Comet brought down by supply chain

If you are one of the 7,000 employees of Comet, the high-street electrical retailer, you could understandably not share the euphoria or even care that the UK has allegedly come out of recession. You may also feel that managing the economy is nothing more than rhetoric -  real-life makes you wonder what happens to you when Comet goes into administration next Thursday.

Just as alien will be the language of SRM, upstream management, and trade credit insurance but they are what is really behind the predicament.

As we have been discussing all too often in this blog, cash flow and the absence of credit are throttling businesses - Comet is just the latest high profile casualty. The banking crisis now has a different meaning!  Yet at the same time suppliers are considering the risk of whether their customers are a good credit risk.

This is another twist of the Lotus discussion, but this time the problem appears to be Comet's difficulty in obtaining trade credit insurance.  Trade credit insurance would provide protection to suppliers in the event of Comet's failure.  Ironically the risk of failure is increased as a result of a lack of suppliers confidence - it's a vicious circle.  This is calling for new procurement skills and strategies; the need to reassure the supply market that the buying organisation is a good risk.

Yet at the same time how much of a suppliers lack of confidence is coloured by a lack of buyer humility and benevolence having been shown to the supplier when performance was not as well as expected.  To a certain extent 'the ball is now on the other foot'.  But there's also a systemic risk - how can buyers convince their Accounts Payable of the need to accelerate payment.  Could this be the time for pCards to step in with the card issuers effectively providing the trade credit insurance? Could/should the government intervene?

I recently discussed Supply Chain Financing although that was from the perspective of the buyer supporting the supplier. This is different with suppliers potentially holding buyers to ransom - will they take the risk?  Will suppliers seek to renegotiate prices and terms in return?  It is clear that the aftershocks of the financial crisis are like an electrical current with shocks going up and down the supply chain but increasing in magnitude, velocity and frequency.