New Predictive Intelligence-Based Financial Industry Risk Ranking Offers A Great Model for Global Supply Chains
The dust, or ash cloud if you prefer has all but settled from the recent Icelandic volcanic eruption. An eruption that grounded flights yet gave flight to heightened awareness of the need to intelligently predict and respond to business disruptions. In days following the event, I was heartened to see humorous (and futile) attempts to master the pronunciation of Eyjafjallajokull quickly make way to discussions of supply chain risk and resiliency.
Systemic Risk Ratings For Financial Institutions With ash clouds serving as the perfect backdrop for risk mitigation initiatives, I found it was very interesting to see New York University SternSchool of Business launch last week – the NYU Stern Systemic Risk rankings – a weekly rating and ordering by level of risk that the largest U.S. financial institutions bring to the financial system. The rankings are updated daily and utilize numerous elements of market data, from 1990 to the present, and provide an early warning that will help identify threats to the overall health of the financial system. The Systemic Risk Contribution Index (SRISK%) ranks firms by the percentage of total system risk each is expected to contribute in a future crisis. The Systemic Risk Rankings take into consideration factors such as company size, exposure to loss of market capitalization, and leverage. While new rating will serve as a dashboard to monitor and react to the volatility of corporate health, I can’t help but wonder if a similar early warning system couldn’t have prevented the recent financial industry meltdown, credit default swaps notwithstanding.
Past Performance IS Indicative Of Future Results
Unlike how mutual fund prospectus are obligated to warn us, it is vital to look into the past performance a company’s trading partners along with measures that analyze prevailing internal and external events to measure risk. An early warning system, similar to the NYU Stern risk ranking is imperative for corporations to predict and prevail in the light of potentially devastating supply chain disruptions. Risk and mitigation strategies are arguably subjective and often highly dependent upon the structure and dynamics of each supply chain. Yet, accurate, effective and timely KPIs, benchmarks and scorecards that track the operational performance of vital supply chain partners such as vendors, contract manufacturers, carriers and agents are absolutely imperative to managing risk. I will elaborate on the various facets of supply chain risk that can be discerned by analyzing operational data in subsequent posts.
Where There Is Risk, There Is… Insurance!
You know supply chain risk is no longer a theoretical or esoteric concept when you have a structured insurance product to help you hedge against it. Zurich Financial Services group has launched two new products – Supply Chain Risk Assessment and Supply Chain Insurance – to help businesses protect their supply chain in this modern, global marketplace. Corporations would be well served to consider such offerings alongside their own internal initiatives that are required to monitor and manage risk factors before they snowball into expensive disruptions.
Operational dashboards, facilitated by a nimble way of analyzing operational data exchanged between trading partners and correlating it to seemingly exogenous market events deliver predictive intelligence. This is the vital early warning system that every supply chain needs.
