The Intersection of Credit and Supply Risk: A Practitioner's Perspective

5 strategies that credit can use to help procurement to detect supply chain financial risk

How does financial risk affect your supply chain -- and how can you manage it better?

That was the topic of a recent webinar, hosted by supply chain expert Michael Forbes. And when it comes to managing supply chain risk, Mr. Forbes has decades of hands-on experience. He built high performing supply chain organizations at both Raytheon and Northrop Grumman, and is a popular speaker at ISM and other industry events.

Mike shared insights on supply chain financial risk, and other perspectives from his 38-year procurement career.  Here are our favorite five points for financial risk management professionals to consider:

1. “3 bids and a buy” doesn’t cut it anymore

Not that long ago, “3 bids and a buy” described sourcing in many companies. But today, procurement goes well beyond just supporting production goals. The supply chain function is the “tip of the spear” for achieving much broader strategic goals, from environmental compliance to cybersecurity. Procurement practitioners must balance a wide range of risks, including critical financial risks, and put together deals that support company strategic goals.

2. Building your Critical Supplier "Watch List”

Of thousands of suppliers, which ones should be added to your critical supplier "watch list"? The answer isn’t based on a dollar-driven dynamic.  As an example, consider the tailhook on an aircraft carrier. It may be a small part, but without it, flights would be grounded!

Typically, your “biggest worry” suppliers will meet one or more of the following criteria:

  • Program critical
  • Process unique/proprietary
  • Sole source
  • Special circumstances

3. The value of a collaborative “thinktank” pizza lunch

You’ve identified your supplier watchlist: Now what?  Michael explained the value of a collaborative monthly "thinktank” lunch with peers across both the credit and procurement function, to review and process new information, such as daily alerts from CreditRiskMonitor portfolio news updates. This simple practice helped his team move beyond the tactical, and develop strategic risk mitigation plans before they were needed.

4. Think globally, and beware of the zip code trap:

Supply chain financial stress can compromise your company’s reputation and profit objectives.  Avoiding a slip up is critical to your company’s success.  In that regard, it’s important to do your due diligence on far-reaching corporate linkages. Even if a local subsidiary seems financially resilient, distress in the parent company can change everything. “Beware of the zip code trap!“

5. An advanced playbook to mitigate risk

If things go bad with a supplier, what’s your exit plan? Webinar attendees were offered a special download, covering these 5 strategic risk mitigation options:

  • Escalation to management
  • Financially assist/provide funding
  • Buy the company (strategic partner)
  • Re-source (second source, bring in house)
  • Re-design product to get around that supplier

Supply chain and credit professionals have a weighty responsibility, and risk management can’t be left to chance. 

For in-depth supply chain insights from Michael Forbes, Watch the Webinar Replay 

About CreditRiskMonitor

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 more than 56,000 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 $150 billion in trade data on their counterparties every month, giving them visibility into their biggest dollar risks.