Identifying and mitigating risks has always been integral to supply chain management. Companies that invest in supply chain risk management understand the crucial roles procurement and accounts payable play in managing financial risks.
Amid the highest inflation in decades and the likelihood of a slowing economy, financial risks have increased. These may include:
- Supplier insolvency
- Supply shortages
- Transport delays
- Foreign exchange
- Geo-political disruption
- Market pricing volatility
Now more than ever it is critical that businesses strengthen due diligence when engaging suppliers and contractors.
Why supplier stability is crucial to your business
Whether you operate a large manufacturing business with a complex supply chain or a small building and construction firm, understanding the financial stability of your suppliers and contractors will provide many benefits to your business such as;
-Avoiding potential reputational damage and breach of client contracts
-Reducing the risk of disruption to your supply chain
-Protecting your bottom line
Engaging contractors and suppliers introduces risk for all businesses, and the level of risk requires an assessment of your dependency on each contractor or supplier in your supply chain.
Best practices for reducing financial risk in your supply chain
Mitigating financial risk in your supply chain requires careful consideration but it doesn’t have to be difficult. By following a few best practices and investing in a comprehensive software solution you can gain visibility and control over your supply chain to manage financial risk, guard against supply chain disruption, and preserve business continuity.
1. Invest in a comprehensive software solution
Investing in a comprehensive software solution like Rapid Contractor Management will help you effectively manage some of these financial risks by;
- Providing a single dashboard showing critical safety metrics, financial risk scores and compliance information about your suppliers and contractors in real-time
- Downloading detailed financial risk reports from a third-party provider like CreditorWatch
- Eliminating data silos using central document storage which increases collaboration across your supply chain
- Reducing the potential for human error with automated workflows to increase productivity, improve safety and compliance
- Providing tailored pre-qualification questionnaires to assess suppliers and contractors based on their risk profile
2. Risk assessment
Before your can mitigate risk, you need to understand the type of risk you are dealing with. A supplier and contractor risk management plan is essential and will help to analyse risks such as insolvency.
Other risk factors that affect supplier financial stability include ethical hiring and labour practices, data management and cybersecurity policies.
3. Measure, monitor and mitigate financial risks
Using risk management software like Rapid Risk, you can measure, monitor, and report on risk mitigation actions.
For every risk your suppliers or contractors pose to your supply chain consider these four factors;
- What is the potential impact on my company’s financial health?
- What is the probability that the risk will occur?
- Are we prepared to respond?
- And how will it affect business continuity?
Regularly revisit your risk management plan and continue to use the available data at your disposal to monitor the risks that your suppliers and contractors pose to your supply chain and adjust your mitigation plans where necessary.
Don’t let financial risks cripple your business
When it comes to risk exposure, investing in a comprehensive software solution from Rapid can help to protect your supply chain against vulnerabilities and automate supplier and contractor pre-qualification and risk management processes.
Speak to Rapid’s experts today and request a demonstration to see how our award-winning software can provide the transparency and control you need to minimise financial risks your suppliers pose to your supply chain.