How Corning Assesses Supplier Financial Health

I recently penned a column that looked at some of the findings from a recent CFO Magazine investigation of how finance is getting involved in procurement. While I do not usually comment on articles twice, there was one interview in the piece that provides a good case study about how Corning is having finance step in to help monitor and manage supplier financial viability and supply chain risk. Perhaps not surprisingly, Corning is taking a near mirror image approach used on the sales (credit) side to assess supplier financial viability.

To this end, the Corning finance team is driving the effort to analyze "key financial metrics like ratios for working capital, investment performance, return on invested capital, return on equity, and others on a historical basis, and then doing [their] own projections of what the future might hold using market-driven data". In addition, Corning "also tries to find information on a supplier's access to available capital, determining whether they are borrowing from banks or have committed credit facilities, and the terms thereof, including the credit spreads on existing debt".

When researching their suppliers, Corning begins by examining publicly available sources of information and then moves down a checklist that starts with a phone call to obtain information that might not otherwise be available through public information. After this the firm then makes "short-term projections of the supplier's financial" health. And then "Corning's procurement organization prioritizes the suppliers based on their financial condition and other key performance indicators like product and raw-material quality, data transparency, and reliability of supply. They then compare the supplier's financial condition with Corning's exposure."

While this may feel like a very thorough approach to looking at the financial side of supply risk -- and perhaps it has served Corning well to date -- I'd argue it lacks a crucial element that can help predict supplier financial risk. And that's the ability to integrate both supplier financial and supplier operational data into the monitoring and analysis process. That's because operational data (e.g., supplier performance, quality, responsiveness) can be as important a leading indicator of overall health as a quick glance at the balance sheet or a credit analysis. Moreover, it's the intersection of the two that leads to the more accurate analysis.

Jason Busch

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