Are you aware of all the potential risks lurking in your supply chain? Do you only see the tip of the risk-iceberg because you rely on manually intensive processes, spreadsheets, Google Alerts or even your suppliers?
Financial risk is one risk area that often leads the topic of discussion because of its familiarity. The crisis of 2008 brought financial risk to the forefront for many organizations. Monitoring financial risk is, and always will be, an area you should monitor, but leveraging traditional measures of financial stability fall short in today’s complex environment.
According to Dun & Bradstreet, bankruptcy rates have declined significantly year-on- year in 20 of 32 countries in their sample. And looking at the Business Continuity Institute’s Supply Chain Resilience Study, insolvency in the supply chain just cracks the top 10 causes of disruption.
Traditional approaches to gather data on supplier risk have been to rely on a credit rating provider, trust that the supplier will proactively communicate a disruption or change in their status, or reliance on periodic surveys and audits. The following top three tips can help you to learn how you can move your supply chain risk management program beyond financial risk.
One of the number one questions riskmethods faces is do you have data on private companies? Or do you have data on Asian suppliers? Without the necessity for companies to publish their financials based on their status or the country where they reside, financial information is not readily available. That is why risk insight should come from a variety of sources covering a variety of risk topics. Broadening the set of sources to include market and cost changes, regulatory and legal risks, or a suppliers’ quality and performance to name a few, often times provides a better indication of a supplier’s health as opposed to what can be found in a financial statement (which again, may not always be available). riskmethods’ comprehensive approach populates our customer’s supplier risk scorecards with the best information available, from a combination of information sources into a unified view. This data is normalized to a standard scale allowing customers to really start building true visibility with actionable insights.
To quote ancient Greek philosopher Heraclitus, the only constant in life is change. Reliance on periodic surveys can lead to outdated, inaccurate information. And even if you are monitoring the suppliers’ financials from a credit rating provider, if a company’s balance sheet starts to indicate that the supplier is struggling financially, with only quarterly or annual statements, it can be too late before the information is reported. riskmethods avoids this unnecessary delay in the flow of information by continuously monitoring risks across millions of online sources. Financial reports are static and provide information on what has happened, whereas dynamic information allows companies to leverage information about what is happening today or even a signal that is forward looking. riskmethods’ active monitoring brings transparency to early warning signals (such as plans to sell, late payroll or litigations) enabling you to take action quicker, gaining competitive advantage.
Disruptions are not limited to suppliers. Looking at Supply Chain Insights’ Supply Chain Risk Management Study, the top 2 most impactful disruptions on supply chains 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, causing greater impacts to your business that you may not have seen coming.
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.