The Dynamic Duo: How a Credit-Procurement Partnership Can Reduce Supply Chain Risks
Whose job is it to monitor supplier financial health? Procurement Leaders magazine recently wrote about how leading organizations manage this often overlooked supply chain risk.
In many companies, finance and procurement work together to boost performance. Finance takes the lead on assessing financial risks, and procurement takes the lead on strategic sourcing to mitigate those risks. In others, this role rests squarely with the procurement pro.
The key learning is this: Suppliers fail all the time, and bankruptcy risk is increasing. It doesn’t really matter who leads the process, as long as someone in the financial or procurement organization maintains a tight focus on changes to supplier financial health, in time to take action.
Teamwork: Building Contingencies in Canada
The commercial credit officer at a leading Canadian utility helps his procurement counterparts evaluate potential suppliers. He recommends that “additional guarantees be contractually required to mitigate any financial inconveniences” that may arise in relation to a financially stressed supplier.
This executive uses both the Altman Z-score and the FRISK® score to quickly identify companies that may warrant closer analysis. When companies fall into the FRISK® score’s red zone, they’re immediately subject to a full credit review.
Collaboration In A Fast-Changing World
In a recent webinar, supply chain risk expert Michael Forbes, former Director of Corporate Supply Chain Risk at Northrop Grumman, suggests some practical ways to get ahead of supply chain financial risk.
In his presentation, “The Intersection of Credit and Supply Risk: A Practitioner’s Perspective”, Michael explained the value of a collaborative monthly "thinktank” pizza lunch with peers across both the credit and procurement function, to review and process new information, such as daily alerts from CreditRiskMonitor’s portfolio news updates.
This simple practice helped his team move beyond the tactical, and develop strategic risk mitigation plans before they were needed.
How Procurement Pros Can Go It Alone
A strong partnership between credit and procurement is one way to help to protect your supply chain from financial risks, but there are other ways too. Though procurement pros don’t routinely master financial statements, ratios, and corporate finance news, third-party monitoring tools are so easy to use that you don’t necessarily need that skillset to track your suppliers’ financial risk in real time.
A predictive metric like the FRISK® score makes it easy to monitor the changing financial conditions of your suppliers. When combined with a monitoring service, the alarm bells sound when a supplier’s financial situation deteriorates – giving you plenty of time to find alternatives, or take other action.
How does your organization manage supply chain financial risk?
CreditRiskMonitor is a financial news and analysis service designed to help professionals stay ahead of public company risk quickly, accurately and cost-effectively. More than 35% of the Fortune 1000, plus thousands more worldwide, rely on our commercial credit reporting and predictive risk analytics for assessing the financial stability of over 58,000 global public companies.
At the core of CreditRiskMonitor’s service is its 96% accurate FRISK® score, which is formulated to predict public company bankruptcy risk. One of four key components calculated in the FRISK® score is crowdsourced subscriber activity. This unique system tracks subscribers' patterns of research activity, capturing and aggregating the real-time concerns of what are essentially the key gatekeepers of corporate credit. Other features of CreditRiskMonitor’s service include timely news alerts, the Altman Z” score, agency ratings, financial ratios and trends. CreditRiskMonitor’s network of trade contributors provides more than $135 billion in trade data on their counterparties every month, giving them visibility into their biggest dollar risks.