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Supply Chain Woes - BHS, a Cautionary Tale

3rd June 2016

As the hunt for a buyer for the beleaguered BHS stores continues, one of their suppliers, Courtaulds, which made Pretty Polly tights, has gone into administration with the loss of 350 jobs.

The Administrators, RSM Restructuring Advisory said BHS was a major customer, and that the failure of BHS, “left the directors with little choice but to place the companies into administration”.

This is a salutary reminder that insolvency of a key supplier or customer can be a significant threat to an otherwise good business.

In this instance, over-reliance on one major customer left this business vulnerable.  It isn’t clear whether or not Courtaulds took any steps to re-shape their own business in light of BHS’ vulnerability, but “knowing your customer” including their potential threats and vulnerabilities, can help you take pre-emptive measures.  If a customer is suspected of being in a difficult position, you should, at the very least be monitoring payment terms and orders carefully, consider reshaping the way you are paid, and being more efficient in collecting and monitoring your payments.  If you do nothing else, please make sure that you have retained title to any goods supplied.

Insolvency can also affect key suppliers, and if they do not continue to trade during their financial difficulties, businesses can find themselves starved of key supplies.  Again, diversifying reliance on more than one or two main suppliers is the key.  You can detect issues with suppliers by carefully monitoring their own performance and engagement with you:

  • Are deliveries slow and short?
  • Are you being chased more frequently for payment?
  • Have you been approached to agree to less favourable credit terms?

Business today is tough enough without suffering because of another’s insolvency.  Acting quickly and decisively is the key to making the best of a tough situation.  If you have any concerns or would like to discuss protecting your own business, please talk to Pamela Muir.

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