Researching relocation suppliers can be an exhausting process, involving extensive due diligence, countless meetings and input from a broad range of stakeholders. Interestingly, while most companies are willing to do the legwork – and they should, considering the impact relocation has on their talent management goals – there’s one provider attribute that often gets overlooked in a flurry of technology and cycle-time questions. And it’s arguably the most important.
The financial health of Relocation Management Companies (RMCs) and the companies that make up your mobility supply-chain represents the single-biggest risk to any corporate program. This was most evident in the late 2000s, when many North American RMCs had their lines of credit greatly reduced (or in some cases suspended) by their banks, forcing clients to use their own working capital to fund their programs. When your RMC is suddenly restricted as to the amount of capital it can make available to its clients, make no mistake—you’ll feel the impact.
The good news is that you can implement policies and procedures to insulate your program from supplier financial risk. One of the best ways is to avoid exposing your firm to financial risk in the first place by making sure that you avoid suppliers that are in poor financial condition or are not creditworthy. To that end, there are a couple of basic questions that we recommend companies ask during the RFI or RFP stages to preemptively manage relocation supply chain risk.
1. Did the RMC earn a profit during the most recent calendar year or fiscal reporting period?
2. Did the RMC generate positive cash flow during the most recent calendar year or fiscal reporting period?
3. Does the RMC’s balance sheet demonstrate that it is liquid (current assets in excess of current liabilities)?
4. Does the RMC have an adequate capital base according to the most recent month-end balance sheet (i.e., paid-in capital and retained earnings)?
5. Is the RMC in compliance with bank covenants based on the most recent quarterly covenant package?
6. Does the RMC have an adequate line of credit (LOC) to meet working capital needs and/or to fund your relocation program at a competitive rate?
Although there may be good reason why an RMC can’t answer “yes” to any of the aforementioned questions, you should consider inability to answer positively to all six a red flag.
While this approach covers pre-award, how do you continue to manage the financial risk of your supplier post-award, when the stakes are considerably higher? Our experience shows that companies would be well-served by using the same disciplines and protocols they apply to customer credit reviews and accounts receivable agings to monitor the financial risk of their RMC.
A good example of this is our best-in-class approach to managing supplier risk: our annual Supply Chain Risk Assessment Report. This report benchmarks and assessed the performance of our down-stream suppliers, such as household goods shippers, to ensure that they continue to comply with our baseline financial risk management standards and that they will be able to provide uninterrupted service to our clients and their mobile workforce.
This report is also designed to serve as an early-warning mechanism so our supply-chain and financial professionals can act in a proactive and responsible manner to preempt and mitigate risk.
If you have any questions as to how to make financial stability/risk a more important criteria in your RMC selection and retention processes, feel free to contact us.
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