Posted on 07 Jul, 2012 by Murray Dilks

On the first day back after a bank holiday,employees at one of our major suppliers were called to a meeting and informed that the company was closing and would be put into a voluntary liquidation. There had been no clues or any indication on that morning that at 11.00am the employees would be sent home. At that time machines were switched off and components left in mid operation, material in process was left on the shop floor and, along with the whole factory, all stores areas were closed including despatch where goods were waiting to be shipped.

Regular financial checks and careful attention to signs often associated with companies struggling commercially were carried out and with no real danger signs Paragon had still adopted the view for other reasons that this supplier was ‘one to watch’. In this case the owners, for reasons still unclear,decided to liquidate what appeared to be a going concern.

This supplier was nominated by one of Paragon’s customers and whilst there were opportunities to resource the cost of approving a new supplier and validating parts was deemed to be far greater than the potential cost saving.

However, 12 months before the forced shut down Paragon as part of its Risk Mitigation and Cost Reduction strategies approached a number of suppliers with a view to both benchmarking the cost and ensuring there were alternative sources of supply capable of meeting the technical capabilities that the parts required. One of the parts in particular was hard to manufacture and the incumbent supplier had experienced technical difficulties. With this part Paragon decided to develop a dual source strategy due to the difficulty of the part to manufacture and to the criticality of the part to the customer’s finished product.

When the closure was announced Paragon quickly put into action its contingency plan. Drawings were reissued to the same suppliers that had quoted 10 months earlier and an increased Purchase Order was placed directly on the alternative supplier of the ‘difficult’ part. On behalf of the customer, Paragon negotiated with the administrators to release any work in progress that could be salvaged, and put
in place a programme to prioritise parts with the new suppliers. The customer supported the action by accelerating its approval process and within four weeks all parts had been sourced without any delays to production, or any disruption to the customer’s supply chain.

This situation serves as a reminder that supply can be disrupted at any time and often through an unlikely or unexpected cause. Being prepared for all eventualities is not something many companies can plan into their business continuity strategies. Accordingly, what must be put in place is agility and responsiveness ready to manage the unexpected.  In this case a little planning 12 months earlier, identifying that there could be problems ahead and our ‘one to watch’ program, helped smooth the disruption. With cooperation from a trusted supplier base and working closely with our customer, a serious problem was avoided.

Topics: Best Practice, Supply Chain

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About the Author

Murray Dilks
Murray has worked in a number of industrial sectors over the last 25 years, including Automotive, Aerospace and Oil and Gas in a variety of roles covering Procurement, Supply Chain and Operations.read more