It seems like only in the past year, during the worst of the recession, did many procurement departments realize that the ability to read financial statements and assess the financial health of their suppliers was important. In many cases, the procurement team realized this fact too late. The upshot is that awareness of the importance of supplier financial analysis was raised.<\/p>\n
Don\u2019t miss updates on Procurement & Supply Chain, Subscribe here!<\/p>\n
The bad news is that many suboptimally educated procurement departments now seem to incorrectly believe that supplier financial analysis isn\u2019t important anymore since the economy has started to show signs of life, growth, and fragile stability. This attitude was reflected in a couple of third-party blog posts related to consultants\u2019 observations of their client\u2019s priorities.<\/p>\n
First, Debbie Wilson of Gartner described her recent \u201cHeat Map,\u201d which is designed to illustrate the changing priorities of procurement leaders, and wrote that the \u201cCoolest [i.e., declining priority] topics include services procurement (down from Q3); procurement MDM (level from Q3); and vendor vulnerability assessment.\u201d<\/em><\/p>\n Second, Supply Excellence posted an entry entitled \u201cSupplier Risk: Shift from financial to operational\u201d that featured an audio clip in which Ariba\u2019s Bob Zieger said that \u201cwe are definitely seeing\u2026a shift from more attention [on] the financial aspect of risk to the operational risk.\u201d<\/em><\/p>\n While I will be the first one to tell you that a procurement department needs to adjust its focus regularly as the business world changes, forgetting about evaluating the financial health of your current and prospective suppliers is a bad move. A growing economy does not guarantee that your suppliers will be immune to declining financial health. To drive this point home, consider that there were over 600,000 bankruptcy filings in the year 2006 \u2013 a year that the Economic Policy Institute called \u201ca respectable year for GDP growth.\u201d<\/p>\n By comparison, slightly over a million bankruptcies were filed in 2008 \u2013 the year that what some call \u201cThe Great Recession\u201d really took its grip. So, even in a respectable year of economic performance, there were still more than half of the bankruptcies seen in one of the worst economic years in recent memory.<\/p>\n Does that put the importance of supplier financial analysis into perspective?<\/p>\n Suppliers can go out of business regardless of the economy. Zieger even couched his report on his clients\u2019 sentiment by stating that \u201cIt\u2019s always important to maintain an eye on your suppliers\u2019 financial condition. That goes without saying\u201d<\/em> and procurement leaders \u201cshouldn\u2019t lose sight\u2026of the financial condition of their suppliers.\u201d<\/em><\/p>\n Supplier bankruptcy should never be a surprise in good times or bad. There were obviously unpleasant surprises in the past couple of years due to not enough focus on knowing how to assess supplier financial strength.<\/p>\n Are we headed back to an environment when we choose to be oblivious to supplier financial health issues?<\/p>\n I sure hope not.<\/p>\n","protected":false},"excerpt":{"rendered":" It seems like only in the past year, during the […]<\/p>\n","protected":false},"author":12,"featured_media":4081,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1],"tags":[],"class_list":["post-2881","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-procurement"],"yoast_head":"\n