Supply Chain Financial Risk

Supply chain financial risk is the possibility that suppliers will encounter a business scenario that threatens their financial health. A financial risk event can occur as a result of a supplier bankruptcy, market volatitlity and much more.

Financial Risk Example: Hanjin Shipping Insolvency

Hanjin Shipping Co., Ltd. was a shipping company based out of South Korea. One of the world’s top ten container carriers, Hanjin transported approximately 3.7 million containers a year.

In 2016, it was revealed that Hanjin was suffering a financial breakdown. Ships were seized, and those that docked at ports weren’t unloaded because service providers didn’t know if they would be paid. After debt restructuring, asset freezing and asset confiscation, Hanjin announced office shutdowns, employee layoffs and the dismantling of their service network. In 2017, they were declared bankrupt and liquidated.

To this day, Hanjin Shipping is the most significant bankruptcy in the container transport industry—millions of dollars in revenue were lost due to inventory being stuck at sea.

3 Things To Know

1. Suppliers Should Be Actively Monitored

Lots of companies do a financial health check during supplier selection. That’s good…but it’s not enough. If you’re not actively monitoring the financial status of the suppliers in your network—from first tier to end tier—you’re opening yourself up for a nasty surprise.

2. Predictive Insights Are Key

If you’re reading about a supplier bankruptcy in the news, then it may already be too late. There are lots of advance indicators that can warn you of impending trouble. Make sure you know what they are, and that you’re on the lookout for them.

3. Managing Risk Provides Competitive Advantage

Imagine this scenario: You learn about a supplier’s financial troubles before the news becomes public knowledge. You quickly secure existing stock, and then identify an alternative supplier. Not only have you mitigated your risk—you’ve done so before anyone else has. Now that’s a competitive advantage.

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