Making Sense of Supply Risk Management Solutions (Part 4) — Supplier Financial Risk Monitoring Services [PRO]

In previous installments of this Spend Matters PRO series, we outlined the overall segments of the supply risk management market and then began diving into the supply chain risk management segment and the overall supplier risk management area with a focus on risk management within a supplier management context that sits within the broader area source-to-pay (S2P).

For most procurement leaders though, supplier risk management can be a daunting problem to tackle if looked at truly holistically and strategically — especially when those leaders are not always measured on supply risk. In fact, in a research study that we did a few years ago with over 200 procurement professionals, we found that 53% of them weren’t even measured explicitly on reducing supply risk.

That said, no CPO wants to be caught out if a critical supplier goes bankrupt, and this is why a higher percentage of firms will perform a subset of supplier risk — supplier financial risk monitoring for critical suppliers. In fact, CAPS Research came out with a metric in April citing that 72% of surveyed firms (which tend to be large enterprises) are currently using third-party tools to monitor the financial health of their suppliers. The knowledge of which suppliers are struggling also helps illuminate other supplier performance areas that are likely being impacted: innovation, risk reduction, etc. It’s not just a supplier “death watch.”

These tools (which are really more data services than tools) are the ones that we’ll now delve into. And the timing couldn’t be more critical given what’s happening with the COVID-19 pandemic and the impact that it’s having on so many suppliers right now — especially smaller / private suppliers that don’t have strong capital reserves to weather the prolonged crisis that looks to be hanging around for at least another 12 months.

The market for supplier financial risk monitoring is especially challenging because it’s complex, poorly regulated and not well understood — and this leads procurement leaders to make suboptimal choices (improper scoping, generic sourcing strategies, using “safe”-but-expensive incumbents, etc.) — leaving them underprotected and/or overpaying (sometimes over six figures annually!).

We’ll spend the rest of this installment time helping readers understand this market a little better and how to approach it more deliberately and effectively. We’ll also analyze some of the pros and cons of using various providers’ strategies and specific providers such as Bureau Van Dijk, CreditRiskMonitor, Cortera, Dun & Bradstreet, Equifax, Experian, FICO, RapidRatings and others.

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