Supplier risk management has become a top priority for procurement and supply chain professionals. With rising regulatory and compliance fines and the global market disruptions caused by trade wars and the pandemic, a robust supplier risk management program is crucial. Gerard Smith, President and Co-founder of Global Risk Management Solutions, shares insights on creating a world-class supplier risk management program. In this interview, discover the essential components and strategies to effectively manage supplier risk and ensure compliance and stability in your supply chain. Evolution of Supplier Risk Management Practices Twenty years ago, when I was in procurement, many organizations self-performed everything. In other words, they collected documents and validated them as best as they could. The issue today is with COVID. With COVID, many companies are concerned. The two things we keep hearing about is the financial stability of the suppliers. Are they financially stable? Not only today, but in the foreseeable future, and secondarily, do they have insurance to protect the client company if there are any errors. So, it's the financials currently, and the insurance companies are most concerned about monitoring. Increasing Complexity in Supplier Risk Management Companies are starting to source globally, and more and more companies are concerned about the supply chain and if there are issues, whether geopolitical or whatever the case may be. So the idea here is to manage supplier risk proactively, and so there are three components of that. First, based on a client's requirements – the ability to do the risk assessment based on specific risk components. Second, having a help desk to try and troubleshoot where there are issues with the suppliers to help them to get into compliance. And third, most importantly, being able to monitor those suppliers for changes in status and getting actual push alerts, to be able to act on those. So, in other words, getting in front of the problem versus finding out that a supplier perhaps filed bankruptcy or showed up on a government watch list or something like that. Key Components of a World-Class Supplier Risk Management Program If a company wishes to have a world-class supplier risk management program, there are five crucial components that you would want to see, they are: Customized Risk Program A Customized Risk Program is tailored to address specific risk components relevant to a company's unique needs. This customization can take various forms: Geographical Considerations: Different regions, such as EMEA (Europe, Middle East, and Africa) and APAC (Asia-Pacific), have distinct regulatory requirements and market conditions. A Customized Risk Program can adapt to these regional differences, ensuring compliance and appropriate risk management practices in each area. Spending Levels: Companies often have both strategic and non-strategic suppliers. Strategic suppliers, with whom the company spends more, may require a more thorough and detailed risk assessment compared to non-strategic suppliers. Customizing the risk program based on spending levels ensures that critical suppliers are monitored more closely. Specific Risk Factors: Different industries and companies face unique risks. Whether it's financial stability, compliance with specific regulations, or reputational risks, a Customized Risk Program can focus on the most relevant risk factors for the company. The key objective of a Customized Risk Program is flexibility. It must be able to adapt to various factors such as geography, spending, and specific risk elements, ensuring it is not a one-size-fits-all solution but rather a bespoke approach to managing supplier risk effectively. Adjudicating Information This involves the critical process of verifying and clarifying data to ensure accuracy. This means systematically identifying and eliminating false positives, which occur when incorrect or irrelevant information is selected. For instance, if you input "Bob's Plumbing" into a database, you might receive numerous results for companies with similar names. The challenge is to determine which "Bob's Plumbing" is the correct one that your company works with. Adjudicating information requires sophisticated methods to accurately select the correct entity and cross-verify the details, ensuring that the data is precise and applicable to your specific supplier. This process is essential for maintaining the integrity and reliability of your supplier risk management program. Reporting In a supplier risk management program, reporting capability is vital for maintaining consistent and measurable compliance standards. This involves generating real-time, standardized reports that provide current risk ratings for all suppliers. With these reports, management can quickly identify which suppliers are in compliance with set standards and which are not, along with the reasons for non-compliance. Additionally, the reports highlight any ongoing issues within the supply chain, enabling management to address problems promptly. Effective reporting ensures transparency, accountability, and the ability to make informed decisions based on up-to-date risk assessments. Document Verification and Monitoring In a supplier risk management program, Document Verification and Monitoring is crucial for ensuring the authenticity and accuracy of the documents submitted by suppliers. While collecting and managing documents can be straightforward, the challenge lies in verifying their validity. Many procure-to-pay, source-to-pay, and ERP platforms face this issue, as they often rely on suppliers to upload documents without proper verification. This can result in the acceptance of invalid or even blank documents. To address this, a robust system or process must be in place to validate key documents such as certificates of insurance, W9 forms, and other critical documentation. This system should not only collect documents but also authenticate them, ensuring they meet the required standards and are current. Continuous monitoring of these documents is essential to maintain compliance and mitigate risks associated with outdated or fraudulent information. By implementing thorough document verification and monitoring, companies can ensure the integrity of their supplier risk management program. Continuous Monitoring Continuous Monitoring refers to the ongoing, real-time oversight of supplier activities and conditions to promptly identify and address potential risks. A primary focus of continuous monitoring is assessing the financial stability of suppliers. This means regularly evaluating their financial health to detect any signs of trouble. If a supplier shows indications of financial distress, such as declining financial metrics or negative market signals, the company can take proactive measures, such as halting purchase orders, to prevent potential disruptions in the supply chain. Continuous monitoring ensures that companies can swiftly respond to changes in a supplier's status, maintaining the reliability and integrity of their supply chain operations. Critical Risk Components for Effective Supplier Risk Management There are eight different risk categories. The risk components that companies should at least address within their program. Financial Stability Financial stability is monitoring financial stability in real-time and be able to identify if there are issues whether they are getting in worse financial shape or perhaps getting in better financial shape. Digital Insurance Verification The best practice right now is what's called digital insurance verification. We're able to manage insurance coverage electronically. We don't even have to collect a certificate of insurance anymore. We can do it digitally in North America. That means that we can monitor a supplier to ensure that they continue to have the insurance requirements daily, which is a unique situation. So you want to make sure, at a minimum, you collect the certificate of insurance. If you want the best practice, you do digital insurance verification. Reputational Protection We do global adverse media monitoring. So as an example, we manage over 25,000 media sources around the globe looking for negative stories because you want to know if your supplier is caught with child labor, or if they've closed a facility somewhere in the world that you're reliant upon. So adverse media is very big at this point because things are evolving very quickly. Regulatory Compliance Regulatory compliance is basically anything that's government regulation. So, it could be the various sanctions lists. Most people don't recognize there are over 1500 watch and sanctions lists around the globe including the U.S OFAC list. That's a big one. It can be a Conflict Minerals Declaration, U.K. Modern Slavery Act, Reach ROHS, the California Transparency Act, anything that's a government regulation falls into that category. Cyber Security Cyber Security would be anything that's involved with data and document verification. It has to be able to collect and validate not only the documents such as a code of conduct, but documents with an expiration date such as an NDA or a diversity certificate. Any standardized documents should be part of the program so suppliers don't get continuously contacted for more documents. Social Responsibility Social responsibility could be anything from diversity verification, child labor, those types of things. Document Management Validate key documents such as certificates of insurance, W9 forms, and other critical documentation. This system should not only collect documents but also authenticate them, ensuring they meet the required standards and are current. Continuous monitoring of these documents is essential to maintain compliance and mitigate risks associated with outdated or fraudulent information. Health and Safety Finally, health and safety could include an HSC questionnaire, EMR ratings, or OSHA statistics. Those are eight areas that companies should at least consider looking into as far as potential risk components. Obviously, there are different parts of each, one of those where those are the broad categories. Global Supplier Risk Assessments: Reliability and Challenges Dependingon what country we're speaking of. Is the information available? Yes, there are varying degrees of information. You can get more information in North American and EMEA than you can say in APAC or South America. Is it available? Absolutely. We can do a supply risk assessment in over 120 countries. So, it is possible to get information. There is standardized information in terms of the adverse media I spoke about. The watch and sanctions list, those are all global. There's a variety of things that can be managed globally. Some of it, in terms of the financial, for instance, it depends on which country we're talking about and how much information can be obtained within that country, and secondarily, whether it can be monitored on an ongoing basis. Again, it depends on which country we're speaking about. In summary Establishing a world-class supplier risk management program involves understanding the evolution of risk management practices, addressing increasing complexities, and incorporating critical components such as financial stability, digital insurance verification, and continuous monitoring. By proactively managing supplier risk, companies can safeguard their supply chain and ensure compliance. Want to go deeper? Watch our on-demand webinar with GRMS If you would like to hear more about GRMS, watch our on-demand webinar Mitigating Supplier Risk in A Changing World." Gerard goes into greater detail on best practices and how you can proactively manage supplier risk management while staying resilient and the new normal.
Experian and Moody's Analytics have just released the Q2 2020 Main Street Report. The report brings deep insight into the overall financial well-being of the small-business landscape, as well as offer commentary on business credit trends, and what they mean for lenders and small-businesses. Small businesses have turned to borrowing to survive periods of prolonged slumping sales, in many cases from government programs offering loan forgiveness. This increased borrowing has masked rising delinquent balances, but such a solution is a short-term fix. To keep their credit current, small businesses will need to find ways to generate revenue. Defaults are expected to rise in coming quarters as forbearance programs expire and as customers are likely to change their priorities in the wake of COVID-19. In Q2, moderate delinquency, defined as 31-90 days past due, rose to 1.66 percent from 1.61 percent, marking the fourth consecutive quarter of increasing delinquency, and the first year-over-year increase since this time last year. The closure of many state and local economies in April and the first half of May left many businesses facing severe revenue shortfalls in the second quarter. This environment has resulted in businesses listing poor sales as the second most important problem facing small businesses, according to the NFIB. If you would like to get the full analysis of the data behind the latest Main Street Report, presented by leading economists from Moody's Analytics and Experian, watch the Quarterly Business Credit Review webinar.
As business delinquencies rise in response to COVID-19, credit departments are becoming increasingly challenged. In our August 13th Sip and Solve webinar, John Krickus and Andrew Moore will be on hand to share some strategies for maximizing receivables amid rising delinquencies. Managing receivables has never been more important or more challenging. Traditional approaches may no longer apply. In this 15-minute Sip and Solve session, we discuss some solutions for effectively and efficiently handling the increase in receivables many companies are facing. After watching this talk you will learn three key takeaways: Prioritizing receivable management in today's environment Analytic tools for managing receivables Flexing receivables strategies to meet your company's priorities Click to view full slides and transcripts from this session.
In a favorable economic climate, business resilience is often treated as an afterthought. Success is measured in rapid growth and leaps of progress, while failure is little more than a tempering of that expansion.
This year, Experian business information services released some major enhancements to our BusinessIQ product. The project was completed by a highly skilled team here at Experian and heavily driven by customer feedback. Today we'll speak with Casey Hald. one of our lead software developers as he takes us through some of the enhancements to BusinessIQ.
When insurance underwriters make mistakes, bad policies can cost billions. Alternative forms of data is helping change those outcomes, particularly for insurance providers in helping them identify blind spots and accurately underwrite policies. Watch our special Insurance-focused webinar titled "Beyond Credit Risk – Understanding Alternative Data" with HazardHub. Heath Foley and Carl Stronach from Experian is joined by Bob Frady from HazardHub during this lively discussion. Alternative sources of data are growing in importance in the market. The key to our data platform is constantly investing and sourcing a wider variety of data such as geographic hazards, social media, and OSHA data in order to represent a fuller picture of the health of the business. In this one hour talk, we walk through: Utilizing property-level hazard risk assessments The growing importance of alternative sources of data How to bring superior data to power comprehensive insights Related information What is alternative and non-traditional data/
Matt Shubert, Experian's Director of Data Science and Modeling participated in a discussion about trends in AI and Machine Learning. He shared insights on how Experian Business Information Services is leveraging these technologies for clients. Matt and a panel of industry experts discuss how businesses are taking advantage of predictive analytics technology to gain a competitive edge in the marketplace. Webinar Highlights: – Use cases that show how AI and machine learning are helping companies be more proactive than ever – How predictive modeling can lead to more informed business decisions – What steps organizations can take to adopt an AI-enhanced analytics strategy that works for them – And more! Panelists: Puravee Bhattacharya, Senior Data Scientist and Analytics, BI & Performance Reporting at Energia Nirupam Srivastava, Vice President – Strategy and AI at Hero Enterprise Matt Shubert, Director of Data Science and Modeling at Experian
In 2019, 3 in 5 businesses noticed an increase in fraud over a 12-month period. Today, in the face of COVID-19 and the economic downturn, it’s safe to assume that these numbers have increased.
Experian and Moody's Analytics have just released the Q1 2020 Main Street Report. The report brings deep insight into the overall financial well-being of the small-business landscape, as well as offer commentary on business credit trends, and what they mean for lenders and small-businesses. After just one quarter, there’s no doubt the theme of 2020 is the pandemic, Covid-19. Unrelated to the pandemic, and subsequent shuttering of a swath of economies across the world, delinquencies rose in the first quarter. This was occurring as businesses reduced their borrowing. Lower borrowing will not have lasted long though, as government efforts to aid small business have taken the form of SBA lending. In Q1, the slowing of businesses pursuing credit pushed moderately delinquent balances up to 1.61 percent from 1.60 percent in the fourth quarter of 2019. # DPD Q1 19 Q4 19 Q1 20 Moderately delinquent 31–90 1.74% 1.60% 1.61% Severely delinquent 91+ 3.35% 2.29% 2.68% Bankruptcy 0.16% 0.16% 0.16% The bankruptcy rate was essentially flat in the first quarter, rising to 16.3 basis points from 16.1 in Q4. But the rate increased as fewer firms were reported as having active credit balances. The Federal Reserve’s Senior Loan Officer Survey indicates lenders are seeing higher demand than usual for Commercial & Industrial loans. This indicates the beginning of increasing loan demand this year, as small firms look to borrow to ride out lower consumer demand and remain in business. Watch the Quarterly Business Credit Review Get the full analysis of the data behind the Main Street Report by watching the experts from Experian and Moody’s in the Quarterly Business Credit Review.
During the great recession of 2008, the recovery of the U.S. economy hinged on the idea that certain institutions were just too big to fail. Bailouts ensued and the recovery effort was long and arduous. Today, the COVID-19 pandemic poses a different kind of threat to the U.S. economy, grinding the wheels of commerce to a crawl, forcing millions of businesses to temporarily close and lay off workers. The Federal Government passed the CARES act, including the $349 billion Paycheck Protection Program. These bold relief efforts, while helpful to many, came too late as a flood of businesses sought bankruptcy protection through the courts. With only a few states planning to loosen social distancing and safe at home restrictions, the courts are being forced to improvise. So in this post, we spoke to an attorney, Scott Blakely about a couple of unique cases involving iconic American retail brands. The first Tent Sale Over 60 years ago, Michigan entrepreneur Art Van Elsander opened the first of seven Art Van furniture outlets. By the time they opened their seventh store, cash flow was an issue. On the brink of bankruptcy they came up with a novel idea — erecting a huge tent in the parking lots of the stores to attract crowds of shoppers, and drive-up cash flow, hatching the first-ever “Tent Sale.” Art Van Furniture ran tv ads all the time and were a major sponsor of America’s Thanksgiving Parade. In the 1990s when the parade organizers ran into financial difficulty Art Van Elsander wrote a $250,000 personal check so that the parade could go on. Art Van Elsander passed away in 2018. Fast forward to early March 2020, Art Van Furniture had grown to become a $1.4 billion retail juggernaut with 141 stores and 3,700 employees. By March 8th, battered by tariffs on Chinese furniture imports, Art Van Furniture filed for Chapter 11. Under Chapter 11 bankruptcy, debtors are left in control of the business and provided an injunction that prevents creditors from collecting debts or recovering collateral. Three days after filing, the World Health Organization declared the novel coronavirus to be a pandemic, and on March 13th the Trump administration declared a national emergency, forcing non-essential businesses to close. 🚨 BREAKING 🚨 "We have therefore made the assessment that #COVID19 can be characterized as a pandemic"-@DrTedros #coronavirus pic.twitter.com/JqdsM2051A — World Health Organization (WHO) (@WHO) March 11, 2020 The two announcements crippled Art Van’s ability to conduct a tent sale so they filed a request of the court to convert their case from Chapter 11 to Chapter 7. Under Chapter 7, the management of the company loses control and a trustee is appointed by the court. Under Chapter 7 the chances of debt recovery are greatly reduced. In Art Van Furniture’s case, remaining shut down during the COVID-19 pandemic would result in expenses eclipsing any potential revenues generated for creditors. Their hand was forced, and the courts took action. We asked our legal expert Scott Blakeley to give us his take and here’s what he said: “In Art Van’s case, the pandemic destroyed a strategy to operate to prepare for the sale of all its assets as a going concern to Levin Furniture’s former owner, so as to capture that value to distribute to unsecured creditors. Art Van’s alternate strategy to pause the Chapter 11 proceedings until the pandemic passed was not workable as it could not meet the accruing administrative expenses. Rather, Art Van was forced to implement a going out of business strategy for all of its stores. In the initial days of the store closing sales, deposits from inventory sales dropped from $23 million to just $8 million in their final week." "Continued negotiations with creditors to pause Chapter 11 proceedings and conserve cash to meet fee obligations and pay former employees also fell through. In the middle of proceedings, the Judge ordered Art Van to freeze any spending in order to have the company declare amounts owed to employees. By then, however, employees joined in suing the retailer. With no revenue coming in and no amounts to cover employee pay and health care, the Judge declared that Art Van could not choose to pay employees at the expense of other creditors without a court order. With no other options, Art Van filed their request to convert the case to a Chapter 7, handing over the decision to the Trustee and Bankruptcy Court. In Art Van’s case, the Trustee is hoping to open stores again, but that pathway is unclear given the stay-at-home orders of states. Unsecured creditors are not expected to receive a distribution.” Landlords cry foul over Modell’s bankruptcy pause Morris A. Modell opened the first Modell’s Sporting Goods on Cortland Street in Lower Manhattan in 1889. On March 11th, 2020 that run ended when they filed for Chapter 11 bankruptcy protection, announcing they would be closing all 134 stores, citing declining interest in sporting apparel. They had planned an orderly liquidation to proceed through the month of April and sell a portion of their stores. But the Government imposed closure of non-essential businesses hampered those efforts so on March 23rd Modell’s requested and were granted a period of suspense in their bankruptcy case until April 30th, citing a rarely used Section 305 provision. Ordinarily, rent must be paid to the landlord post-bankruptcy, with the exception of a limited grace period for cause, and COVID-19 would be such a case. So landlords in this case got the short end of the stick, they cannot collect rent or evict. Scott Blakeley offers the following assessment of what happened with Modell’s: “With its chapter 11 filing, Modell’s was forced to liquidate its assets through going–out–of–business (GOB) sales at its retail locations. However, COVID-19 restrictions shuttered the GOB sales. Modell’s motioned the bankruptcy court to suspend the GOB sales given the COVID crisis and the resulting stay-at-home orders. The court order allowed Modell’s to suspend payments to landlords for post-petition rent since the retailer could not conduct their GOB sales at the stores. Other retailers in chapter 11 are likely to follow Modell’s strategy to suspend post-petition payments to landlords as social isolation orders continue. Given Covid-19 and stay at home orders, debtors and even creditors may benefit at some level (other than landlords) from the suspension of chapter 11 as debtors can preserve the value of their business as it stays in place, lenders can preserve the value of their collateral by not being forced to seek a premature sale or liquidation, and unsecured creditors may increase the likelihood of a distribution through enhanced values of GOB sales. The chapter 11 case suspension is expected to extend through May 30th, but landlords are expected to oppose.” Scott Blakeley is the founder of Blakeley, LLP, a noted expert in the field of creditors’ rights, commercial law, e-commerce, and bankruptcy law. Scott regularly speaks to industry groups around the country and via monthly webcasts on the topics of creditors' rights and bankruptcy.
Experian® today announced Ascend Commercial Suite™ for financial institutions specializing in commercial lending as well as insurance carriers to drive growth while reducing risk. The suite includes Experian’s Ascend Analytical Sandbox™ configurations and a new Ascend Commercial Benchmarking Dashboard™ that provides access to industry-leading data on small and midsize businesses. “Experian is committed to creating opportunities for businesses to succeed,” said Hiq Lee, president of Experian’s Business Information Services. “During uncertain times, making fast, accurate decisions is critical for lenders so they can continue to extend credit responsibly to the businesses that need it most. Experian’s Ascend Commercial Suite enables clients to access world-class advanced analytics, AI, machine learning, and benchmarking tools so they can make real-time decisions that can ultimately help businesses on the road to recovery ahead.” Experian’s Ascend Analytical Sandbox is an industry-leading cloud-based data and analytics solution that offers flexibility in addressing lenders’ needs and offers instant access to up to 19 years of data. The secure hybrid-cloud environment allows users to combine their own data sets with Experian’s exclusive data assets, including consumer credit, commercial credit, nontraditional, auto, and more. Small and midsize business lenders, as well as insurance carriers, can seamlessly blend commercial and consumer small business data to get a 360-degree view of their overall small business portfolio to more easily identify risks and opportunities. It’s a one-stop-shop for insights, model development, and results measurement. The Ascend Commercial Benchmarking Dashboard delivers a comprehensive visual dashboard view of credit risk data and Small Business Financial Exchange™ (SBFE) Data exclusively for SBFE members. Clients can compare their portfolios against industry performance and analyze new market segments for potential growth and expansion. The insights available through the Ascend Commercial Suite can be viewed and shared through interactive dashboards and customizable reports. Additional use cases include: Portfolio performance and monitoring: Lenders can harness the power of Experian data to better monitor performance and quickly identify areas of strength or concern on visual dashboards without having to run custom reports every month. Model development and validation: Clients can monitor existing models and develop new models in order to improve risk profiles of new accounts and improve existing accounts. Blended analysis: Small business lenders relying on personal guarantees can use both consumer and business data to determine a customer or potential customer’s overall risk. Marketing analytics and acquisition: Lenders’ campaign information and results combined with Experian’s Credit Risk Database help them understand performance and improve marketing and segmentation. Decisioning for risk assessment and segmentation: Lenders and insurance carriers can optimize risk decisioning and segmentation strategies using analytical tools on one platform, which provides quick and efficient access to multiple integrated data sets. Reject inferencing: Lenders can load application data and use SBFE trade-level data to understand how declines performed if customers obtained credit elsewhere. Custom attributes to better analyze portfolios: With SBFE Data, lenders can create their own custom attributes or use Experian’s highly predictive set of attributes. Experian’s Ascend Commercial Suite is built on the Experian Ascend Technology Platform™. Launched in 2017, the Experian Ascend Technology Platform is recognized as one of the most successful launches in Experian’s history. It’s currently being used by the top financial institutions globally including the United Kingdom, South Africa, Brazil and Asia Pacific. Experian’s Ascend Analytical Sandbox was also selected in 2019 as the winner of the “Best Overall Analytics Platform” award by FinTech Breakthrough, an independent organization that recognizes the top companies, technologies and products in the global fintech market. To learn more about Experian’s Ascend Commercial Suite, please visit: https://www.experian.com/business-information/ascend-commercial-suite.
For the past month, the Commercial Data Sciences team in Business Information Services has been taking precautions in response to the Coronavirus Pandemic, working from home. In the span of the past five weeks, we have seen the spread of the disease ramp up, and the death toll climbs. The impact on businesses of all sizes will be immense. In just a few days we built a robust simulator tool that helps businesses assess the impact of COVID-19 as the disease spreads. With this tool, you can: Identify risk in geographies you do business in Based on geography, review the top 5 riskiest industries for that region Apply an impact scenario so you can plan for the best and worst-case scenarios The U.S. business risk dashboard below was developed by Experian Business Information Services to help businesses better understand the impact COVID-19 may have on their commercial operation based on several key factors. This methodology combines business risk, anticipated impact on business industries and real-time COVID-19 case data to help businesses better simulate various impact scenarios down to the state level to help develop enterprise strategies. A paid version of the dashboard goes down to the county and industry level. The risk index is used as a comparative benchmark across states, counties and industries. Industry classification is used to assess the business’s level of exposure due the nature of the business. For example, businesses in the Arts, Entertainment, and Recreation industries will be more heavily impacted than businesses in Public Administration. The risk index represents the credit risk, industry risk, and COVID-19 risk on businesses across the U.S. The impact layer allows users to easily change the severity of the impact related to the combination with the credit risk, industry risk, and COVID-19 risk across regions and industries. This dashboard is meant to be a directional tool for assessing which industries and geographies are most likely to be impacted and how severe the impact will be. The risk index is not designed to be interchangeable with a traditional credit risk score. The risk index is intended to be used independently to gain insights around the potential impact of the current events on future business credit health at summarized levels including region and industry. The risk index has four different assessment scenarios ranging from low to severe. If the expectation is that various industries are affected differently, but the impact overall is minimal, then the minimal scenario should be applied. Select the other scenarios to amplify the impact.
