As the lifeblood of a solar company’s operations, your suppliers must be fully reliable, and that means being financially stable and secure. Making sure your suppliers are fully vetted for reliability and financial stability could actually be the most important task undertaken to ensure business success and growth in the future. It’s a symbiotic relationship between an organization and its suppliers that carries risk on both sides of the equation. Suppliers need and want to know that they are secure in your supply chain, and solar company executives need to know that their suppliers will be there when they are needed.
An installation project can easily fail if even a single critical supplier is suddenly bankrupt or unable to respond because of cash flow issues. Multiply that one failure by the number of projects done yearly by your company, and it’s easy to understand by assessing how the financial stability of your suppliers is critical to your success.
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For example, relying on one supplier for a key product or service creates risk for a solar company, especially since there are always multiple forces outside the control of the supplier — weather, shipping times, manpower, etc. A recent MIT/PwC study shows that “supply chain operations are most sensitive to skill set and expertise (31 percent)” and more than 60 percent see drops in financial performance as the result of disruptions within their supply chains.
Solar companies frequently contract with panel makers/distributors, onsite assessment organizations and installation companies. These are places where the solar company’s supply chain is at risk. If one of these contracting firms is on the brink of insolvency, it will damage the solar company’s ability to complete projects and maintain their own reputation.
If an organization takes the time to truly vet its suppliers — including gathering and monitoring financial information on key suppliers and maintaining a close eye on this information — it can mitigate or even remove the inherent risk in business/supplier relationships. Consider the time and energy it takes to replace a single critical-yet-unreliable supplier, and it becomes clear why properly vetting the financial strength of your suppliers can help drive success.
Important steps to take
• Assess risk and then do the appropriate research. Different organizations have differing levels of risk comfort depending on the importance of the supplier to the business’s success. Carefully determine where the greatest risk lies for your business.
• Gather the right data. Once you know where your business is most vulnerable, begin gathering data to determine the supplier’s financial health. Here are some places to start in the information-gathering process:
º Annual revenue
º D&B scores
º 3rd party financial ratings
º Legal searches
º Debarment searches
º Business continuity plans
º Financial references
º Merger/acquisition activity
• Research and consider third-party ‘tracking’ solutions. Not every business has the internal resources necessary to handle several supplier assessments. There are third-party organizations with which solar companies can partner to gather, validate and track over time all required supplier information, along with compliance data (where required) and other prequalification needs.
By making sure to protect your business by finding the most reliable and financially secure supplier partners, you can minimize the risk and threats that might otherwise be introduced to your business. It’s definitely worth the time to determine the path to protect your business, customers and employees.
Richard Parke is SVP of Supplier Services at Avetta.
January is Residential Solar Design Month here at Solar Builder. Check out all of our residential solar news and insights this month right here.