Procurement teams play a vital role that, in many ways, dictates the viability of the operation they represent. Large-scale Australian manufacturing businesses need to source the right goods, at the right price, from the most reputable suppliers in order to have any remote chance of long-term sustainability. Any misguided procurement choice can cause disastrous ripple effects throughout various departments. It should be your top priority to ensure that these decision makers are given every detail they need to be truly informed.
Procurement risks and how to manage them
The purchasing of raw materials and the goods of production from third-party suppliers drive the engine room of the manufacturing industry. As the material transitions up the supply chain and is transformed into more complex items, the cost of production often intensifies. There can be little room for error for sizeable businesses within this sector, as any cost inefficiencies per unit are amplified due to the scale and volume of their total output.
Within this context, it’s easy to see the pressure on procurement teams to make optimal decisions. Say that you run a large-scale manufacturing outfit producing wooden desks and chairs at a considerable volume, and employing a significant number of employees to do so. The procurement decisions concerning how, and from whom, you source your timber may ultimately decide the fate of the business and all its employees. It is a vital raw material, critical to the production of your goods. If the procurement team locks you into a contract with a timber supplier who then goes insolvent, the whole business could be left scrambling.
The overheads faced within this sector are so significant that any halt in the production of goods, due to the insolvency of suppliers, may quickly drain existing reserves of cash. Factories, employees, utilities – all of these represent such significant outgoings that revenue absolutely must remain consistent. When international price swings are also factored in, it reveals the true extent of the exposure manufacturing faces. Reputable suppliers, with a sustainable business model, provide the backbone of your production and cash flow in the face of these changing dynamics.
As the volume or value of goods running through the pipeline increases, the stakes for the procurement team rise. Especially so if you’re forward ordering high-value items. The sustainability of your cash flow over time is now at least partially dependent on the creditworthiness and integrity of the supplier business. If there are obscured indicators of credit risk, due to a lack of foresight and due diligence, then you may find yourself on the wrong end of a negative supplier relationship. These can be hard to extract the business from once everything is signed and sealed. Your team can’t afford to be starting two steps behind. They need to be properly informed from the get-go.
How manufacturers can use data to make better procurement decisions
The more information your procurement team has, the more optimal their decisions will be. Empowering them with accurate, up-to-date, and insightful information concerning a potential trading partner takes the guesswork out of accomplishing their goals. When a manufacturing business truly arms itself with intimate knowledge of those suppliers critical to its production, they increase the prospect of long-term sustainability tremendously. It is imperative that you avoid any trading partner, existing or new, whose negative credit history or adverse business model might threaten your operation.
The gold standard in the analysis of a supplier business is a full Financial Risk Assessment from CreditorWatch. It is the necessary deep dive into their operation that gives the procurement team legitimate confidence to engage or avoid trading. The use of this market-leading offering allows for the uncovering of a broad cross-section of useful information, including:
A full exploration of two to three years of company financials. Cash flow, income statements, balance sheets – there’s no stone left unturned as every vital financial detail is located and collated. Trends, ratios and key financial indicators are also taken into account, leveraging CreditorWatch’s extensive business and trade-line data. The hard numbers provide the actual truth of the assessed entity’s operational viability, showing with clarity whether or not their walk is as good as their talk.
Accompanying professional analysis. It’s not simply a matter of dumping the data on your desk. As part of the financial Risk Assessment process a qualified Chartered Accountant, or Certified Practising Accountant, lends their expertise and analysis in order to make sense of the business data provided and translate it into informative and intuitive insights. Any advice is accompanied by simple graphs and tables, synthesising the numbers into a digestible format that allows for clarity and comprehension. Should there be any proposed contract between businesses, this can also be additionally assessed to provide further peace of mind.
Easy comparison of entities. Should your procurement team be looking at a number of potential suppliers, you want to be able to quickly and effectively compare them. The uniform formatting of the Financial Risk Assessment allows for the streamlining of this process, presenting the comparative data in the most efficient way in order to identify points of difference quickly and easily.
Ready within two days, there is simply no excuse not to give your procurement team the advantage that such an analysis provides. Making these vital supplier decisions should be dependent on more than sheer luck or gut instinct. Empowering the team with the data they need, presented in a format they can understand, will save every department within the business a great deal of time, money, and stress in the long term.
Book a free demo today and get a comprehensive look into the financial viability of your suppliers.
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