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FrankieGranato
Discoverer
187

Disruptions in the global supply chain have damaging effects—delayed shipments, empty shelves, businesses scrambling to keep up. It affects everyone, but for businesses, the impact is devastating.

In 2021, at the height of post-COVID supply chain disruptions, Statista reported that US companies lost an average of $228 million on supply chain disruptions. Today things have hardly improved. According to McKinsey, 95% of supply chain professionals reported ongoing challenges in the last year, with geopolitical events, clogged ports, and extreme weather are keeping the pressure on.

But what truly makes businesses vulnerable to supply chain disruptions? It's the economic climate. In 2022, Statista documented the number one reason behind supply chain issues was surging commodity prices. Why? Because high costs and rising interest rates increase the risk of supplier defaults. Even a single supplier failing to deliver can wreak havoc on a supply chain.

In today’s integrated global economy, bringing a product to market involves hundreds, often thousands, of suppliers. If just one of these suppliers faces financial difficulties, the quality, delivery, and profitability of the product can all be put at risk. RapidRatings Data shows a 196% Y-o-Y increase in supplier defaults, which in turn contributes to a sever escalation in supply chain disruption.

So how can companies identify risk within their supply chains? By analyzing the financial health of their suppliers and identifying risk hotspots.

Deep dives into financial health trends across key manufacturing sectors can tell an organization where risk concentrations lie. Take a look at RapidRatings’ data on the automotive industry for example: Transportation Equipment Manufacturing makes up 18% of automotive supply chains, but RapidRatings’ unique FHR data shows that 30% of these suppliers are high risk. Armed with this knowledge, automotive companies can prioritize due diligence and deeper financial analysis of these critical suppliers, ensuring a more resilient supply chain.

RapidRatings core business is a predictive analytics model that examines the full financial statement of public and private companies to identify underlying financial risk. Why is this significant? Financial health is relevant because it underpins all other risk domains.

When a company has poor or deteriorating financial health it’s forced to compromise important factors such as quality, standards, regulatory and delivery logistics. This exposes your business to exceptional production, delivery and reputational risks. Very quickly, their problems become your problems - unless you have insights that give you time to mitigate effectively.

Organizations are increasingly recognizing the importance of financial health monitoring that goes beneath the superficial and examines the suppliers actual financial statements. It’s now a key building block for a more stable and resilient supply chain. According to Statista, 15% of organizations with significant supply chain operations plan to implement operational technology for this very purpose – the highest adoption rate of any category.

By proactively managing supplier risks, businesses can keep supply chain disruptions at bay and safeguard their bottom line.

Learn more about RapidRatings and SAP integrated financial health solution by visiting SAP App Store.