Report: Act Like a Credit Rating Agency When Vetting Suppliers

Supplier financial vulnerability continues to be a concern in the supply chain.

In fact, now that the risk is so significant, a new report urges companies to start acting like their own credit rating agencies.

The New Weakest Link in Your Supply Chain: Supplier Credit, a report from Oliver Wyman in collaboration with the Association for Financial Professionals (AFP), says that:

. . . supply chain risks have moved from the province of engineers into the realm of chief financial officers and treasurers. To emerge from the global recession unscathed, companies should rethink their approach to supply chains by behaving much more like their own credit rating agencies and fast.

According to the report, credit rating agencies have downgraded the ratings of more than 500 companies in North America since April. Plus, the number of US businesses filing for federal bankruptcy protection has risen 126 percent over the past few years. Obviously, companies in your supplier network could be at risk, and it makes sense to take a hard look, specifically with strategic suppliers.

To mitigate supplier financial risk, the report suggests developing a predictive credit analysis framework that includes:

supply chain management metrics

qualitative not just quantitative factors.

Forward-looking supplier risk analytics are critical in today's complex, global business environment. Sure, some economic indicators say we're in a rebound. But, others suggest the recovery has reached a plateau. For me, it's clear that there's still quite a remarkable level of instability out there, and that means this is no time to ease up on your strategies to mitigate supplier financial risk.

The eight-page report is available here.

TAGS: Finance
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