陈经纶体校Every company should regularly review their supply chain counterparties for deteriorating credit quality. 陈经纶体校When vendors become financially distressed, corners are cut for the sake of cost reductions at the expense of product and service quality. For example, significantly lower core operating budgets, such as labor expenses, is a major red flag. It is also important to monitor if a manufacturer is limiting capital spend as a percentage of depreciation, investment into plant and equipment, or budgets for research and development. Such actions can lead to short-term disruptions and eventually inferior product offerings relative to competitors. One or more of these upsets will usually transpire in advance of a bankruptcy filing.?
By identifying counterparty financial stress early on in the game, companies can improve their supply chain’s resilience by resisting, i.e. avoiding and containing, disruption and if unpreventable, being able to quickly recover from those disorderly events. By mitigating disruption, your company will circumvent revenue shortfalls, financial loss, and even reputational damage.?
Regarding the workflow process, CreditRiskMonitor recommends evaluating your most valuable suppliers first (i.e. criticality, spend stratification, suppliers of suppliers, and customers of suppliers) and then assessing by financial risk. Total public company transactions typically represent a higher percentage of overall spend than private company transactions since public ones normally have significantly higher dollar values despite lower absolute numbers. The aforementioned FRISK? score enables users to address distressed counterparties first. 陈经纶体校Moreover, the FRISK? score provides supply chain professionals an edge compared to other risk scores because it is updated every day.陈经纶体校 Most other ratings and scores only reflect quarterly or semi-annual information, yet many unforeseen events can transpire in between reporting periods, with significant changes potentially including:
- Executive management
- Subsidiary divestment
- Financial guidance
- Special dividends or tender offers
- Credit agreements
- Strategic alternatives
- Plant shutdowns
The FRISK? score can capture all of these developments in real-time, not months after the fact. The model uniquely leverages four data factors including stock market performance, financial statement ratios, bond agency ratings, and our proprietary subscriber crowdsourcing data. All factors are dynamically structured to function together and offset the shortcomings of any individual component. Stock market performance and subscriber crowdsourcing in particular allow the FRISK? score to be refreshed daily. For example, senior executive departures in combination with other red flags might lead subscriber crowdsourcing to send a negative signal to the FRISK? score and those with that company in their portfolio would be immediately notified. The coronavirus pandemic is the perfect case example. The outbreak has hampered certain sectors much more than others, such as the automotive industry, and FRISK? scores have been updated accordingly.
Financial risk, especially during the coronavirus pandemic, should be a primary consideration among vendors and suppliers of those vendors as well as customers of those vendors as bankruptcy filings are skyrocketing. We have found that the median U.S. supplier has reduced capital expenditures into property, plant, and equipment by 33% and has increased their total debt to asset burden up from 26% to 30% in the last two years. Such actions only magnify vendor financial risk and create pitfalls in supply chains. While Ford operates with a highly diversified supplier base, bankruptcies at two strategic suppliers would have an enormous impact on production and materially worsen its already overwhelming operating losses. By using the daily FRISK? score, risk management best practices, and peer analysis, supply chain professionals can proactively avoid these sorts of disruption and save their firms precious time and resources. Contact us today for a free risk assessment to increase your supply chain’s financial durability and resilience.