EVALUATING FINANCIAL HEALTH OF PRIVATE ... - RapidRatings
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EVALUATING FINANCIAL HEALTH OF PRIVATE SUPPLIERS TO MAINTAIN RESILIENT OPERATIONS
Transcript of EVALUATING FINANCIAL HEALTH OF PRIVATE ... - RapidRatings
EVALUATING FINANCIAL HEALTH OF PRIVATE SUPPLIERS TO MAINTAIN RESILIENT OPERATIONS
Stephanie SchaeferSenior Sourcing Manager
General [email protected]
Presenting:
James H. GellertChairman & CEO
© 2017 RapidRatings3
• Financial Health – what is it and why
• Private Company Ratings – how to apply Financial Health
• GE Healthcare – a sophisticated process in operationalizing
Financial Health
• Key Takeaways
Agenda
What we’re covering today
© 2017 RapidRatings4
RAPIDRATINGS’ Financial Health System (FHS) is a comprehensive solution for understanding the financial health of third-party partners, suppliers, vendors, customers and investments.
Pioneering Financial Health
We see what others don’t.
About the FHS
✓ Solely quantitative methods and
machine learning techniques that
analyze all relevant financial data.
✓ Access to private financial
statements and public company
filing data.
✓ Account for differences across
sector, size, strengths, and
weaknesses.
Rating:
• Public and private companies globally –
from over 100 countries
• Across almost all industries
• For the leading corporations and financial
institutions around the world
© 2017 RapidRatings5
Why Evaluate Financial Health
Weak Third Parties Impact You in Many Ways
• 70% of firms experienced a supply chain disruption in the past year 1
• 41% of those disruptions came from Tier 1 suppliers1
• 42% of supplier disruptions are due to financial problems at a supplier2
1 BCI (Business Continuity Institute) "Supply Chain Resilience Report 2016”
Disruptions come from third parties with weakening financial health that lack
the ability to grow with you – not just bankruptcies.
2 ProcureCon“The State of Risk”
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• Using financial statements to see deeply into a company
• Looking forward, not backward
• Understanding short-term resiliency and long-term viability and choosing partners accordingly
• Raising your expectations for what can be achieved in assessments
• Appreciating that financial health is dynamic andchanges over time
• Embracing the value in transparency to build better business relationships
• Learning that financial health can lead risks in other control areas
• Operationalizing the results across alldepartments and in every step of the lifecycle
Sourcing &
Information
Management
On-boarding
Building the
Relationship
Continuous
Monitoring
Termination/
Resourcing
Why Evaluate Financial Health
What Does it Mean to Evaluate Financial Health?
© 2017 RapidRatings7
Why Evaluate Financial Health
An indicator of risks in other areas
CPO Business Priorities:
• Managing risk is top of mind for procurement professionals
• Driven by defense strategies implemented by CFOs
• Top Four Business Priorities for CPOs in 2017:
Deloitte (2017) “The Deloitte Global CPO Survey 2017”
© 2017 RapidRatings8
Why Evaluate Financial Health
Financial Health and Operational Risk Control Areas are Intertwined
Data shows FHRs predict Supplier Performance.
© 2017 RapidRatings9
Overcoming Private Company Challenges
Don’t fall prey to historical notions
• Private companies will account for 70-80% of your suppliers
• You NEED to evaluate them
• You can evaluate them on the same basis as publics
It’s possible and your
responsibility to get
financial statements.
Once a company fails to
make payments, it’s too
late.
Old or partial
information is
misleading.
Reality
You can’t get financials
because they aren’t
obligated to disclose.
Using payment history
constitutes financial
analysis.
Some financial
information is better
than nothing.
Misconception
© 2017 RapidRatings10
Overcoming Private Company Challenges
There is commercial value in transparency for the Private Company
• Historically reluctant to disclose financial statements
– Privates hide behind their private status
– Confidentiality concerns
• Private company disclosure is nuanced
– The relationship is important and there is risk in disrupting it
– Time consuming and can be uncomfortable for relationship managers
– Some privates will disclose to a trusted fiduciary rather than directly
– Understanding financials isn’t just “pulling a report”
• But it most definitely can be done
– Our solicitation process is direct engagement – tech and people
– 90% success rate of gaining financials
– The key is strengthening the relationship though transparency
– How do you operationalize and take action?
– What to do with the few that still won’t disclose?
– How do you discuss results with the private company?
GE HEALTHCARE
Confidential. Not to be copied, distributed, or reproduced without prior approval. Confidential. Not to be copied, distributed, or reproduced without prior approval.
GE today
GE is a digital industrial company that builds, powers, moves, cures and connects the world.
We continuously make the world work better.
We always strive to be simpler, faster, more adaptable and customer driven.
How we work How we deliverWorld we live in
Simple, fast, adaptable, customer & outcomes driven• FastWorks• Performance Development
Financial performance and customer outcomes• Customer success• Revenue/growth• Margins• Cash
GE must grow in spite of the volatile, uncertain, complex and ambiguous world we live in
Who we are
What we do
Why we do it
How we think & act
GE Beliefs:• Customers determine our
success• Stay lean to go fast• Learn & adapt to win• Deliver results in an uncertain
world• Empower & inspire each other
Who we are
Focused digital industrial company with specialty financing
+ + + =
We are GE 13
2017 Letter to the Shareholders: http://www.ge.com/ar2016/ceo-letter/#ceo-video
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The GE StoreOur competitive advantage
We drive enterprise advantages that benefit the entire company through the “GE Store” – where every business in GE can share and access the same technology, markets, structure and intellect.
The value of the GE Store is captured by faster growth at higher margins—it makes the totality of GE more competitive than the parts. No other company has the ability to transfer intellect and technology as we can through the GE Store.
GE DIGITAL
ENERGY CONNECTIONSElectrification, controls and power conversion
technology
POWERCombustion science
and services, installed base
AVIATIONAdvanced materials,
manufacturing, and engineering
productivity
TRANSPORTATIONEngine technology and localization in
growth regions
LIGHTINGLED is gateway to energy efficiency
OIL & GASServices and technology—
a first-mover in growth regions
HEALTHCAREDiagnostics
technology—a first-mover and anchor in
growth markets
RENEWABLE ENERGYSustainable power
systems and storageGLOBAL RESEARCH
GLOBAL GROWTH
ORGANIZATION
CULTURE & SIMPLIFICATION
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GE CAPITAL
We are GE
GLOBAL OPERATIONS
Types of Supplier RiskPrevention ReactionSupplier Risks
Financial Health
Sole or Single Source
Environmental
Quality
Fulfillment
IP
Relationship
FHR Screening
SSRPQBR’s
Contracts
Long-Term Supply Base
Strategy
BCP Plans
Product Design (NPI)
Build Inventory
Crisis Management
Supplier Exit
Payment Term Relief
Temporary Price
Adjustments
Market Dynamics
Process Controls
Dual Source Acquisition
Supplier Revenue
Business Continuity
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Supplier Risk SegmentationZONE 4
▪ Sole source -No known alternate
supplier or technology available
▪ or IP owned by supplier that is not
replaceable without major design
change
ZONE 3
▪ Single source-Other sources
available with equivalent
technology/capability
▪ Highly complex design
ZONE 1
▪ Multiple sources available
▪ Commodities/Off the shelf
ZONE 2
▪ Multiple sources qualified
▪ Alternate technology exists
Par
t C
om
ple
xity
Easy
to
Mak
eTi
ght
Tole
ran
ce“M
agic
”
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Risk Assessment
Watch List
Mitigation
Process Controls
Digitization
Segmentation
SCRM
July 21, 2017Presentation Title
- RFQ- Contract
- New Product Checklist
Risk Management with Rapid Ratings
Short Term / Long Term
GE Wide Reporting
Financial Risk Priority Dashboard Criteria:1) Very high risk supplier according to FHR score2) High risk supplier according to FHR score with either
a. FHR deteriorationb. CFOA- Negative cash flow from operations
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Benefits of FHR for Managing Risk
July 21, 2017Presentation Title 18
0.0%
2.0%
4.0%
6.0%
Ap
r-1
5
Jun
-15
Au
g-1
5
Oct
-15
Dec
-15
Feb
-16
Ap
r-1
6
Jun
-16
Au
g-1
6
Oct
-16
Dec
-16
Feb
-17
% Suppliers Risk PriorityExamples
Supplier #2➢ 2014: Supplier uncooperative to RR solicitation, GEHC purchased 250+ parts.➢ 2015: Supplier defaulted deliveries and payments. GEHC convinced supplier to share financials with RR
which came back with very low FHR rating. GEHC purchased ~200 parts.➢ 2016: Filed Chapter 11 bankruptcy. GEHC initiated Risk Mitigation plan. GEHC purchased ~200 parts.➢ Today: Continued execution of risk mitigation plan for remaining 60 parts.
Supplier #1➢ 2015: Supplier rated with medium risk. Finance review and
recommend we “prepare for alternative plans”.➢ Short term action: Build Inventory, Long Term action: Dual source
through development of new supplier in next NPI.➢ 2017: Spend reduced by 84%, 6 parts remaining at supplier.
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© 2017 RapidRatings19
Key Takeaways
Building a mature risk management program
• A sophisticated risk management program
– Protects your bottom line and customer deliveries from supplier disruption
– Helps manage your business unit across geographies, industries and people
– Allows proactive strategy vs reactive triage
– Positions your supplier group for maximum resiliency and growth potential
• You can elevate your program by:
– Approaching data in a more standardized and systematic way
– Using a quantitative, financial-based metric to underpin overall risk management
– Incorporating data in supplier lifecycle management
– Engaging in frequent and ongoing monitoring
– Putting mandated action plans in place
– Creating a common language to communicate supplier health
&
