Panjiva Partners With Sinosure for Supply Risk (Part 2)

I spoke to someone yesterday afternoon who thought I was too hard on Panjiva's new partner in my initial post on their new Chinese supply risk offering from yesterday. After all, the logic goes, since there are so few sources of supplier credit and related supplier financial viability in China, something must be better than nothing. And it's not like Panjiva is charging very much -- and they're also applying multiple datasets to the analysis. According to their announcement, "the Panjiva SinoScreen report will provide you with an assessment of 20 Chinese suppliers, based on Panjiva's analysis of import data and Sinosure's analysis of credit data. Why two data sets? No one data set is perfect, so triangulation using multiple data sources increases the likelihood that you'll reach an accurate conclusion about which of your suppliers stand the best chance of surviving the downturn. Between now and May 31st, Panjiva SinoScreen is available for a one-time fee of $5,000 -- and the turnaround time is 2 weeks for an analysis."

Despite the reasonable offer -- and despite the fact that something is usually better than nothing -- I have serious concerns about the accuracy of information coming from any government agency in China. As my friend Brian Sommer likes to say, they don't call companies in China the "red chips" -- versus the "blue" -- for any old reason. The standards of disclosure in China -- not to mention what I'm guessing is only a very cursory look from an underwriting perspective on the supplier relative to the buyer in a receivables insurance situation -- are limited indeed. And as most of us know who've spent anytime in the region, companies like to keep multiple sets of books. Often three in fact -- what their actual numbers are, what they show to customers (when pestered after a relationship has begun), and what they show for tax purposes. They might even have a fourth that they show local government officials that are on the take versus those on a national level. In other words, just because it's a government data source in China does not mean that you should trust it.

So what are the alternatives to Panjiva, considering that this solution alone, while better than nothing, is probably insufficient. D&B claims to have their own information on Chinese suppliers (as well as partner information on suppliers in the region), but those I've interviewed who have tried it consider the data a very mixed bag relative to what is available in North America and Western Europe. In my view, the best investment that companies can make in monitoring Chinese suppliers is in the relationship itself. China is such a relationship driven place that if you're visiting a supplier on a quarterly or monthly basis and feasting and toasting with them (and have met their children) then you're going to know if something is up. I find the Chinese an extremely open culture once -- and the key is making the investment in the first place -- you get to know them well. There's lots of veneer and the key is to get past it.

In addition to building relationships to better understand potential risk factors, it's equally critical to monitor quality and performance on a consistent basis and role these analyses up into a format that allows you to look at supplier performance at the supplier facility level (and to know, for example, whether a delayed shipment is the result of a supplier missing the boat versus a 3PL making a mistake). There are companies in the US that consider supplier performance the most important indicator of potential supply risk factors down the road. They reason that it is easy -- with a good CFO -- to temporarily clean up the balance sheet and to pay suppliers before things get really bad, but cost cutting in other areas (e.g., quality control) can manifest in problems that you can detect far earlier than other potential warning signs.

Where does this leave us regarding Panjiva and Sinosure? In my view, for $5,000 you probably can't go wrong if you have 20+ suppliers in China that you'd like to profile (and if you believe the claims that Sinosure has access to data on over 8,000,000 Chinese companies). This is especially the case because Sinosure is doing a refresh of their data on an as-needed basis (in other words, they will go out and do the analysis when a customer requests it, guaranteeing some level of currency to the information -- but not necessarily accuracy, as I previously explained). Of course this model means that the supplier feedback is not instantaneous -- the turn around time is two weeks. But that's not bad, nor is it priced at too high an amount. After all, a business class ticket from the US or Europe and a stay in a Western style hotel to visit a single supplier will probably cost you more than the price of admission to profile a couple dozen. But a onetime profiling effort should never be a substitute for consistent and proactive monitoring overtime -- nor, when it comes to China especially, should it substitute for continuously monitoring supplier performance management trends as well.

Jason Busch

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