Recently, the Thomasnet Blog featured a post about business credit and its potential impact on your supply chain. The article claims that business credit must be checked when picking a vendor as well as monitored periodically after vendor selection. While technically true, the article is overly simplistic and ignores key business issues that are more likely to impact your supply chain than business credit or business failure. In order to ensure supply chain integrity, businesses must monitor things that are more timely and actionable such as operational performance and compliance. Catastrophic business failure is certainly a risk, but poor operational performance and lack of compliance (both regulatory and contractual) are far more likely to negatively impact your supply chain.
Credit reports are notoriously problematic and consist largely of unverified payment histories rife with false positive and false negative items that are almost impossible to correct. Furthermore, the variables used in calculating business credit are focused on the past. By definition, financial statements are historical; they summarize the cumulation of financial transactions that occurred in the past and are not predictive. Companies have minimal control over the quality of their credit reports.
Operational and compliance performance are more timely and provide actionable data points that are more readily resolvable. Typically, operational and compliance performance thresholds are concrete and contractually enforceable. For instance, if you require a key supplier to have an annual SOC 3 audit performed, that is something that they control, can be put into a contract and is easily validated either directly or via a third party. If they violate this term they are in breach of the contract and can be terminated or cured. Credit reports are silent on these types of events. Operational excellence builds trust.
At Trust Exchange we are building a community of businesses who securely disclose and monitor this critical information. Via the Trust Exchange platform, companies can create custom operational and compliance policies for their supply chain and monitor compliance with these policies in real time.
Share. Verify. Trust.
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