How Healthy Are Your Suppliers?  

To get a complete picture of financial health, you need real-time data

Supplier bankruptcy? Ouch. This worst-case scenario is likely to cause serious problems for your organization. Any financial difficulties in your supply base are red flags for your business. Yet relying on financial reports or credit ratings does not tell you fast enough if a supplier is currently struggling. Only forward-looking indicators can warn you of impending trouble.

What should you look out for? Bankruptcies rarely happen out of the blue. Many leading indicators signal that a company is having difficulty, and while negative numbers will eventually appear in financial statements, there is certainly no reason for supply chain risk managers to wait. Timely indicators of potential financial distress include force majeure declarations, changes in labor, changes in management, revised growth outlooks or even M&A activity. And other financial issues such as cash-strapped logistics companies or regulatory penalties can also affect your bottom line. To effectively manage financial risk in your supply network, you need to monitor your supply network in real-time. This empowers you to proactively mitigate any potential impact.

A Range of Consequences

Financial risk remains one of the most prominent supply chain risks. Because your suppliers’ financial troubles are passed down the line, they can hit you in the following ways:

  • Supply interruption: Hinders your ability to manufacture products. Unplanned costs rise rapidly.
  • Decline in quality: Supplier shortcuts can reduce your own product quality, safety, or compliance.
  • Request for assistance: They ask to re-negotiate contracts, payment terms, or they increase prices.
  • Business closure: Following this worst-case scenario, you need time and money to identify, qualify, and onboard new suppliers.

And usually, these consequences are not “either-or.” Taken together, they can significantly affect performance and cause financial stress in your own organization.




How to Identify, Assess and Mitigate Financial Risk

When a supplier is showing signs of financial distress, actions you can take for managing financial risk in your supply network include:

  1. Assess the strategic value of the supplier to your organization. How critical are they and how hard would they be to replace?
  2. Map out the interconnectivity of your suppliers to understand the potential impact across your supply chain.
  3. Identify and source alternative suppliers. Diversify your supplier base for a category in advance of a sudden risk event, or hold alternatives on retainer if possible.

The Role of Technology

Most companies conduct financial health checks during supplier selection and onboarding, but that’s not enough. The comprehensive supply chain risk management strategy of The riskmethods SolutionTM includes real-time monitoring to detect up-to-the minute signs of distress. We provide early warnings, so you are able to use preventive risk management and we cancel out the noise, to make sure you receive data relevant to your organization. Additionally, riskmethods works with premium content partners, including RapidRatings, Creditsafe, Bureau van Dijk, Dun & Bradstreet, to feed your risk profiles with specialized financial risk information.

When you are aware of red flags, you can be ahead of financial risk, react faster, be better prepared, and proactively have action plans in place. riskmethods AI-based technology enables you to effectively manage financial risk in your supply network, to ensure business continuity, save time and costs, and gain competitive advantage.

For more, read our new whitepaper: Managing Financial Risk in Your Supply Network





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