they were aware but unable to gain new customers and business fast enough to replace the dwindling orders from the major customer.
One of my major suppliers went out of business and it took us a year to recover, not something I want to go through again.
