Financial supply chain management tends to focus on a horizontal path, monitoring cash flow from order to delivery through to final payment. However, these days it is critical for buyers to be aware of the potential financial risk their suppliers face. Such financial difficulties may impact timely delivery of goods or services buyers need to ensure continued operation. Constantinides calls paying additional attention to suppliers' financial health "vertical awareness."

T&R: What should companies do first? Constantinides: Gauge your suppliers' financial health. A supplier's financial information is often difficult to determine but it's important to know if your supplier is adequately capitalized and able to deliver.

T&R: What are some of the best ways to look at suppliers' financial health?
Constantinides: Adequate access to working capital is key to your suppliers' financial health. There are several clues that may help a buyer. For example, a supplier's bank might be more willing to provide financial support if buyers are supporting their orders with Letters of Credit (LCs). Ask yourself if LC terms could help them to secure/collateralize their sales book and improve cash predictability. Look at your suppliers' other customers–reduced or cancelled orders could cause cash flow problems by leaving suppliers with unsold inventory. If possible, find out if terms offered to other buyers are compromising a supplier's cash cycle. Finally, consider whether a supplier has a solid and stable banking relationship.