What is the Supplier Evaluation Risk Rating (SER)?
The Dun & Bradstreet Supplier Evaluation Risk Rating measures the level of risk associated with a particular supplier or business. It is used by vendors to determine if a supplier is more or less likely to cease business operations or become inactive over a 12 month period.
The Supplier Evaluation Risk Rating uses statistical analysis, probability and predictive data to assess a supplier’s likelihood of failure and provides vendors with the resources to compare suppliers on a global scale; this differs from the Dun and Bradstreet Financial Stress Score, which merely provides a suppliers relative ranking in the United States. Because the Supplier Evaluation Risk Rating is more complex and takes more into consideration, a business might have a Supplier Evaluation Risk Rating that changes more frequently than it’s Dun and Bradstreet Financial Stress Score.
The Supplier Evaluation Risk Rating is comprised of both Supplier Evaluation Risk Rating Commentary (numerical codes that reflect a business profile such as, No payment experiences reported, Higher risk industry based on inactive rate for this industry, Evidence of open suits, liens, and judgments, Change in net worth, etc.) and Supplier Evaluation Risk Rating Scores. Scores range from 1 to 9 with 1 reflecting the lowest associated risk and 9 reflecting the highest risk. Scores are derived from a business’s Dun and Bradstreet Financial Stress Score and other commercial data (see the chart below).
|General Information||Public Information||Financial Information||Payment Experiences|
|Financial Condition of Company||Number of Suits/Bankruptcies and Dollar Amount||Existence and Age of Balance Sheets||Most Recent Paydex|
|Number of Employees||UCC Filings||Quick Ratio and Current Ratio||Difference Between Paydex and Industry Norm|
|Years Since Change in Management||History Indicator||Networth Indicator||Variance of Paydex|
|Years in Business||Assets and Current Liabilities||Percent of Payments Past Due|
|Location||Net Profit (After Taxes)||Dollar Amount of Total Payment Experiences|
|Previous Statement Trends||Dollar Amount of Satisfactory and Negative Payment Experiences|
It is crucial to maintain an up-to-date business credit profile because missing or unreported information will have a direct affect on a company’s Supplier Evaluation Risk Rating Score and overall rank in comparison to other businesses.
Why are Supplier Evaluation Risk Ratings Relevant to my business?
Every business’s Supplier Evaluation Risk Rating maintains a “bad rate” that organizations can compare with the average. The sample Individual Score Range Projected Performance Table below was taken directly from the Dun and Bradstreet website:
|SER Rating||% of Businesses in Dun & Bradstreet Databases (Approx)||Projected Bad Rate||% of Bads Identified (Approx)|
According to the table, 21.05% of companies with a Supplier Evaluation Risk Rating are projected to go out of business, become inactive or file bankruptcy. If your business’s Supplier Evaluation Risk Rating Score is average or below average, the possibility of qualifying for a partnership with an established company is unlikely. That is, in the eyes of a vendor, a supplier with a higher Supplier Evaluation Risk Rate has a greater possibility of failure and a greater possibility of being unable to deliver as promised.
In addition to evaluating potential partners, many companies use Supplier Evaluation Risk Rating Tables to determine monitoring thresholds for their current partnerships. Cumulative Score Range Projected Performance Table’s allow companies to monitor their suppliers by ranking them from high to low risk and select a Supplier Evaluation Risk Rating cut-off in accordance to their company’s standards. This allows companies to identify the percentage of suppliers in their base that have a particular Supplier Evaluation Risk Rate. If an existing supplier cannot maintain a good Supplier Evaluation Risk Rating score, they may be put on probation or replaced. The sample Cumulative Score Range Projected Performance Table below was taken directly from the Dun and Bradstreet website:
|SER Rating||% of Businesses in Dun & Bradstreet Supplier Databases (Approx)||Projected Bad Rate||% of Bads Identified (Approx)|
Organizations use the Supplier Evaluation Risk Rating to proactively avoid supply chain issues and disruptions. According to the table, a supply monitoring policy that monitors suppliers with a Supplier Evaluation Risk Rating of 9 would include approximately 3% of the company’s supplier database and capture 11% of the overall number of suppliers that will become inactive within a 12 month period.
A poor Supplier Evaluation Risk Rating can be detrimental to your business’s success. An average to below average score can impede the likelihood of establishing a new business partnership and affect a current partner’s trust in your ability to deliver a specific product in the long-term.