5 ways accountants add value to supply chain risk management

SVB’s collapse put great pressure onto the software community and, in turn, the organisations to which they provide technology. How can smaller businesses understand and mitigate supplier risk?

Richard Crump
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May 31, 2023
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4 minute read

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The collapse of Silicon Valley Bank (SVB) sent shockwaves through the technology sector and, in turn, the organisations to which it provides tech solutions, forcing firms to scramble to understand the impact on their supply chains.

At its height, California-based lender SVB Financial Group was the 16th-largest bank in the US with $210bn (£168bn) in assets. It collapsed in March, becoming the largest bank to fail since the 2008 financial crisis and the second-largest banking failure in US history.

A timeline of how SVB unravelled:

8 March	SVB announces that it needs to raise $2bn in capital to shore up its balance sheet. It sells a bond portfolio at a $1.8bn loss.
9 March	SVB’s stock falls 60%. Venture capital investors and startups start to withdraw their funds from the bank.
10 March	SVB is declared insolvent. The Federal Deposit Insurance Corporation takes control of customers’ deposits.
12 March	The Treasury Department, Federal Deposit Insurance Corporation and the Federal Reserve approve plans to backstop both depositors and other financial institutions connected with SVB.
13 March	HSBC agrees to buy Silicon Valley Bank’s British subsidiary.
14 March	The Securities and Exchange Commission and the Justice Department open investigations into SVB’s collapse, according to media reports.

SVB was a major source of funding for technology companies in the US and a significant player in the UK. Approximately 3,000 UK companies were believed to have financing agreements with its British subsidiary, Silicon Valley Bank UK Limited.

Panic set in among the tech start-ups that banked with SVB as word spread of a run, raising the spectre of companies being unable to access their funds, which would have consequences for the businesses that relied on those tech start-ups’ services.

Tech companies wake up

Rippling, a US payroll services firm that had been a customer of SVB, tweeted that it was unable to process its clients’ employee paychecks in the immediate aftermath. The company’s CEO posted an update that it had pivoted to begin work with JPMorgan Chase & Co to process the wages.

“You will see people starting to move to safer havens to make sure they are not possibly exposed,” Sam Gilks, a supply chain consultant who has advised multinational and small to medium-sized businesses, says.

However, the worst supply chain shocks caused by SVB’s collapse were averted by the speedy intervention of regulators. The Federal Reserve stepped in to backstop SVB after the Federal Deposit Insurance Corporation (FDIC) took control of customers’ deposits, while the Bank of England sold SVB’s UK subsidiary to HSBC.

“If a lot of smaller companies [had been] left without their monies, there would have been a big issue. But, ultimately, there weren’t any massive supply chain shocks because there was such a prompt response from the FDIC,” Niko Nurmi, senior executive adviser at Procurement Leaders, says.

Had that not been the case, Nurmi says, affected smaller companies would have needed more support in the form of shorter payment terms or upfront payments, and clients placing orders ahead of normal demand.

A new lens on supplier risk

Despite the 11th-hour regulatory reprieve, the crisis has been a wake-up call for accountants to review their companies’ counterparty credit risk and exposure to critical parts of their supply chain even if their company was not directly affected.

Arif Kamal, chief finance and operations officer at law firm Hunters, believes in maintaining dialogue with key suppliers.

“Better communication can avoid misunderstandings and disappointments,” he explains. “It is now critical for businesses to know and understand their suppliers, and adapt quickly should the needs or priorities change. Investment in technology to monitor the risks is critical.”

As part of that dialogue, Sam Gilks says businesses need to ask the fundamental question of whether a supplier is going to be here for the long run.

“How can you demonstrate to me that you are still going to be transacting and can provide a solution in another five years? Because if you are not, it is hard from a risk management point of view to sign off on that,” he says.

Paying a premium

Company accountants also play an essential role in managing supply chain risk by assessing the financial health of suppliers, and identifying potential supply chain risks, according to Neil Morling, chief financial officer at global architecture business Handley House.

“We always look at the financial standing of the business,” Morling says, noting that it may be worth paying more for an established supplier. Handley House used outsourcing to de-risk cyber security threats, and Morling says they chose “a significant player and probably paid a premium”.

Christopher Kinsella, an experienced interim finance director currently at Greater Manchester Police, says the finance function needs to weigh in on “the balance between the two opposing management objectives of value for money and the risk around supplier financial sustainability”.

“One way to identify this potential risk is to conduct an assessment or audit that examines all aspects of the supply chain focusing on the vulnerability and financial sustainability of suppliers together with the dependency of the organisation on certain critical suppliers,” Kinsella says.

“There is a key role and an obligation for audit committees to take a lead on presenting and challenging this particular risk in a more novel way.

"Not everyone has a foot in both camps. As a CFO you can – and should – be free to take an interest in anything and everything," Kinsella says.