Yesterday, Panjiva came out with news that paints a dangerous and ugly picture when it comes to the financial viability of global suppliers. Based on a sample size of fewer than 100,000 overseas vendors, Panjiva published data from its "watch-list" of at risk suppliers. According to the most recent month’s trending data 28% of significant manufacturers (those sending 10 or more shipments to U.S. buyers in the past year) are now on Panjiva's watch-list (which they define as suppliers suffering a 50% or more decline in volume shipped to U.S. customers during the most recent 3 month period compared with the same period a year ago). After the announcement I had the chance to speak briefly with Josh Green, Panjiva's CEO, and he shared with me that the 28% number represents a month-over-month increase of nearly 8%. That's serious. But what's even more alarming is the number of buying organizations working with suppliers on the watch-list. To wit, 74 of the largest 100 buyers received shipments from a watch-list manufacturer in the last 3 months (this number climbs to 83 for six months). What is Josh's interpretation of the latest numbers?
Clearly, "Things are still getting worse. The numbers have edged up from comparable numbers a month ago. It's not dramatic, but it is still significant. My personal expectation is that the next couple of months are going to be the worst." There are a few reasons for this. "On the one hand you have a general weakening of demand. But we are also seeing a second tier effect of buyers winnowing their suppliers down. By identifying suppliers and shifting orders from weaker suppliers to strong suppliers, it raises the chance that smaller suppliers will fail." This spend consolidation activity will also cut into suppliers margins as companies expect price concessions.
Josh recommends 3 steps. First, he suggests that now is the time to look hard at your supply base and separate the strong from the weak. Move quickly. "Risk in the global supply base is higher than it has been in a very long time," Josh cautions. "Now is the time is to make the investment and take action." Second, "Don't be afraid to demand transparency from your suppliers. There's an extent to which people have treaded lightly with suppliers. That's OK in an environment where suppliers are booming. But today, it's critical to ask for transparency." Third, Josh self-servingly -- but I believe very much correctly -- suggests that using "third-party data" to confront suppliers can be invaluable (e.g., Panjiva or D&B information). Why? "Third-party data is less threatening" than asking to look at a supplier's books, for example. Third-party information "puts you in the driver's seat" by helping set the tone of the conversation and it also suggests that you've done your homework. The first question then becomes "what do we do about this, if indeed it is accurate" than "how are you doing."
In my view, Panjiva is doing a great job getting the word out about not only the value of global shipping and trade information, but also how to act on it. Despite some of the shortcomings of this data -- which I've outlined before -- those organizations engaged in global sourcing would be foolish not to consider data from Panjiva or others like them in their global supply risk analyses.