This issue's key takeaways:

• Three-out-of-four Fortune 1000 companies’ suppliers are private companies.
• Across industries, key supplier sectors have elevated risk levels which are visible in their financial health.
• Businesses that are low risk can handle unexpected stress to their supply chain better than high risk businesses.
• Visibility into the financial health of companies, especially private ones, is crucial to managing risk and avoiding damaging outcomes.
• Identifying healthy suppliers that can grow with their customers is key to supply chain resiliency.

Snapshot: Global Supply Chain Vulnerabilities

By James H. Gellert, Executive Chair, RapidRatings

This month’s featured content, Snapshot: Global Supply Chain Vulnerabilities, looks at risk concentrations across sectors in five industries worldwide, and sheds light on key risk indicators that impact overall supply chain health.

On a more basic level, it’s a story. In fact, it’s several interconnected stories. Let’s explore what those stories are and why they matter.

Supply chain health depends on financially robust suppliers

While analyzing and managing risk is complex, the big picture is simple: companies depend on supply chains, and supply chains are comprised of suppliers. A supplier in financial decline will cause a supply chain to falter, leading to disruptions ― with impacts that range from inconvenient to severe, sometimes causing irreparable harm.

I know that’s stating the obvious, but it’s a sobering reminder that the threat of a supplier risk event should be a constant concern for organizations across the globe.

This is especially relevant today, as we’ve seen costs spike for capital, labor and goods, resulting in elevated risk across key industries. The strain of suppliers’ higher costs is felt throughout the supply chain ecosystem, adding stressors that many companies aren’t equipped to handle.

89% of companies experienced a supplier risk event in the past five years.

As a result, companies need to trust the financial health of their suppliers and engage collaboratively with those that are experiencing difficulties.

Understanding private company financial health is key

Establishing trust in the financial health of suppliers is made more essential by the degree to which supply chains consist of private companies.

On average, 75% of Fortune 1000 companies’ supply chains are comprised of private companies.

Historically, gaining visibility into the financial health of a private company was difficult, due to their financial statements not being publicly available and thus trickier to collect and accurately evaluate.

This can leave unprepared organizations in the dark when it comes to recognizing and mitigating risk in their supplier partnerships.

However, it’s important to mention that solutions exist. RapidRatings makes the type of visibility that was once hard to gain easy, by delivering private company financial health analytics that better identify higher and lower risk suppliers.

The normalization of assuming risk

Thus there is a surprising duality: companies understand, often through first-hand experience, the financial threat a supplier risk event poses.

And yet many aren't sufficiently monitoring the financial health of their suppliers, even though it offers a clear and predictive view of where hidden risks might be quietly lurking.

63% of companies do not use any technology to monitor their supply chain performance.

Implement the tools at your disposal

The FHR® data analyzed in the featured infographic compares financial performance of High-Risk and Low-Risk suppliers across seventy-three measures.

Within the five major industries of Auto Manufacturing, Technology, Aerospace & Defense, Financial Services, and Healthcare & Pharma, we see high concentrations of risk in key supplier sections that is simply not visible unless you have access to their financial statements and can perform the analysis.

What this tells us is twofold: to properly assess supply chain risk you need accurate financial health data for your suppliers, and accessing the right data requires modern, quantitative analytics.

Prepare for the unexpected

Risk and business are inextricably linked. Economic shifts and geopolitical events will inevitably arise, and when they do, companies that can pivot without assuming dangerous levels of risk will be in a stronger position to succeed.

And why is that? Typically, we see that businesses in poor financial health are less capable of handling the added stress of unforeseen market events.

Also, a supplier in weak financial health can create significant disruption long before a dramatic end-result such as bankruptcy.

Weakening companies make choices where to spend precious cash resources. Underinvesting in key areas such as cyber security, governance/environmental/diversity, R&D, product development, health and safety, etc., can create risks to customers and destabilize supply chains.

Companies that have visibility into their suppliers’ financial health can mitigate risk and make more informed strategic decisions that result in high-performing supply chains. Risks don’t manage themselves, and only the risks that are known can be managed.

Download: Snapshot - Global Supply Chain Risk Vulnerabilities

January Risk Horoscope: Prepare for Impending Tariffs

A new year is expected to bring new tariffs for US trade partners in Canada, Mexico, China, and elsewhere. The full impact remains to be seen but based on RapidRatings’ stress tests of client financial health, supply chains will be seriously impacted.

So, use January to start preparing for potential financial strain by being proactive about the financial health of your key suppliers. Assess their strengths and weaknesses, create risk mitigations strategies, and explore innovative ways to support your suppliers.

For more insights check out The Impact of Tariffs on Your Supply Chain

The Time Machine: Double-entry Booking

Let’s journey back in time roughly 700 years, to 13th century Italy, where the origins of financial analytics were first developed via double-entry bookkeeping.

There’s debate over who should be credited, with Florentine merchant Amatino Maunicci, Franciscan friar and mathematician Luca Pacioli, and banker Giovanni di Bicci de’ Medici all playing important roles.

Regardless, this system helped establish a formal, rigorous way of recording and tracking financial transactions, giving businesses new insight into their financial positions.

So next time you use an analytic financial tool, imagine you are a merchant reviewing a dusty ledger of financial entries in Tuscany.

If you’re curious about how RapidRatings offers the most accurate and comprehensive financial data analytics in the industry, check out RapidRatings.com to learn more.