“You must have a robust review
process of critical suppliers
even if you don’t receive alerts
on them.”

— Caldwell Hart of Dresser-Rand

faces are providing engineered-to-order parts, addressing low-vol-ume orders, monitoring spot-pricing fluctuation, managing limited sources of supply, and assisting customers in navigating the global market. A multi-tier risk-management system was created in part around implementation of the DNBi solution from D&B Supply Management Solutions.

DNBi monitors Dresser-Rand’s global supply base; manages communications and financials of critical suppliers, including scheduling phone calls, visits, reports, and audits; and provides lead-time for action when necessary, including facilitating change of source, lean events, or implementing payment terms and/or on-site management.

DNBi is powered in part by data from parent company Dun & Bradstreet, which helps mitigate credit and supplier risk, increase cash flow and improve profitability, according to Jim Lawton, vice president and general manager of D&B Supply Management Solutions. Identifying, qualifying, registering, auditing and monitoring suppliers is completely automated by DNBi.

The partnership began in early 2006, says Hart. The manufacturer wanted a proactive system, something that would help it identify and act on potentially damaging situations before any harm resulted. The DNBi solution gives Dresser-Rand the visibility it needs into tier one of its supplier base (about 10 percent of its base) through the use of alerts.

Those red flags go up when a supplier is deemed to have moved outside a predetermined range of risk indicators. Obvious indicators of potential trouble include financial health of a supplier, lawsuits or liens involving suppliers, OSHA incidents or EPA violations. Other signs are much more subtle: management changes, late deliveries or increasing lags in responsiveness to inquiries.

Lawton says the alerts are merely an element of a much larger risk management system. Moreover, the exceptions must be viewed in context and evaluated on a supplier-by-supplier basis. “You must have a robust review process of critical suppliers even if you don’t receive alerts on them,” Hart says. It’s simply wise to stay proactive.

Clearly, it’s up to Dresser-Rand to determine how important a given supplier is to overall operations and what, if any, action to take. However, when the solution was implemented, Dresser-Rand drew up a list identifying the most important supply partnerships and contingency plans. Red flags on any one of the listed partners is likely to send risk-management team members into action.

In addition, it’s important for one’s suppliers to have their own risk-management plans in force. And you can’t assume that such plans exist. A company should insist on seeing the emergency plan, and on frequent updates, Lawton says.

Two indicators, SSI and SER ratings, help diagnose the financial health of a supplier. The first gauges instability, allowing a user to see if a partner is likely to cease business and leave creditors in the lurch, or is likely to reorganize or seek relief from creditors under state/federal law within the next 90 days. SER, or supplier evaluation risk, predicts the likelihood that a company will seek legal relief from its creditors or cease operations within the next 12 months.

A scenario that developed almost a year ago illustrates how important predictive ratings are, and what action one might take. After it was alerted that one of its vitally important casting suppliers was having problems, Dresser-Rand made inquiries. Suspicions were not allayed by verbal assurances that everything was fine with the company. On-site inspection of the supplier’s plant revealed that despite what its officers had told Dresser-Rand partners, it planned to suspend operations for two months. Clearly, that was unacceptable, and the business was taken elsewhere.

Undoubtedly, the greatest return on investment that a company can receive from its supplier-risk management solution is the avoidance of a major incident and the costs and labor associated with it. However, calculating the value of managing supplier risk is not an easy task. Unless a company has experienced a major incident in its supply chain, it may not understand the necessity of having a risk management solution in place. But when a contract is worth millions of dollars, leaving everything to chance should not be acceptable to management. Visibility into suppliers is dividend enough.

D&B Supply Management Solutions, www.dnb.com

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