Supply Chain Risk Mitigation: Part II

Experts insist that there’s a “private company conundrum” that keeps shippers from conducting a thorough financial analysis.

By ·

Analysts advise shippers to take an inventory of existing and potential risks as a way to determine immediate threats and those that may be posed in the future by suppliers. But experts insist that there’s a “private company conundrum” that keeps shippers from conducting a thorough financial analysis.

“Logistics managers often don’t understand the information provided, and are afraid to ask for help,” says Kelly-Falls. “If the manager decides to rely on his finance team to examine the details, the contracting deal may fall through because time has run out.”

Moreover, says Kelly-Falls, some suppliers will stop supporting current products or service if financial due diligence is employed. She says that is not uncommon for suppliers to negotiate disclosure “out of the contract,” and offer a price incentive to avoid submission of the information.

“Managers often tell me that they would just prefer not to have this confrontation,” she says. “And if they do have the courage to start one, they may not follow through if the supplier begins to stall.”

Rapid Ratings International is trying to address these concerns by providing managers with a financial analytics “checklist,” containing the following questions:

*How many of your suppliers are private? Has this even been reviewed?
*How many have had financials assessments completed in the last
year? Last three years, or even the last 5 years?
*If there a systematic process for financial analysis or it is triage?
*If your procedures require you to conduct financial assessments?
*What method is used in order to measure financial risk?
*How many suppliers are in the US? How many are international ?
*The revenue impact that critical components have on the business?
*If other operational issues (warning signs) trigger a financial review?
*If you analyze tier I, II and III suppliers? Do you know who their tier II
and tier III suppliers are?

By taking these steps, says Kelly-Falls, shippers can create an opportunity to build a strategic and collaborative relationship. She cautions, however, against using the information as a “cost reduction” initiative.

“You should share the analyis with the supplier so they are aware of the results,” she adds. “This allows for an open dialogue, demonstrates that that you respect supplier’s request for limited access to the data.”

But if the supplier still says “no,” it may be time to go to a third-party for a final evaluation of the relationship. Suppliers with inconsistent financial issues, says Kelly-Jones, tend to become unreliable and
eventually will be your “full time job.”

“Financial health isn’t just about default/failure, its also about having the
ability to make better business decisions,” she adds.

Next: Cyber Security Concerns


About the Author

Patrick Burnson, Executive Editor
Patrick Burnson is executive editor for Logistics Management and Supply Chain Management Review magazines and web sites. Patrick is a widely-published writer and editor who has spent most of his career covering international trade, global logistics, and supply chain management. He lives and works in San Francisco, providing readers with a Pacific Rim perspective on industry trends and forecasts. You can reach him directly at [email protected]

Subscribe to Modern Materials Handling Magazine!

Subscribe today. It's FREE!
Find out what the world’s most innovative companies are doing to improve productivity in their plants and distribution centers.
Start your FREE subscription today!

Article Topics

· All Topics
Latest Whitepaper
Mobile Solutions: Improving Supply Chain Efficiencies
To meet customer's ever-increasing service expectations and improve their business efficiency, companies are looking to their supply chain operations – especially material handling and warehouse operations managers.
Download Today!
From the February 2017 Modern Materials Handling Issue
In warehouses and DCs, planning solutions tend to take a back seat to execution system functions. Vendors are working to boost the trust factor using tools that break down forecasts and blend with analytics.
Automated Storage on the Move
Receiving 101: Setting the Table for Success
View More From this Issue
Subscribe to Our Email Newsletter
Sign up today to receive our FREE, weekly email newsletter!
Latest Webcast
2016 Warehouse/DC Operations Webcast: Confronting omni-channel complexity
During this webcast we’ll examine the current activities, trends, and best practices in warehouse and DC operations management and how companies plan to address complex issues associate with omni-channel fulfillment.
Register Today!
EDITORS' PICKS
Johnson & Johnson: A vision for automation
J&J Vision Care brings together a variety of automated technologies, including an innovative...
Using AGVs at LEDVANCE
The lighting manufacturer reaped savings by reducing maintenance costs and product damage, and using...

System Report: Sustainable Distribution at REI
Specialty outdoor retailer REI’s new distribution center brings together the next generation of...
System Report: Whirlpool puts mobile robots to work
In Whirlpool Corp.’s Clyde, Ohio, factory, mobile robots have automated the delivery of parts to...