Tuesday, February 10, 2009

The latest Supply Risk

The Forecast Just Got Worse

Report from Standard &Poors dated Feb 5, 2009

"We expect the speculative-grade default rate to escalate to a mean forecast of 13.9% by December 2009, but it could reach as high as 18.5% if economic conditions are worse than expected.”

What does this mean for the supply chain?

Default rates are a leading indicator for business bankruptcies. Supply managers should take measures to detect risk of supplier bankruptcies, disruptions and quality issues in the coming 12 months as the recession takes hold. The question is: Which suppliers are most at risk. How can you find out whether your suppliers are really at risk of financial ruin? What are the tools available to you?


  • Audit the financial, operational, and balance of trade exposure of your most strategic or critical suppliers.
  • Look for early warning signs. Drops in quality or shipment delays can be indications that the supplier has cut into its operations. Requests for early payment or changes in support personnel should also raise a red flag.
  • Increase the frequency of supplier performance reviews. Do regular performance reviews with suppliers. In the face of highly volatile markets where credit is tight, you should step up these reviews to at least quarterly with your most strategic suppliers and semi-annually with your next tier of suppliers.
  • Pay close attention to the balance of trade and the underlying market for the materials that comprise inputs into your suppliers’ products. These reviews serve as an opportunity to identify additional cost and waste.
  • Automate your supplier management process. Do this by leveraging supplier management tools that combine self-service portal for suppliers to publish and manage their own profile information ; score carding and performance KPI’s, such can improve visibility and control of risk and enable you to extend supplier management to a broader portion of your supply base.