2009 Business Issues - Evaluate Your Vendors

As we begin our new calendar year in business, we notice that the economic landscape has changed, and is not likely to return to what passed as normal. The economic impact to our economy from the credit crisis has been nothing less then stunning. We now need to put first things first, and business continuity should be first on everyone’s list.
Let’s start with how you produce your product or service. Every business relies on other businesses to do business. We cannot do it alone in this totally interconnected environment. We need our vendors to survive. It does not matter if you are running a bricks and mortar store, or a virtual business on the web; it is time to evaluate your vendors.
For the purpose of this exercise, you can divide your vendors into two categories; critical and non-critical.
Critical vendors will, if they fail, bring your business to a halt, and threaten your very existence. If you have a virtual on-line business, an example of a critical vendor would be your web hosting service. Without a reliable platform from which to conduct your business, your enterprise could simply vanish into the ether. For those businesses that produce a product, you will likely have one or more vendors that supply a critical component.
All businesses will carry several types of insurance, such as liability, health and comprehensive (umbrella) policies, some of which will be required by their banks or lending institutions. For this reason, your insurance carrier(s) will meet the criteria as a critical vendor. Given the very close relationships that insurance companies have with banks, this is one type of vendor that will require close scrutiny. While AIG may be too big to allow to fail, that may not be the case for smaller companies.
You may wish to evaluate these critical aspects of your business in various ways, depending on your relationship with the vendor. A credit check is one simple way to begin this process for private US based companies. Publically traded companies are required to file various SEC reports that are publically available. If you have outsourced a critical component to a Pacific Rim country for example, this becomes much more difficult, since transparency is not a word that often translates well.
Non-critical vendors may not bring your business to its knees, but if one or more fail, they can certainly bring a bad day to the organization. Here, planning is the key.
Once you have assembled a list of all your critical and non-critical vendors, you need an action plan to evaluate their stability to a reasonable degree of confidence. This will require different approaches depending on your relationship. It could be handled with anything from a personal phone call, to a complete formal rebidding process, or something in between. It all depends on the degree of comfort required in the answer.
Depending on the outcome of that evaluation, a contingency plan may be in order. If any of your vendors are based outside the US, contingency planning should be required. You will need to know:
• Who else can supply this product or service,
• At what cost, and
• How quickly could a switch be implemented?
If you are engaged in a business-to-business enterprise, don’t be surprised if you are asked to assure one or more of your customers of your long-term stability.
There is an old saying that says something to the effect that any problem contains within it the seeds of an equivalent or greater benefit. This economic downturn certainly fits the category of a problem. This is a perfect time to reflect on the way you are doing business.
With everything changing so quickly, this may be the best time to consider an innovative approach. What could you add together, split apart, bundle, reconfigure or do differently that will bring your customers greater satisfaction and value for the same price?
Your goal should be to come out of this recession in a stronger business position then when you went in.