This article was originally published in Supply Chain Dive by Ben Unglesbee
March 4, 2024 | LINK
Smaller suppliers’ finances have deteriorated since pre-pandemic
Large buyers have been pressuring suppliers, dragging down smaller, private firms’ operational efficiency, according to RapidRatings analysis.
Small suppliers, the backbone of the global supply chain, have been hit hard by rising interest rates and overall increased costs in recent years. This financial strain is leading to a troubling rise in bankruptcies and supply chain disruptions.
This Supply Chain Dive article, by Ben Unglesbee, uses RapidRatings data to clearly illustrate the trend. It shows exactly how much more pressure small suppliers are under than their larger public counterparts who have the resources to fund escalating capital and interest costs.
By many measures and in many industries, supply chains are stable, inventories have normalized and profitability has improved at large companies.
But under the hood, the finances of many smaller companies in the supply chain are still hurting — and in fact are in worse shape than before the pandemic began.
Since 2019, private middle market companies — which make up the backbones of supply chains — have filed for bankruptcies as much as four times more often large companies, according to research that RapidRatings, a financial analysis firm that tracks supply chain risk, performed for investment firm Marblegate Asset Management.
“You are seeing common themes,” Rapid Ratings Executive Chair James Gellert said. “[Suppliers’] profit margins are being squeezed. Their capital costs are increasing. Short term debt as a percentage of total is, generally speaking, growing — meaning they’re coming closer to their maturities.”
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Take a look at some example industries:
According to Executive Chairman and Supply Chain Expert James Gellert, collaboration and financial transparency are crucial to mitigating this supplier risk.
“There are companies that have managed their suppliers at arm’s length and very transactionally,” Gellert said. “And they’re the ones who don’t have resilient supply chains — because there’s no bond built. Collaboration between corporate entities is key to having sustained critical relationships.”
RapidRatings is the only company that flags the financial health deterioration for both public and private companies. Early detection of a supplier's financial struggles allows for proactive measures. By gaining transparency into the financial health of your partners, you can identify potential disruptions before they occur. This transparency fosters stronger supplier relationships and ultimately protects your operations.
