Test Your Supply Chain Financial Risk IQ

procurement executive thinking about global supply chain financial risk

It’s often said the biggest risk is not the one you see, but the one that’s hiding in plain sight.

Similarly, supplier business failure can result in huge disruption, but often goes undetected. On the bright side, however, supplier financial stress is can be caught early and mitigated, if procurement executives know where to look. 

Take this short quiz, to check your awareness of supply chain financial risks.

Supply Chain “Financial Risk IQ” Quiz

Here are 6 questions on supply chain financial risk. Let’s see how many you get right:

1. Which event poses the greatest financial risk to your company?

  1. Your company loses an important customer, impacting your sales forecast
  2. Your company loses a strategically important supplier, whose dollars comprise 1% of the cost of goods sold.


Answer: No one likes losing a customer, but other customers can help take up the slack. But when production shuts down, it could jeopardize many months of sales. On balance, “B” might represent the greater revenue risk.

2. What percentage of companies has experienced supply chain disruption due to financial events?

  1. 9%
  2. 14%
  3. 25%
  4. 43%


Answer: Here’s a sobering statistic: 25% of procurement operations have experienced supply chain disruption for financial reasons. The correct answer is “C”. (Source: Study of 450 procurement professionals around the world, conducted by supply chain consulting firm Achilles).

3. What’s the best way to evaluate the financial health of potential suppliers?

  1. Credit Agency Ratings
  2. Shipping Behavior
  3. The Altman Z-Score
  4. The FRISK® score


Answer: There are many sources of financial information. Each is suited to a different purpose, with strengths and shortcomings. Here are some of the facts that make “D” the best choice. Credit agency ratings are designed for grading bonds, limited to bond issuers; shipping behavior, like payment behavior, can be misleading, especially for public companies; The Altman Z-Score distress warning is sometimes too early.  On balance, “D” is the most reliable way to detect big public company risks.

4. What percentage of companies never monitor supplier financial data?

  1. 15%
  2. 22%
  3. 43%
  4. 52%


Answer: According to the Achilles study of procurement professionals around the world “22% of businesses don’t even have the most basic financial reports for their main suppliers.” The correct answer is “B”.  

5. Compared to just before the financial crisis of 2007-9, is the level of global financial stress and bankruptcy risk:​

  A. Lower
  B. The same 
  C. Higher

Answer: The correct answer is “C”. As the global economy encounters financial headwinds, financial risks to the supply chain are worsening. Now, global bankruptcy risk is 53% greater compared to right before the Financial Crisis, according to the FRISK® Stress Index

6. What is “supply chain visibility”?

  1. Keeping current with weather-related, political, and other risks, by monitoring global weather reports, news and other reliable data sources
  2. Staying aware of critical supply chain risks, through site visits and regular vendor communications
  3. Constructing a risk management process that helps you anticipate and monitor critical supply chain risks, including financial risk
  4. All of the above.


Answer: We hope everyone answered “D”! Procurement professionals can proactively mitigate supply chain risks with the right data, of all kinds. This includes gaining visibility into supplier financial health, using the right financial metrics, to supplement other important sources of information. 

Your Supply Chain Financial IQ:  Scoring Your Results

So, how did you do on the quiz? 

  • If your score was a 5-6, congratulations!  You’re more financially savvy than most of your peers. 
  • If your score was 3-4, we hope we’ve helped raise your awareness of an important risk.  Preventative planning now, will help you avoid risk later.
  • If you scored a 1-2, you have some work to do, to avoid getting blindsided! To avoid your growing risks, get some help … stat!
     

Learn 5 strategies to predict and manage supply chain financial risks.
Read the informative Procurement Leaders article, “You’ve Been Warned”

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 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.