Wednesday night, President Bush warned of the possibility of a “long and painful recession” if government doesn’t step in to save the US financial system. While many observers wrote off this threat as another of Bush’s “weapons of mass destruction” scare tactics, yesterday’s failure of Washington Mutual – the largest bank failure in US history – underscores the fact that these are serious times.

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Now, what does that have to do with purchasing?

A lot.

You see, your suppliers have a significant portion of their cash in banks. So what happens if the banks fail?

The FDIC insures only $100,000 per depositor (including corporations) per insured bank.

What if a supplier of yours had all of its cash in one bank and that bank failed?

Yep, your supplier would only be guaranteed to recover $100,000 of it.

Could your most strategic suppliers stay in business with only $100,000 left? How long would that last them? How many employees – including employees that work on producing goods for, or providing services to, you – would be laid off immediately?

Nervous yet?

You should be.

I suggest getting on the phone today with the top management of your strategic suppliers to understand how diversified their deposits are. If all their banks failed today, what percentage of their cash would be preserved?

What is your plan if more Washington Mutual-type failures occur and impact your suppliers?

You should be thinking about it.

I have the feeling that the government legislators will agree on a rescue package before the stock market closes today. But there is a chance they may not.

Supply risk management is all about being prepared for such chances.

To Your Career,
Charles Dominick, SPSM
President & Chief Procurement Officer
Next Level Purchasing, Inc.
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Charles Dominick, SPSM, SPSM2, SPSM3

Charles Dominick, SPSM, SPSM2, SPSM3 is an internationally-recognized business expert, legendary procurement thought leader, award-winning entrepreneur, and provocative blogger. Charles founded the Next Level Purchasing Association in 2000, oversaw its incredible growth, and successfully led the organization to its acquisition by the Certitrek Group in 2016. He continues to blog and provide advisory services for the NLPA on a part-time basis as he incubates his upcoming business innovations. Charles is also the co-author of the wildly popular, groundbreaking book, "The Procurement Game Plan: Winning Strategies & Techniques For Supply Management Professionals."

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