RAPIDRATINGS BLOG

COVID-19 Supplier Dialogue

Posted by Vanesa Divkovic on April 02, 2020


Organizations worldwide are reacting to the COVID-19 pandemic in many ways, with the majority enacting some form of pandemic response policy. So, it is with great urgency that prudent organizations engage directly with third-parties to ensure operational resiliency. This is necessary to protect your business and customers. As a best practice, communicate your COVID-19 response policy and provide frequent updates to customers and third-parties.

This guide provides guidance to help focus your dialogue with suppliers and third-parties.

Business Continuity  

With many governments shutting nonessential businesses, it is critical to assess your suppliers’ ability to maintain operations in this new environment. A RapidRatings survey of 1,300 private companies globally revealed that only 29% can remain fully operational while working remotely, while 57% are only partially operational.

Inventory & Distribution

Your suppliers may typically optimize inventory levels for normal demand patterns with relatively lean reserves for variability. These are not normal times, and many will not have enough inventory for the magnitude of disruption caused by the COVID-19 pandemic. It’s therefore important to know how suppliers are prioritizing orders and when they will run out. 

Capacity  

The shock to inventories, and potentially to the availability of workers and suppliers will impact capacity for many suppliers, even if they remain operational. The extent of supplier management and response will vary greatly, with some businesses creating war rooms of supply chain experts focused on production optimization during the crisis and others adopting a business-as-usual approach.

Concentration Risk

If a supplier derives a significant percentage of revenues from you as their customer, it will disproportionately be affected by decisions the you make (e.g., delaying payments, moving some business away).  Conversely, if you rely on a supplier but you don't represent a large percentage of its revenue, it's important to know how concentrated that supplier is to others. Does another company create destabilization risk for that supplier or is its customer risk diversified? 

Capital

Access to capital will be a critical to your suppliers' futures.  How they finance and refinance themselves, what types of investors they can access, and the terms and costs of their capital will all drive decisions they make and their stability as partners to your business.  

Financial Health

Businesses with poor financial health are more vulnerable to shocks, particularly unforeseen events with the magnitude and complexity of COVID-19. Simply put, companies with financial strength will be more likely to continue operating through the crisis and less likely to fail. To manage and protect your business, you must have financial transparency with suppliers and third-parties.

To help take the first step in having these tough conversations with your suppliers, we've developed a field guide that offers up questions for every category above. Armed with these questions and predictive insights from the RapidRatings Financial Health platform, you can further mitigate risk brought on by a disruption, even one as severe as the current pandemic. 

Download the field guide and let us know of other questions that you found helpful when talking to your suppliers. 

Download Field Guide

Topics: Supplier Risk Management, COVID-19, Supplier Collaboration