All business-supplier partnerships present risk. However, risk levels vary with every company. While some contractors and suppliers may be critical to your operations and present a large amount of risk, others play a smaller role and present less of a threat to business continuity. Understanding where potential weaknesses or vulnerabilities lie, and being equipped to manage each of them, presents tangible benefits.
Gathering and monitoring key financial information on suppliers and contractors such as revenue, financial references, continuity plans, and third-party ratings is essential to minimize risks introduced to the business when using a third-party company.
Why should companies assess supplier financial stability?
By minimizing financial risk, you increase business confidence
Hiring a contractor or supplier typically requires heavy up-front investment, which can often restrict cash flow and a company’s ability to pursue other potential sources of revenue. Counteracted by a strong return on investment, a projects funding can be compromised if even one crucial supplier fails to deliver on a predetermined contract. To minimize financial risk, companies should be proactive and assess the financial stability of their partners in advance to minimize financial risk and increase business confidence with every project.
By identifying where you need to diversify suppliers, you mitigate skills/expertise risk
Putting every egg in one basket and relying on one supplier for business-critical products can be detrimental to business. If a supplier is no longer able to deliver on the contract, the business on the receiving end may be incapable of producing its own goods or services. Conversely, if the firm can source a specialized product or service from several places, it increases flexibility and responsiveness to unforeseen events including: financial upsets, global economic shifts, or natural disasters.
By strengthening links in the supply chain, you reduce delays and save time
In a supply chain, one weak link can disrupt the flow of goods and services, creating a “domino effect” for all suppliers and customers. When supplier financial stability is assured, less time is dedicated to managing or replacing one critical but unreliable supplier. This makes it easier for businesses to effectively manage suppliers and projects downstream.
By mitigating “delivery” risk, you improve customer service
When a business can meet its project deliverables on deadline, it satisfies not only its investors and project stakeholders, but also its customers. Reducing time and delays leads to happier clients, better reputations, new and/or repeat business, effective brand building, and more secure revenue streams.
To minimize risk, it’s essential for companies should assess supplier financial stability. Gathering key supplier financial information such as revenue, financial references, continuity plans, and third-party ratings ensures that threats introduced to the business are minimized when partnering with a third-party firm.