Database Predicts Supplier Risks

Oct. 7, 2005
Both financial and operational health considered.

What's the best way to monitor for supplier instabilities -- or better yet -- predict them? With the quest for efficiency driving ever-tighter manufacturer/supplier dependencies, the question becomes more critical.

Providing an answer inspired the business plan of start-up Open Ratings, Waltham, Mass. The company's solution is SBManager, a database service that mines data from thousands of sources, both external and internal to its subscribing client list.

The company's mission: Give supply-chain professionals deep, predictive intelligence on both financial and operational health of suppliers, says Jim Lawton, marketing vice president. "Just monitoring financial health is not enough," Lawton says. He says performance deviations, such as quality problems, are usually the first signs that predict supplier instability.

The Open Ratings solution is a hosted database that uses statistical learning, a derivative of Bayesian machine learning.

"Today our database [is composed of] more than 50 million companies, and we have the largest database of companies operating in China."
-- Jim Lawton, marketing vice president, Open Ratings The software's design intent is to quickly identify the most subtle patterns from data sources as varied as EPA and OSHA violations, pending lawsuits and customer complaints. Supplier performance risk issues are continuously monitored and compared with peers. Lawton says the software is especially sensitive to signs of duress and deterioration in quality, on-time delivery and similar performance degradation. Financial performance also is monitored to provide historical context for the performance factors.

Well-known users include United Technologies, Goodrich, Honeywell, Lockheed Martin, Raytheon, Eaton and Yazaki. But Lawton notes that gaining the predictive edge on supplier performance may be more critical for small manufacturers.

User interaction with SBManager includes automatic e-mail alerts of supplier performance problems, says Dennis Lemon, president, BlueRiver-Consulting, Tempe, Ariz. Formerly a supply-chain executive at Honeywell, Lemon used the service to both qualify and monitor suppliers, including private companies. He says the early alerts made it possible to help valuable suppliers through a crisis.

Lawton says Open Ratings' business strategy is focused on enlarging its global supplier database. The company already claims to have the largest database of suppliers in China. He wonders, however, if strategies of manufacturers have caught up with the new supply-chain reality.

"If as much as 80% of a product's cost originates from outside firms, shouldn't the strategies for supplier monitoring be as focused as cost management?"

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