Charlie Minutella is the Chief Executive Officer of RapidRatings, a leading provider of financial health analytics.
Tariffs. It’s all businesses have been planning for since the start of the Trump Administration.
Early on, the administration signaled its intent to bring manufacturing back from overseas, and along with it, investment back to U.S. suppliers. This is leaving corporations scrambling to untangle the webs of their global supply chains, with some already taking major steps forward.
Mars, the food giant, announced its $2 billion investment to expand U.S. production. Apple Inc., whose manufacturing was predominantly based in Asia, pledged $600 billion to bring chip manufacturing back to America.
These are serious financial commitments. And now that tariffs have taken effect, more large corporations are likely to follow suit to curry favor or stay out of the costly tariff crosshairs.
But have companies stopped to consider what they’re investing in?
Oftentimes, companies will run bid processes without ensuring the companies can actually deliver on their promises. The excitement around working with a new supplier can cloud judgments and prevent professionals from doing the right type of diligence. As a result, there can be direct costs and indirect opportunity costs that compound over time.
Every critical supplier relationship should be treated as an investment, ensuring they have the balance sheet to be a long-term, value-added partner.
Before companies get swept up in the appeal of U.S.-based suppliers, they must think about the long game. Based on RapidRatings’ analysis of U.S. supplier financial health, companies need to go beyond surface-level checks and conduct rigorous financial statement analysis because supplier disruptions are rising and financial health is deteriorating rapidly.
The Concerning State Of U.S. Supplier Financial Health
RapidRatings analyzes the financial health of both public and private U.S. suppliers on behalf of Fortune 500 companies. Alongside Marblegate Asset Management, we published a report on the financial performance of private middle market companies and their large public company peers. Our findings are concerning, especially among private companies that form the backbone of America’s supply chains.
• EBITDA (a key measure of profitability) is down 24%
• Net profit after taxes declined 227%
• Leverage (debt compared to equity) soared 129%
• Interest coverage declined 69%, signaling that these companies are having a hard time servicing their debt
U.S. suppliers are struggling. And with higher-for-longer interest rates still in play, access to capital is limited for financial growth. At the same time, bankruptcy rates are rising and increasing the risk of supplier failures and supply chain disruptions.
The Cost Of Supplier Degradation
In the grand scheme of things, bankruptcies don’t happen often. Instead, degradation of supplier performance takes place. Financially stressed suppliers underinvest in key infrastructure, leading to delays, defects and outages. Desperate to improve their cash position, suppliers will often look to price increases, requests for early payment, and financing alternatives—moves that frequently worsen the problem.
The impact to supply chains is real. Conagra Brands, the global food maker, recently announced a complete supply chain overhaul after experiencing factory shutdowns due to product quality issues and third-party vendor failures—a reminder of why supplier due diligence is critical to business continuity.
Companies’ Imperative Should Be Ensuring Supplier Financial Stability
So, as companies move their supply chain to the U.S., how can they guarantee they’re sourcing financially stable suppliers?
To start, financial health monitoring from the outset is critical. Analyzing financial statements reveals weaknesses that may turn into disruption down the road. Need to know whether a supplier can absorb potential tariff costs? Look at their revenue streams and profit margins. Concerned about debt default risk? Evaluate leverage ratios and cash flow coverage.
Transparent collaboration with suppliers is key. If a company is privy to a supplier’s financial state before contract execution, they can proactively negotiate terms or set up protective payment structures.
And above all, treat supplier selection as strategic investment decisions. Apply the same rigor to supplier financial analysis that you would to any major capital investment.
Final Thoughts
The promise of bolstering the U.S. manufacturing base is exciting, but before companies inadvertently degrade their supply chains by picking weak suppliers, they must implement rigorous financial due diligence processes. The stakes are too high to rely on hope alone.
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