fied a core set of 10,500 suppliers that are
recipients of 80 percent of Fortune 500
spending. In addition, only 110,000 suppliers
make up 95 percent of the total spend of
these companies.
“It appears that years of strategic sourcing and supplier consolidation have created
a dangerously small group of suppliers that
receive most of the Fortune 500 companies
spend,” says Jon Bovit, vice president of
marketing and strategy at CVM. “If these
common suppliers become ‘high-risk’ suppliers, then that risk will likely impact a high
percentage of Fortune 500 companies.”
CVM defines high-risk suppliers as having a
significant probability of failure to some
aspect of their business within 12 months.
If the survey had been extended to the
Fortune 1000 companies, Bovit believes the
results would have been much the same.
“We believe there are many examples out
there of companies having too few suppliers for given commodity or category areas,
which heightens the need for careful sup-
plier monitoring,” he says.
Companies seem to have gotten this
message, he says, noting that interest in this
area has “really accelerated over the past six
months. Customers are asking for help in
managing their suppliers and in identifying
which ones may be in trouble and which
are the most reliable,” Bovit says.
Companies should look for early warning signs that may indicate problems, says
Jade Rodysill, senior manager in Accenture’s supply chain management service,
based in Dallas. He lists several potential
warning signs: if suppliers are in industries
that are challenged, if they can’t meet lead-times, if they ask for pre-payment or more
lenient terms, if quality starts to drop, if their
business is labor intensive with a large fixed
payroll, or if there has been a recent change
in senior management. “These all could be
indicators of trouble,” Rodysill says.
However, just looking at these signs or
at standard key performance indicators is
not enough, he says. “A lot of things, like a
supplier’s change in cash position,
are monitored monthly and by the
time you get that data, a supplier
could already be under,” he says.
“Companies need to start measuring process indicators as well as
performance indicators,” he says,
noting as an example a supplier
that asks more than once for early
payment. “Ultimately, the goal is to
have a sense and respond environment,” he says.
That is where D&B is going with
its predictive indicators, says Lawson. He explains that D&B collects
operational and performance data
on suppliers from a variety of different sources, which allows the company to build aggregate measures of
performance, reliability, order accuracy and on-time delivery for each
supplier in its database. “This information is interesting on its own from
an operational perspective,” he says,
“but D&B has a set of predictive
indicators that use the operational
data to predict where there are likely
to be problems. Often the earliest
indications of financial problems
don’t show up in financial data, but
in operational data,” he says. “With
our predictive analytics, we can give
our clients insight into which suppliers may have issues.”
In its latest release, Supplier Central 6.0,
CVM introduced supplier risk mitigation
solutions with a number of new tools. One,
Spend Trust Metrics, is the inverse of a supplier credit score, says Bovit. “This measures
how your suppliers are paying their suppliers,” he says. “For every supplier we monitor,
we can tell our customers, in aggregate, how
many other customers that supplier is doing
business with and how much spend are they
getting, again in aggregate. If that trend line is
going down, it means they are losing customers. We think that this information, combined with other measures, gives our
customers a very good, pro-active approach
to supplier risk management.”
Aravo Solutions, San Francisco, traditionally has focused on helping companies
like GE more efficiently manage supplier
information. “Historically, this has been
nuts-and-bolts data like bank account and
catalog information,” says CEO Tim
Albinson. Because of heightened interest in
supplier risk, the company recently
