Corporate confidentiality can be a big barrier to the ability of companies to assess the true level of risk within their global supply chains, says Rose Kelly-Falls, senior vice president of Rapid Ratings International. Trust is an essential element of any buyer-supplier relationship, she says. In addition, companies need to understand just what kind of information is critical to understanding the stability and reliability of a given supplier. Financial risk, she says, "if not always properly evaluated." In addition to determining the financial health of each supplier, companies need to take into account such factors as the local political climate, the price and availability of key commodities, the potential for natural disasters, and the larger economic picture. Developing correct assessments is even more important today, given the impact of the recent recession.

Sole-sourcing is a key element of many companies' supplier strategies, and it can yield big benefits in terms of cost savings and supply-chain simplification. At the same time, it can increase risk levels to the point where a buyer is unable to obtain a key product, component or raw material due to the failure of a single trusted supplier. Kelly-Falls says companies need to understand the full implications of a sole-sourcing strategy, and diversify their supplier bases where risk is determined to be at unacceptable levels.

The latest technology in supply-chain analytics can be a big help in determining risk, Kelly-Falls says. Such systems today are Web-based and easily accessible, and don't need to be fully incorporated into an enterprise resource planning (ERP) application. Many companies rely as well on third-party resources. "It's easily pulled together with a Web-based technology," she says.

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