The Supplier Risk Scorecard

The supplier risk scorecard provides valuable guidance for supply base rationalization decisions and maintaining the health of core suppliers, and is useful to a company that evaluates its dependency on a given supplier, as well as the financial solvency, and innovation investment, customer concentration of its key suppliers.

Rather that evaluating suppliers using aditional supplier evaluation dimensions such as on-time delivery, production yield, and price/ value relationship, which ignore the inherent “riskiness” of the supplier, the scorecard evaluates vendors' financial solvency.

Dependence on suppliers is based on expenditure over time, not just current transactions. Financial viability of suppliers includes considerations of their liquidity, capital structure, and cash flow. Suppliers’ revenue concentration should be monitored to understand suppliers’ dependence on Delta and other large customers.


Supplier financial viability:

• quick ratio
• debt/equity ratio
• operating cash flow

Supplier's Dependence on key customers:

• Percentage of supplier's sales from top three second tier vendors

Scoring guide:

Quick ratio: 

• Poor < 1.0 
• Satisfactory 1.0-1.2
• Good > 1.2

Debt/Equity ratio:

• Poor < 1.5 
• Satisfactory 1.0-1.5
• Good > 1.0

Operating Cash Flow

• Poor < 0.0 
• Satisfactory N/A
• Good > 0.0

In addition to examining the financial health of vendors, it's also important to consider alternatives in the event of unforeseen problems such as Iceland's Volcanic dust plume, or other supply chain disruptions.  For critical items, having a backup plan, or sourcing from more than one vendor can save the day in the even of a problem.

It's important to stay away from the trap of sticking with the tried and true rather than examining the alternatives.  Vendors come and go, and they rise and fall in quality. Vendor selection is not something that can be done once, and then your done.