{"id":2959,"date":"2010-10-08T19:45:00","date_gmt":"2010-10-08T19:45:00","guid":{"rendered":"https:\/\/www.certitrek.com\/nlpa\/2010\/10\/08\/supplier-financial-health-evaluation-how-to-avoid-an-epic-fail\/"},"modified":"2023-06-16T03:42:47","modified_gmt":"2023-06-16T07:42:47","slug":"supplier-financial-health-evaluation-how-to-avoid-an-epic-fail","status":"publish","type":"post","link":"https:\/\/www.certitrek.com\/nlpa\/blog\/supplier-financial-health-evaluation-how-to-avoid-an-epic-fail\/","title":{"rendered":"Supplier Financial Health Evaluation: How To Avoid An “Epic Fail!”"},"content":{"rendered":"

Ever since launching our online two-course series \u201cFinance For Strategic Procurement,\u201d I\u2019ve had many practitioners approach me about the topic and its importance in today\u2019s modern procurement world. This week, I separately met with executives at two totally unrelated companies who learned from me that they were making the same mistake.<\/p>\n

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What was that mistake?<\/p>\n

Well, it relates to the evaluation of supplier financial health. I introduced them to four methods of evaluating supplier financial health. One of those methods involved using the Altman Z-Score.<\/p>\n

Have you ever heard the phrase \u201cI know enough about it to be dangerous?\u201d<\/p>\n

Well, that applied in both of these situations.<\/p>\n

You see, the Altman Z-Score calculation has three variations: one used for publicly-held manufacturers, one used for privately-held manufacturers, and one used for non-manufacturers. Each Z-Score calculation is performed using slightly different coefficients and variables to arrive at a number used to compare against a scale that determines the financial health of the supplier.<\/p>\n

Well, not only is the calculation different for each of the different variations, but the scale against which a supplier\u2019s Z-Score is compared is different for each variation. So, beyond just using the wrong calculation, by using the wrong variation, you could be getting a totally opposite reading on the financial health of a supplier! (Advair diskus<\/a>) <\/p>\n

For example, let\u2019s say you calculated the Z-Score for a publicly-held manufacturer as 1.7. But let\u2019s also say that you used the comparison scale of the variation for non-manufacturers.<\/p>\n

The comparison scale of the variation for non-manufacturers indicates that a 1.7 puts the supplier right in the middle of the \u201cgrey zone.\u201d This means that there is not a severe likelihood of imminent bankruptcy.<\/p>\n

But what does the comparison scale for the publicly-held manufacturer variation \u2013 the correct variation, in this case \u2013 say?<\/p>\n

It says that a score of 1.7 puts the supplier in the lowest category, meaning bankruptcy has a high likelihood. If you don\u2019t apply the right variation to the type of supplier you are evaluating, the Altman Z-Score will not work!<\/p>\n

Obviously, Finance For Strategic Procurement (Part II, specifically) covers how to correctly apply the Altman Z-Score for each type of supplier. Though I know that not enough procurement professionals utilize the excellent tool that the Altman Z-Score is, I didn\u2019t realize that applying the wrong variation appears to be a very common mistake among those that do attempt to utilize it.<\/p>\n

Perhaps that\u2019s what happens when googling is used instead of getting authoritative purchasing training: learning enough to be dangerous. And, make no mistake, miscategorizing a healthy supplier as a financially distressed supplier or failing to recognize a supplier\u2019s impending bankruptcy are both dangerous procurement mistakes.<\/p>\n

\u201cEpic fail\u201d kind of mistakes.<\/p>\n","protected":false},"excerpt":{"rendered":"

Ever since launching our online two-course series \u201cFinance For Strategic […]<\/p>\n","protected":false},"author":12,"featured_media":4085,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1],"tags":[],"class_list":["post-2959","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-procurement"],"yoast_head":"\nSupplier Financial Health Evaluation: How To Avoid An "Epic Fail!" - Next Level Purchasing Association (NLPA)<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.certitrek.com\/nlpa\/blog\/supplier-financial-health-evaluation-how-to-avoid-an-epic-fail\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Supplier Financial Health Evaluation: How To Avoid An "Epic Fail!" - Next Level Purchasing Association (NLPA)\" \/>\n<meta property=\"og:description\" content=\"Ever since launching our online two-course series \u201cFinance For Strategic […]\" \/>\n<meta property=\"og:url\" content=\"https:\/\/www.certitrek.com\/nlpa\/blog\/supplier-financial-health-evaluation-how-to-avoid-an-epic-fail\/\" \/>\n<meta property=\"og:site_name\" content=\"Next Level Purchasing Association (NLPA)\" \/>\n<meta property=\"article:publisher\" content=\"https:\/\/www.facebook.com\/NextLevelPurchasing\/\" \/>\n<meta property=\"article:published_time\" content=\"2010-10-08T19:45:00+00:00\" \/>\n<meta property=\"article:modified_time\" content=\"2023-06-16T07:42:47+00:00\" \/>\n<meta property=\"og:image\" content=\"https:\/\/www.certitrek.com\/nlpa\/wp-content\/uploads\/sites\/5\/2020\/11\/nlpa-images-095.jpg\" \/>\n\t<meta property=\"og:image:width\" content=\"1600\" \/>\n\t<meta property=\"og:image:height\" content=\"1050\" \/>\n\t<meta property=\"og:image:type\" content=\"image\/jpeg\" \/>\n<meta name=\"author\" content=\"Galo Matagay\" \/>\n<meta name=\"twitter:card\" content=\"summary_large_image\" \/>\n<meta name=\"twitter:creator\" content=\"@nextlevelpurch\" \/>\n<meta name=\"twitter:site\" content=\"@nextlevelpurch\" \/>\n<meta name=\"twitter:label1\" content=\"Written by\" \/>\n\t<meta name=\"twitter:data1\" content=\"Galo Matagay\" \/>\n\t<meta name=\"twitter:label2\" content=\"Est. reading time\" \/>\n\t<meta name=\"twitter:data2\" content=\"3 minutes\" \/>\n<script type=\"application\/ld+json\" class=\"yoast-schema-graph\">{\"@context\":\"https:\/\/schema.org\",\"@graph\":[{\"@type\":\"Article\",\"@id\":\"https:\/\/www.certitrek.com\/nlpa\/blog\/supplier-financial-health-evaluation-how-to-avoid-an-epic-fail\/#article\",\"isPartOf\":{\"@id\":\"https:\/\/www.certitrek.com\/nlpa\/blog\/supplier-financial-health-evaluation-how-to-avoid-an-epic-fail\/\"},\"author\":{\"name\":\"Galo Matagay\",\"@id\":\"https:\/\/www.certitrek.com\/nlpa\/#\/schema\/person\/72d094fab77892483dfa6e061cb27eaa\"},\"headline\":\"Supplier Financial Health Evaluation: How To Avoid An “Epic Fail!”\",\"datePublished\":\"2010-10-08T19:45:00+00:00\",\"dateModified\":\"2023-06-16T07:42:47+00:00\",\"mainEntityOfPage\":{\"@id\":\"https:\/\/www.certitrek.com\/nlpa\/blog\/supplier-financial-health-evaluation-how-to-avoid-an-epic-fail\/\"},\"wordCount\":479,\"commentCount\":0,\"publisher\":{\"@id\":\"https:\/\/www.certitrek.com\/nlpa\/#organization\"},\"articleSection\":[\"Procurement\"],\"inLanguage\":\"en-US\",\"potentialAction\":[{\"@type\":\"CommentAction\",\"name\":\"Comment\",\"target\":[\"https:\/\/www.certitrek.com\/nlpa\/blog\/supplier-financial-health-evaluation-how-to-avoid-an-epic-fail\/#respond\"]}]},{\"@type\":\"WebPage\",\"@id\":\"https:\/\/www.certitrek.com\/nlpa\/blog\/supplier-financial-health-evaluation-how-to-avoid-an-epic-fail\/\",\"url\":\"https:\/\/www.certitrek.com\/nlpa\/blog\/supplier-financial-health-evaluation-how-to-avoid-an-epic-fail\/\",\"name\":\"Supplier Financial Health Evaluation: How To Avoid An \\\"Epic Fail!\\\" - 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