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01 September 2009
Electronics manufacturers are feeling the cold winds of the global recession. Howard Goff, Managing Director of Exception’s offshoring division, looks at how the downturn is affecting suppliers and customers.
Most electronics markets have seen a severe downturn over the last year. And while the recession took a while to reach most sectors of the global economy, those niche markets that have not seen a fall in orders – possibly medical, aerospace and defence, and specialist manufacturing – have been in the minority. The big question facing original equipment suppliers is how do we best manage our offshore partner relationships in turbulent times?
Whilst many manufacturers with plant in Western economies have adopted an offshoring strategy in recent years, managing reliable and consistent throughput of products is critical.
We are seeing a number of Chinese suppliers facing real financial hardship at present, so we are continuing to work closely with our key supplier partners in offshore locations to track their susceptibility to major downturns as well as help them through this uncertain period.
Some of the warning signs that we look for within our own supply base are unprecedented changes in supply chain inaccuracies, late or early deliveries, hard selling of available capacity at prices below market norms, demands for accelerated payment terms, poor service levels, and stock price deterioration. All are symptoms of radical cost cutting regimes.
Most savvy OEMs now appreciate that the business culture in Asia is not as transparent as that seen in most Western markets, so quite often, the first indicators of any distress are worth investigating.
Through our monthly healthcheck programme we challenge all of our suppliers, and would recommend an increased levels of diligence for any companies trading directly with Chinese or other manufacturers in low cost economies. Where necessary, arrange meetings at senior level, within the supply base and encourage them to be open about their issues. We try to engage with suppliers so that they share as much detailed information as possible. The language translation skills of your own (or independent) people does become ever more important.
One other factor that is different in the market dip this time is that of credit insurance. Many companies use this process to insure against bad debt risk. We see today that the major credit insurance companies have taken a fairly ruthless line on what they believe is a credit risk, in many instances suddenly rescinding credit insurance or radically reducing exposure levels for many companies which again, challenges supplier customer relationships and trading opportunities.
Robust and constructive business to business relationships across the entire supply chain is the top priority. Businesses need to get into the habit of undertaking due diligence and B2B reviews, sharing of information, and agreeing upon strategies. Recovery plans need to be discussed, formulated and agreed, but ultimately it will always be about communication; having an open, honest and supportive relationship is key to success in difficult times. The hardship of discovering that a pivotal supplier or a major customer has been lost will have a devastating impact on any business.
Over the next few months, as we hopefully climb out of recession and into a period of greater stability, all partners in the global supply chain need to work closely together and share information to reduce the risk of disruption.
Howard Goff is Managing Director of Exception’s offshoring division
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