Is there a Plan B?

How many of your suppliers will go under this year? And do you have too many eggs in one basket?

It’s a sobering thought. But information specialist Experian recently revealed that insolvency rates rose in 2011 – and issued a warning that organisations should address their exposure to any risks.

Over 21,000 businesses failed in the UK. Among the country’s largest sectors, the property industry saw a big increase in its insolvency rate, from 0.72 per cent in 2010 to 0.91 per cent in 2011, during which over 1,300 companies failed.

But firms with one or two employees saw the biggest increase in the insolvency rate during 2011 – from 0.63 per cent in 2010 to 0.71 per cent.

The news prompted a warning – of special interest to procurement chiefs. Max Firth, UK Managing Director for Experian’s Business Information Services division, advised businesses to “understand the risks they are exposed to and have strategies in place to protect themselves.”

The Spend Management Guru echoes this advice – and believes that having the right purchase-to-pay (P2P) system in place can help organisations to meet this challenge.

Firstly, prevention is better than cure. Often, buying organisations become aware that a supplier is experiencing financial difficulties. This may be through their own finance team doing credit checks. Alternatively, it could be through problems with service levels, word of mouth or via another channel.

Should this happen, then a P2P system worth its salt will allow a particular supplier to be ‘flagged’ and a workflow created that immediately indicates exactly what business is going in their direction – and a clear picture of the level of risk. Alternative suppliers can then be lined up as necessary during any ‘flagged’ period.

The right P2P should also allow for searches via an electronic marketplace for possible alternative suppliers. Public sector organisations may also have the added option of national contracts open to them.