In this final post in this series covering D&B's Supplier Risk Manager solution (click here for Part 1, Part 2 and Part 3), I'll provide additional commentary on how D&B leverages predictive indicators to forecast supply risk, thereby giving as much early warning of impending supplier failures or supply disruptions under ideal (and hopefully less than ideal) circumstances as possible. As a foundation for its predictive indicators, D&B first leverages the DUNSRight process, focusing on five key steps: global data collection, entity matching, D-U-N-S® Number creation, corporate linkages and then, predictive indicators. Based on reference checks we've conducted on the underlying process for collecting this information, we've found the quality and depth to be the highest for companies above a certain threshold (e.g. $200 million) in North America. D&B's process begins with sorting through what they claim is 20,000 data sources, including: trade data, banking information, court / legal filings, business Internet Data, Business Registries, Company Financials / National Debt Rankings and D&B telephone interviews.
This process has led to D&B's current management of records on 27 million+ businesses in the U.S. and on 160 million businesses in more than 200 countries. Spend Matters' own research and analysis suggests that while the number of companies' data D&B maintains is large indeed, that the actual depth and accuracy of the data, like all sources of supplier intelligence, will vary based on such variables as the size of suppliers, their primary and secondary geographies and locations, industry, private / public status, etc. Still, even accounting for stronger profile information and data collection in certain market areas and segments than others, overall, D&B's record of predictive insights around supply risk is solid.
D&B suggests that by using its predictive scoring, procurement organizations can more accurately project supplier failures within the portfolio of suppliers they opt to monitor. Using the Supplier Stability Index, specifically, organizations "monitoring the riskiest 10% of suppliers can result in 'capturing' 54% of supplier failures within a 30-90 day period prior to the failure event." Using another of D&B's predictive scores, the Supplier Evaluation Risk Rating, and "monitoring the riskiest 20% of suppliers can result in 'capturing 63% of bankruptcies or supplier failures within a 12 month period prior to the event.'" Obviously, the greater the percentage of their supply base a company monitors -- and the depth of the data, including supplier financial and operational feeds -- the higher the percentage of overall bankruptcies, insolvencies or potential disruptions procurement and finance organizations can predict and therefore create mitigating planning.
Going back to the early days of D&B's solution set (when some of this core capability was contained within Open Ratings), I found some additional data that helps prove the business case for supplier risk management. I was able to dig out one case study from my earlier briefing in manufacturing, showing one company that was able to predict supplier bankruptcies with significant early warning 13 times in a two-year period using the earlier toolset (which is now part of D&B's Supplier Risk Manager). Specifically, they were able to gain the following number of warning days before an actual filing: +41 days, +335 days, +353 days, +45 days, +177 days, +131 days, +121 days, +131 days, +193 days, +173 days, +54 days, +270 days + 368 days. In another case, where a company also used the toolset for supplier quality monitoring and supplier development, they realized a number of telling benefits, including a 9% improvement in quality over six months when suppliers knew they were being monitored. In addition, "quality improved by 20% when those suppliers were also asked to complete a lean manufacturing self assessment" and "quality improved by 26% for those suppliers who also participated in [a more detailed assessment and supplier development program]."
Without question, supplier risk management can bring benefits that companies can tie back to the bottom line. Given how D&B is rapidly scaling and growing its SMS business unit, I would hope that they ultimately create additional benchmarks to show the predictive indicator and quality improvement power of such buying organizations and suppliers participating in such programs. Do you have an experience with D&B's Supplier Risk Manager or prior Open Ratings solutions? If so, drop a line or post a comment.