Measuring the Financial Health of Suppliers and Ongoing Monitoring Presentation for CIPS, Yorkshire Branch, Leeds 24 September 2013 by John A. Smith – Client Relationship Director Company Watch “Hindsight in Advance” Confidential to Apple Inc Company Watch Ltd
Pain in the Supply Chain – The Collapse of High Street Retailers Unsecured Creditors such as Suppliers, Landlords and Customers were left being owed £2 Billion £499 Million recovered in assets from the 19 biggest retail failures since 2012 Banks and other secured lenders got at least £365 Million Only £14 Million went to Unsecured Creditors Confidential to Apple Inc Company Watch Ltd
Pain in the Supply Chain – The Collapse of Construction 5,500 Construction and Architectural Insolvencies in the two-year period since Q2 2011 But how many Zombie companies are there? Low profit margins? Under-capitalisation? Suicidal pricing imposed? Late payments? Confidential to Apple Inc Company Watch Ltd
Pain in the Supply Chain – The Collapse of Construction Procurement could become a creditor if a builder fails Due diligence for Performance Bonds? Costs of replacing a builder Confidential to Apple Inc Company Watch Ltd
Construction – Some Optimism? Construction Industry output rose by 1.4% between Q1 and Q2 this year – (The Office for National Statistics, August 2013) New projects beginning to rise in almost every part of the country – (The Royal Institution of Chartered Surveyors, July 2013) Confidential to Apple Inc Company Watch Ltd
Real Estate (Office for National Statistics, September 2013) 562,000 people employed in Real Estate – mainly estate agents A growth of 77,000 over the past year Up 100,000 on 2008, pre-crisis boom Confidential to Apple Inc Company Watch Ltd
Structural Problems Costly welfare systems Ageing population Large deficit High debt Poor competitiveness internationally Confidential to Apple Inc Company Watch Ltd
Hyman Minsky (1919-96) Professor of Economics at Washington University “…..economic stability encourages risk taking and credit expansion until instability appears and ultimately generates a contraction of credit and deflation…..” Confidential to Apple Inc Company Watch Ltd
“Tentative signs of a balanced, broad - based and sustainable recovery…” George Osborne, a speech in London, 9 th September 2013 Confidential to Apple Inc Company Watch Ltd
One “R” word for another Recession Recovery Confidential to Apple Inc Company Watch Ltd
Recovery Kills! Businesses are now leaner, meaner and hardened, BUT They are more at risk emerging from a recession Confidential to Apple Inc Company Watch Ltd
Businesses Need to Consider Working capital to fund growth – sources? Resources required to meet increased demand – cost and availability? Confidential to Apple Inc Company Watch Ltd
The Major Risk is: Overtrading……. Pressure on finances, staff and systems Supply Chain/Procurement Teams should be reviewing their key suppliers NOW Confidential to Apple Inc Company Watch Ltd
Caution Increased need for reliable & current information Your Supplier sees you as a Customer! What is your Credit Limit? The number of ‘Zombie’ companies Potential for increase in fraud & corporate crime The banking system Insolvencies can breed insolvencies Confidential to Apple Inc Company Watch Ltd
THE RISK PYRAMID High Risk Medium Risk Low Risk Confidential to Apple Inc Company Watch Ltd
CONTRACT CHAIN YOUR COMPANY COMPANY B COMPANY A COMPANY C COMPANY D £ 150 M £ 100 M £200 M £ 250 M Company t £80 M Company r £70 M Company m £25 M Company p £40 M Company u £80 M Company s £60 M Company n £25 M Company q £40 M Company X £35 M Company X £30 M Company X £20 M Company X £25 M . . . . . . . . . . . . Confidential to Apple Inc Company Watch Ltd
How good are your analytical tools? Forward looking Flexible Stress-testing & forecasting Reliable Confidential to Apple Inc Company Watch Ltd
Early Warnings 2E2 HOLDINGS LIMITED Confidential to Apple Inc Company Watch Ltd
Early Warnings W.T. BURDEN LIMITED Confidential to Apple Inc Company Watch Ltd
Looking Forward: Stress testing & forecasting Confidential to Apple Inc Company Watch Ltd
Looking Forward: Stress testing & forecasting Confidential to Apple Inc Company Watch Ltd
Introducing a monitoring process The companies you need to focus your key resources on Weak Risk 69% Suppliers 5% Search engine Portfolio Suppliers management system Diagnostic power Strong Low exposure High exposure Confidential to Apple Inc Company Watch Ltd
Introducing a monitoring process Get an early warning of potential problems. Identify the companies you do NOT need to review. More time to monitor the companies in depth that you DO DO need to review. Significantly reduce the time spent on a high proportion of your suppliers each year. September is a busy month for filing company accounts. Confidential to Apple Inc Company Watch Ltd
The Way Forward “Ours is not to reason why… Ours is but to flog and buy” ………………………..….Arthur Daley Confidential to Apple Inc Company Watch Ltd
Contact us: John A. Smith – Client Relationship Director info@companywatch.net www.companywatch.net Confidential to Apple Inc Company Watch Ltd
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