Northern Services Inc.

The Purchasing Policy Guidelines of the Northern Services Inc. indicate that the company is committed to procuring its goods, products, and services from a diversified pool of vendors, contractors, and service providers.

Despite these guidelines, Northerns purchasing manager prefers to maintain a small cadre of suppliers that he knows and trusts.

How would you expect this situation to affect the assessment of Northerns financial condition and performance?

1. Although nonquantitative factors may be relevant to a companys financial evaluation in general terms, the details of this specific situation are not relevant to the firms financial condition or performance.
2. The purchasing managers behavior should be expected to increase Northerns riskiness by increasing its exposure to potential supply shortages or mistimed deliveries.
3. The purchasing managers behavior should be expected to decrease Northerns riskiness. His belief that the use of trusted suppliers will prevent or eliminate any inventory or supply delays or outages is, no doubt, correct.