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Understanding Supply Chain Risks: Financial Risks

By Avetta Marketing
June 08, 2022
4 minutes
No company is immune to financial risks, so having efficient data management is necessary to minimize risks, monitor suppliers, and keep your business safe.

No matter what your purpose, if you’re a business your goal is to make a profit. We’ve seen in the past few years during the pandemic just how quickly a supply chain disruption can impact a company’s bottom line. Financial risks can happen to any organization and can drastically change how your business operates.  

The perfect example is when businesses shutdown and operations were paused due to the pandemic. A report found that supplier financial risk represented nearly half (48%) of all risk events recorded in 2020. The report also noted that several key indicators of supplier financial instability steadily increased during the second half of 2020, including ownership structure (46%) and field issues. 

What is financial risk in a supply chain? 

Supply chain financial risk is the possibility that suppliers will encounter a business scenario that threatens their financial health. Supply chains face a number of financial risks, and procurement and accounts payable need to manage the exposure and impact of these risks on the organization.  

Examples of financial risk include:

  1. Supplier bankruptcy
  2. Market volatility
  3. Foreign exchange
  4. Budget overruns
  5. Inflation
  6. Legal issues
  7. Reputational damage
  8. Operational incidents
  9. Unexpected costs

Can suppliers affect financial risks? 

Suppliers can really make or break your supply chain. Suppliers who experience financial challenges with either business or worker management can affect contracts and disrupt services. A single financial failure or fluke by a supplier is enough to damage your business.  

Given this, companies need to take actions that minimize risks. One way to do this is through monitoring the financial stability of these suppliers. Many companies even conduct a financial health check during supplier selection, but that usually is not enough. Managing and tracking the financial health of every supplier in a global supply chain is a difficult task.  

How can I monitor suppliers to reduce financial risk to my supply chain?    

To effectively minimize risks, companies should actively monitor the financial status of the suppliers in their network—from first tier to end tier.  

Avetta One is the industry’s largest Supply Chain Risk Management (SCRM) platform. With Avetta One, companies can conduct financial health checks for each supplier automatically through Experian integration. Avetta’s partnership with Experian® simplifies monitoring supplier’s financial health through:   

  • Evaluation of Large Groups through Minimal Effort à During the process, each supplier receives specific ratings and key metrics unique to their business.  

  • Filtering of Risky Accounts à You’ll have data at your fingertips—making it easy to include supplier financial health into the qualification process. Keep your standards high and your risks low by building appropriate compliance rules into your supplier management plan.  

  • Quick Decision-Making with Automated Reviews à The financial data collected by Experian is refreshed at regular intervals, so you can feel confident you’re receiving an up-to-date look on all of suppliers—allowing you to make quicker and more effective decisions.  

  • Real-time Insight Generation à Detailed reports are available on demand in case the summary scores do not provide the insights you are looking for. 

Investing in the right data management tools can help you easily identify, measure, and reduce financial risk exposure in your supply chain. Lastly, collaborate with your suppliers and monitor their compliance to improve success. 

To learn more about supply chain management visit our website, call 844-633-3801, or email [email protected]

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