Latest / The Buyer's Side with Fexingo: Procurement, Sourcing, and B2B Purchasing Decisions / How One Buyer Used Supplier Risk Scoring to Reduce Disruptions
Transcript
- Lucas: So there's this mid-sized automotive parts manufacturer in Ohio — call them Midwest Drive Systems — and they were getting hit by supply disruptions about once a quarter. A stamping plant in Thailand flooded. A fastener supplier in Mexico had a labor strike. A semiconductor distributor in Texas had a ransomware attack. Each time, the procurement team was caught flat-footed. Luna: Right — the fire-drill response. They'd scramble for alternatives, pay expediting fees, stall production. I've seen that pattern. Lucas: Exactly. And their purchasing director, a woman named Sarah Kim, decided she needed a way to see the next disruption coming before it hit. Not predict the unpredictable — just know which suppliers were most likely to blow up. Luna: So she built a risk scoring system. Walk me through how she did it. Lucas: She started by listing every disruption her team had experienced over the previous two years — about two dozen incidents. Then she and her team identified the common root causes. They boiled it down to seven risk factors: financial health of the supplier, geographic stability, single-source dependency, raw material volatility, labor relations, cybersecurity posture, and regulatory compliance. Luna: That's a lot of data to collect for a mid-market team. How many suppliers were they tracking? Lucas: About 150 active suppliers. So she didn't try to gather perfect data on all seven factors for every supplier from day one. She started with a spreadsheet — a simple weighted scorecard. Each factor got a weight based on how much it had contributed to past disruptions. Luna: What were the weights? Lucas: Financial health was the highest — 25 percent. They'd learned the hard way that a supplier on the edge of bankruptcy causes cascading problems. Geographic stability and single-source dependency were each 15 percent. Raw material volatility, labor relations, cybersecurity, and regulatory compliance were 10 percent each. Luna: And how did they score each supplier on, say, financial health without a Bloomberg terminal? Lucas: Sarah's team used three public data sources: Dun & Bradstreet reports for credit scores, SEC filings if the supplier was public, and payment history data from their own accounts payable system. If a supplier had started asking for early payment or had stretched their own payables, that was a red flag. Luna: So it's not perfect — it's directional. That's smart. Lucas: Exactly. The goal wasn't a perfect risk score — it was a consistent, repeatable way to flag the top 10 percent of suppliers that needed closer monitoring. Within three months, Sarah had a ranked list. And the first thing it showed was that their highest-risk supplier wasn't the one they'd been worrying about. Luna: Interesting. Which one was it? Lucas: It was a small family-owned plastics molder in Illinois. Everyone in procurement liked them — great quality, responsive customer service. But the scoring flagged that they were 100 percent dependent on a single resin supplier, their debt to equity ratio had doubled in two years, and they were in a county with severe weather risk from flooding. Luna: So the relationship blind spot. You're too close to see the risk. Lucas: Exactly. Sarah's team didn't drop the supplier — they started a conversation. They asked for a contingency plan, helped them qualify a secondary resin source, and negotiated a 60-day payment term extension to ease cash flow. The supplier is still with them today, and they haven't had a disruption from that source. Luna: That's a great outcome. But I want to push back on something — for a small procurement team, maintaining a scoring system for 150 suppliers sounds like a part-time job. How do you keep it from becoming shelfware? Lucas: You're right to be skeptical. Sarah found that the key was setting a refresh cadence. Financial and compliance data got updated quarterly. Geographic, labor, and cybersecurity got a lighter touch — annual checks unless there was a triggering event, like a news report of a strike or a data breach. Luna: And who owned it? One person? Lucas: Initially, yes — one of her buyers spent about two hours per week on it. After a year, they automated some of the data pulls using a free tool called Risk Methods — it aggregates news and financial signals. The time dropped to about one hour per month. The return was enormous: they reduced unplanned disruptions by 30 percent year-over-year. Luna: Thirty percent — that's specific. Did they measure that against the prior baseline? Lucas: They did. In the year before the scoring system, they had 11 unplanned disruptions. In the first year after, they had seven. And of those seven, four were with suppliers they'd already flagged as high-risk, so they had contingency plans ready. The impact was minimal. Luna: So the system didn't prevent the disruptions — it bought them preparation time. Lucas: Exactly. That's the real value. You can't stop a flood or a strike. But you can have a backup supplier already qualified, or extra inventory in the pipeline. Sarah estimated that preparation saved them about $2 million in expediting fees and lost production time. Luna: That's the kind of number that gets a CFO's attention. Lucas: Speaking of the CFO — one of the interesting ripple effects was that procurement's credibility went up internally. When Sarah presented the risk scoring at a quarterly review, she could say, 'We have visibility into our top 15 risk suppliers, and here's our mitigation plan for each.' That's a different conversation than, 'We hope nothing goes wrong.' Luna: I can imagine. And it also helps when you're asking for budget for supplier development or dual sourcing — you have data to justify it. Lucas: Absolutely. One of the things Sarah did was share the risk scores with their strategic suppliers. She said, 'Here's how we see your risk profile — what do you see as your own biggest vulnerabilities?' And a few suppliers actually came back with gaps in their own planning that they hadn't addressed. Luna: That's a collaborative approach. Not hiding the scorecard, but using it to start a dialogue. Lucas: Exactly. It turns procurement from a policing function into a partnership. And that's a big culture shift. If these conversations have moved your work forward in some small way, we'll just say — a handful of listeners chip in monthly through Buy Me a Coffee dot com slash fexingo, and that's literally what funds making this many of these episodes. Luna: Yeah — and it keeps the whole thing ad-free, which we love. So if it's useful to you, that's how you can keep it going. Lucas: So the scoring methodology itself — let's talk about the most common mistake buyers make. They treat it as a one-time project. They build a scorecard, score all their suppliers, and then never update it. Six months later, the data is stale and the system dies. Luna: Right — and then they say 'risk scoring doesn't work' when really they just stopped doing it. Lucas: Exactly. Sarah made it a living process. She set calendar reminders for quarterly reviews. She also tied it to the supplier business review cycle — whenever a supplier came in for a quarterly review, she'd pull their latest score and discuss it. Luna: So it became part of the conversation, not a separate task. That makes it sustainable. Lucas: Another pitfall is trying to score every supplier equally. Sarah learned that tier-one suppliers — the ones you buy the most from — deserve a deeper dive. For tier-two and tier-three suppliers, she used a lighter version with just three factors: financial health, single-source dependency, and geographic stability. Luna: That's practical. Otherwise you drown in data for suppliers that represent 5 percent of spend. Lucas: Exactly. So the question becomes: how many tiers do you need? Sarah used three. Top tier — about 20 suppliers — got the full seven-factor scoring. Middle tier — about 50 suppliers — got a five-factor version. The rest got the three-factor light check. Luna: And she communicated that breakdown to her team so everyone knew what was expected. Lucas: She did. And she made the scorecard visible — a shared spreadsheet on the team's drive. Anyone could see a supplier's score and the last update date. That transparency reduced duplication of effort. If a buyer in one category had already updated a supplier's financial score, another buyer didn't have to redo it. Luna: That's smart — shared ownership without a single bottleneck. Lucas: One more thing: Sarah added a 'risk trend' column. Not just the current score, but whether it was improving, stable, or declining. That helped them spot suppliers that were on a downward trajectory before they hit crisis mode. Luna: So a supplier whose financial score drops from 80 to 70 over two quarters — even if 70 is still 'acceptable' — you can start a conversation early. Lucas: Exactly. And that's where the real savings come — prevention, not reaction. So if you're a procurement team of one or two people, you can start with a spreadsheet and three factors. Score your top 20 suppliers this week. Set a reminder for next quarter. That's enough to start seeing the pattern. Luna: And if you need a template, there are free ones online — the Institute for Supply Management has a basic risk scorecard you can download. Lucas: Good call. So the takeaway: risk scoring doesn't require expensive software or a data science team. It requires a willingness to be consistent, transparent, and iterative. And it can change how your whole organization thinks about supply risk. Luna: From firefighter to fire prevention — that's a good career move. Lucas: It really is. So if you're a buyer listening, the question is: what's your biggest blind spot right now? And could a simple scorecard help you see it before it becomes a crisis?