While credit risk from customers is relatively easy to quantify – and often closely monitored – the risk related to critical suppliers is more difficult to measure and may be even greater

A Capacent Supply Chain Risk project might start with a client asking one or more of the following questions:

• What if a single-source supplier of a critical component suddenly cannot deliver in one quarter – or ever again?
• Are the strategic suppliers able to make needed investments for growth and to remain innovative and competitive in the long term?
• Are some critical suppliers “backed into a corner” and likely to demand major price increases?
• How are these risks considered in strategic sourcing decisions?

Operational risks, ranging from a fire in a plant to quality deficiencies, are one risk component, but equally important is the risk related to suppliers’ financial standing. Clear responsibility for managing this risk, as well as the skills, tools and procedures for monitoring and reducing it, should be in place in any manufacturing company. Analyzing the risk is far more complicated due to the close link to both production and sourcing strategy, and to the fact that financial analysis of strategic suppliers must be far more forward-looking than on the customer side, typically at least two years.

Capacent supports major purchasing organizations in managing supplier risk in several different ways:

• Credit review of strategic suppliers – Screening of strategic suppliers, to quickly identify potential risk suppliers based on financial risk and criticality, followed by detailed, forward-looking analysis of identified critical suppliers
• Strategic review and participation in task forces – for individual critical suppliers, Capacent can support clients in developing contingency plans, negotiating with suppliers, or analyzing strategic scenarios and potential structural moves
• In addition to performing complete targeted analyses of selected suppliers, Capacent also advises on designing and building the processes, organization and skills for ongoing and systematic supplier risk monitoring by a client’s organization

Similar analyses are also used to support clients in their preparations to implement a Supply Chain Financing program (see Value Chain Financing), as well as for negotiation support (see Sourcing).