By Guest Editor
Supply chain resilience and business continuity are close cousins. If one sputters, the other is immediately placed at risk. To avoid disruptions in business continuity, supply chain-induced risk events (such as products that are delivered late or products that, once delivered, are found to be defective) must be avoided. There is a direct correlation between high risk company financial health and their poor performance in operational risk areas. High risk-rated companies have a greater likelihood of delivering products that are faulty (by a factor of 2) and delivering products late (by a factor of 2.6).
But identifying such risks can be complex, particularly when supply chains can consist of thousands of different business entities, some large and some small, some public enterprises and many others privately-owned companies.
The advice from James Gellert, CEO of RapidRatings (www.rapidratings.com), the leader in financial health analytics, is for companies to build the most resilient ecosystem of suppliers possible. That means managing the risk and identifying where within the supplier community the highest (and lowest) risks may lie.
“Supply chain risk management is evolving rapidly and much has changed over the last 5-6 years,” said Gellert. “What was once a very operations and logistics-oriented discipline has now become much more multifaceted. Maintaining resilient supply chains touch elements of cybersecurity, financial risk, governance and compliance, and incorporate supplier performance KPIs like quality and delivery,” he said.
Companies have core groups of suppliers that they work with over long periods of time. Then they add new suppliers to accommodate market shifts. And, according to Gellert, it is just as important to assess the risk of long-time suppliers as it is to evaluate the newcomers. “We’re in a world where companies are always in transition. Acquisitions are commonplace, companies are moving into new geographies, new markets and new product lines. As your suppliers’ business evolves, so does their financial health and their ability to continue to perform. As such, it’s not enough to perform a one-time assessment at onboarding. The company you worked with even three years ago can be a very different company from what it is today and ongoing assessment can help you understand if they are an appropriate and financially sound complement to your evolution.”
C-level support and adequate funding is critical for strategy execution
A well-honed supply chain risk strategy requires senior level support and needs to be communicated across the various business units. In that way, cross-unit procurement functions can work in concert with one another. If not, the kernels of risk management throughout the company will not work as a cohesive whole. Other critical success factors include budgeting for the proper tools that enable a proper risk management strategy and excellent data management (which remains a significant challenge for many companies).
Data is a critical success factor when it comes to supply chain risk assessment. “Our system is quantitative and adaptive,” said Gellert. “When we rate a new company, it becomes a part of the overall data set that fuels the insights on the next company that’s rated. We have 12 million company-years of financial data in the system representing hundreds of thousands of companies. It’s a very robust data set,” he said.
Gellert rates both private and public companies, from Fortune 10 to Fortune 1000, and also rates companies with only a few million in revenue. The hard-to-get private company data is not an obstacle for Gellert because these firms see the value of sharing their data with a trusted third party. “When we are rating private companies for a client,” said Gellert, “we are not taking that company’s data and selling it to other people. We maintain the client confidentiality. That’s why private companies aren’t hesitating to disclose their financials to us,” he said.
The underlying anonymous data, contributes to a pool of trend and benchmarking information that is organized by geography, by subcategory of industry, and by size. “That’s a unique aspect of our business,” said Gellert. “Many suppliers are now approaching us to opt in. We rate them and they pay us for distribution of those ratings to anyone they wish. In this way, they proactively prove to their potential new clients that they are worthy suppliers from a risk and business performance perspective. We have a 90% success rate in convincing private companies to disclose financials, and we demonstrate value by helping both the client and the supplier,” he said.
RapidRatings (www.rapidratings.com) helps companies manage their supply chain-related enterprise and financial risk through cloud-based access business performance and risk assessment indicators. The company’s analytics system provides predictive insights into third-party partners, suppliers, vendors, customers and securities issuers. As a trusted third party, the company enables more transparent collaboration through their RapidRatings Financial Health System™.
George E. Krauter
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