What is the Supplier Evaluation Risk Rating?
The Dun & Bradstreet Supplier Evaluation Risk (SER) 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.
In order to come up with the SER rating, D&B uses a statistical and predictive approach to evaluate data and assess a supplier’s likelihood of failure and provide vendors with the resources to compare suppliers on a global scale; this differs from the Dun & Bradstreet Financial Stress Score, which merely provides a suppliers relative ranking in the United States. Because the SER rating is more complex and takes more into consideration, a business might have a SER rating that changes more frequently than it’s Financial Stress Score.
The SER rating is comprised of both SER 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 SER 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 effect on a company’s SER score and overall rank in comparison to other businesses.
Why are SER ratings relevant to your business?
Every business’s SER 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 SER rating are projected to go out of business, become inactive or file bankruptcy. If your business’s SER 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 SER 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 SER 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 SER 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 SER rate. If an existing supplier cannot maintain a good SER 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 SER rating to proactively avoid supply chain issues and disruptions. According to the table, a supply monitoring policy that monitors suppliers with a SER 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 SER 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.