3 Tips for Moving Beyond Supplier Financial Risk
by Ali Jawin
Of the many kinds of supply chain risks, financial risks tend to get the most attention. The 2008 financial crisis forced many organizations to address financial risk and ever since, it has been a priority for procurement professionals. While financial risk is important, the way financial risk is traditionally monitored still leaves your supply chain vulnerable to threats.
Traditional approaches to financial risk rely on credit ratings, assumptions on the strength of your supplier relationships, and audits or surveys that are out of date nearly as soon as they are completed. These three approaches don’t cut it in today’s complex environment, but the following three tips will show you how to manage financial risk better AND how to begin managing other kinds of supply chain risks.
Tip #1: Use more than one data source
Risk insight should come from multiple data sources covering a variety of risk topics. One data source might provide financial risk information for public companies, but that isn’t much help for your smaller and private suppliers.
It’s critical that risk intelligence comes from a variety sources for each kind of risk in your supply chain. When you broaden your set of data sources to include market and cost changes, regulations and supplier performance, you may have a better, and more timely view of your suppliers’ health as well as their overall level of risk.
Tip #2: Make sure your data is updated in near real time
Conducting periodic surveys and monitoring suppliers’ financials from a credit rating provider is a step in the right direction, but as soon as that information is published, it is out of date. A survey conducted six months ago provides no indication as to the current status of your supplier’s operations, and quarterly financial statements don’t give you an accurate picture of your supplier’s current financial stability.
Static data sources like financial reports are useful in discovering what happened, but only dynamic data sources can tell you what is happening. Dynamic data sources continuously monitor risk across millions of online sources to provide risk information in near real time, so you can leverage information about what is happening now. If you learn that one of your suppliers has plans to shut down a production plant before your competitors, you have the competitive advantage.
Tip #3: Monitor site level risks
Supply chain disruptions are not limited to suppliers. In fact, the top 2 most impactful disruptions in 2015 were the West Coast ports slowdown and Hurricane Sandy, both location related events. It’s important to look beyond the supplier business entity and extend coverage to site level risks which can also occur at transportation hubs, warehouses and at sub-tier suppliers.
Financial risk has been the bread and butter of supplier risk management, but threats grow as supply chains expand. With other risk areas on the rise, the current practices we see are insufficient.
Do you only see the tip of the risk-iceberg because you rely on manually intensive processes, spreadsheets, Google Alerts or even your suppliers? Want to learn more about moving beyond financial risk? Watch our 30 minute webinar or check out Spend Matters’ paper for even more tips on how to protect your supply chain from all potential risks.