Most finance chiefs are under the impression they’d take the biggest hit if they experienced problems with the vendor they spend the most on. While that seems like sound logic, many times it isn’t actually the case.
That’s one of the major findings from the new report, “MIT Study: ‘Devil in the Details’ of Supply Chain Risk Management.”
The eye-opening report found that there may not be any link between how much a business spends on a vendor, and the problems that would occur if that vendor’s supply suddenly dried up.
How could this be? The majority of companies put a ton of effort into backing-up the vendors they spend the most money on. But that leaves them wide open to problems if their lower-tier vendors run into problems.
The bulk of most supply chains
Reason: Those low-tier vendors make up around 70% to 80% of the supply chains at most companies, the study found.
So what can CFOs do to prevent problems in this area? Huddle with staffers who handle purchasing and create a “Watch List” — a list of vendors that you spend a ton of money on but whose products you absolutely can’t do without.
Then, tell your A/P staffers to be on the alert for signs the vendors on the Watch List are going through hard times.