2020 is shaping up to be the year that JIT stock control falls over due to natural disasters (some might say man-made disasters) and the effect the Coronavirus is having on supply.
In Australia we currently have around 700 liquidations occurring per month. If one of those is your “reliable subcontractor” or supplier of goods, where does that leave you for continuity of supply?
Lose your supplier and you can be in for a whole lot of pain, finding a new supplier, what are the cost implications? what will the time delay cost?, how will this effect quality?, is it a unique product that needs to be redesigned to accommodate alternative supplies? will I suffer penalties for time delays? and the list goes on.
So I would like to make a suggestion when granting a subcontract or a supply agreement check that the supplier has comprehensive terms of trade that protect them, check that they have the ability to place a PPSA registration on your contract, Check that they have the right to pursue bad debt and that they will deal fairly with you. Negotiating terms is ok but denial of security for your subcontractor or supplier is not.
Instead of fighting suppliers’ rights I suggest you embrace them, give them the rights to protect themselves if you go into liquidation or don’t pay them.
Here is the truth, you don’t protect yourself by denying others the right to protect themselves.
You protect yourself by doing the right thing, making the right commercial decisions and working together with all your stakeholders including your suppliers.
If your supplier is asking you to agree to his terms of trade and using the PPSA system with you, they are also doing that with their other customers.
This means they are more likely to survive if one of their other customers goes into liquidation, this gives you a higher chance of continuity of supply.
Financial penalties doesn’t really offer a solution for delays in supply of goods and services. it acts as a big stick to try and avoid them but due diligence in supplier choice and ensuring they are secured can be of great benefit for all stakeholders including end customers.