Strategic Exit Strategies

April 7th, 2008 at 06:31am David Bush - Iasta

I saw a very informative article on SCDigest about getting out of strategic supplier relationships. Obviously, preparation for this type of event is paramount and the authors give some great advice for moving on. Since nothing last forever, it is important to have contingency planning ready for every supplier. Among some of the tips offered:

Identify it before it goes south, indicators include:

• It takes multiple requests on either side before the action is taken. Early in the relationship, the request-to-action cycle is usually very short.
• It becomes necessary to make requests for items or service that used to be offered without asking.
• The buying organization starts to feel it is being “nickel and dimed” by the supplier.

Develop a plan:
“Stop and identify the interfaces throughout the process. Meet with someone in charge of each step and find out what a change would do to their part of the process,” Lorrie Mitchell, a partner in consulting firm Mitchell Enterprises, recommends. “This is the point where communication will make or break it. Once you have checked out all processes, personnel, cost, etc. repercussions caused by a change of suppliers, you need to socialize this data to your end-users’ upper management. Basically, you have to construct a pros and cons statement of remaining or changing the alliance relationship. When you have facts, you can discuss and get the ever-important buy-in.”

Don’t move without the new vendor in place and all possibilities analyzed:

Legal: It’s ideal to end the relationship at the expiration of any current contractual arrangement, but this isn’t always possible. Companies in that case need to understand commitments, and whether a potential buy-out of that commitment makes sense.

Confidentiality Agreements: Take steps to ensure any agreements made with the partner around confidentiality are not violated, for example with users talking to new vendors about the current partner’s trade secrets.

Intellectual Property Issues: Companies need to well understand and enforce internal restrictions around the partner’s IP. They need to carefully vet and resolve any open intellectual property issues, which may be very tricky if negotiated during a break-up.

I found this to be a really detailed and valuable amount of information, packed into a relatively brief story. There is no one size fits all playbook for such important things, but the advice was general enough to be very helpful.

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Entry Filed under: General, Global Supply Issues/Risk, Suppliers