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The COVID-19 pandemic has erected numerous financial challenges across industries. But the ones that are most affected by it are small businesses that don’t have enough resources to survive through the prolonged crisis. Although governments have announced and distributed various bailout packages, they are not enough for everyone. This is where big manufacturers can play an important role and as luck may have it, they are doing that. Reports suggest that to financially support their suppliers, manufacturing industries are buying materials in advance and providing loans. History shows that those manufacturing industries/companies that have stood resolutely behind their suppliers during tough times have received intense loyalty in the form of bigger discounts and early access to raw materials. This article dives deep into the matter and discusses 3 ways manufacturers can keep their suppliers afloat during the COVID-19 crisis.
1. Check your supplier’s financial status
It’s imperative to know how good/bad the conditions are at your supplier’s end. Your procurement officer or chief supply chain manager should get in touch with them and know their current status. It’s easier to figure out the financial health of publicly-traded suppliers as it’s mandatory for them to report their financial data. As far as private suppliers are concerned, you should try to get them to disclose their financial health and provide a suitable package as per their needs.
2. Figure out who needs help instantly
Manufacturing industries must closely monitor the financial health of all their suppliers and rank them in ascending order. This will let them know who needs instant help and who can wait. You should do this process even for below tier-1 suppliers after ascertaining how you might be affected if they shut down. For example, consider that you are a car manufacturer and you depend on a tier 3 supplier for floor mats. Though they (floor mats) are inexpensive, they are important for selling a high-end product (car). Thus, you must analyze the effect of a supplier not by what they provide you but on how it affects your top-line.
3. Chose different support options for varying suppliers
Manufacturing industries should choose different support options keeping in mind the supplier’s susceptibility to the COVID-19 crisis. As far as big suppliers are concerned, you can buy items well in advance so that they get enough receivables to keep themselves afloat. Talking about medium suppliers, you can buy a minority equity stake to let them have the required cash. And last but not the least, you can pay small suppliers upfront and ease service level agreements that might be hard for them to adhere to.
Manufacturing industries must keep in mind that they work in an ecosystem where the weak feeds the strong. Small suppliers → Medium suppliers → big suppliers → manufacturing conglomerates. If small suppliers go bankrupt and close down, the survival of manufacturing industries will be at stake. To prevent this from happening, the latter must analyze the current situation appropriately and come up with good bailout packages.
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Disclaimer: All the information, views and opinions expressed in this blog are those of the authors and their respective web sources and in no way reflect the principles, views or objectives of Sage Software Solutions (P) Ltd.
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