The New Weakest Link in Your Supply Chain: Supplier Credit

You can see it in stubbornly high unemployment rates or from the hundreds of companies receiving credit downgrades. After several straight years of distress, global economic growth remains sluggish. This is exacerbating a weak link in companies' supply chains: the deteriorating financial strength of suppliers.

Increasingly, suppliers' weaker balance sheets are posing just as great a risk to companies as suppliers' potential operational problems. By rationalizing their supply chains during the recession, many companies have inadvertently become more reliant on fewer suppliers at exactly the moment when their own finances have become weaker. Meanwhile, those same suppliers are seeking to use their customers' balance sheets to fund their working capital requirements.

This report, prepared by Oliver Wyman in collaboration with the Association for Financial Professionals, argues that supply chain risks have moved from the province of engineers into the realm of chief financial officers and treasurers. To emerge from the global recession unscathed, companies should rethink their approach to supply chains by behaving much more like their own credit rating agencies - and fast.

"The New Weakest Link in Your Supply Chain: Supplier Credit" is the first of a series of papers to be developed by Oliver Wyman and the Association for Financial Professionals, which serves a network of more than 16,000 members with news, economic research and data, treasury certification programs, networking events, financial analytical tools, training, and public policy representation to legislators and regulators.

The series will address critical issues for finance professionals with the objective of stimulating discussion and feedback to Oliver Wyman and AFP through interactive roundtables, presentations at professional events, surveys, webinars, and personal interviews.