Data tool offers early warning of supply chain risk
State of Flux and Lexis Nexis
Research analysing over 90,000 news articles identifies method to generate early warning of a company's financial failure.
The complexity of modern supply chains and different regulatory and reporting requirements can often hinder the ability of businesses to fully assess the risk associated with customer or supplier failure.
The challenge for any company is to ensure it can mitigate risk in doing business: both with those it contracts directly and throughout the broader supply chain. A survey by Business Continuity Institute found almost 40% of reported supply chain disruptions originated with Tier 2 and 3 suppliers.
Companies implement a range of techniques to mitigate the risks within their supply chain but there are clear benefits from being able to anticipate and avoid a potential disruption before it happens.
As part of ongoing risk monitoring, organisations can now harness digital information to better anticipate the collapse of companies in their supply chain according to a new whitepaper jointly published today by LexisNexis and State of Flux.
A case study-based research project, conducted by LexisNexis and State of Flux, analysed more than 90,000 news articles, written about companies in the two years leading up to their insolvency. The overriding objective was to answer one question: can trends in the characteristics of such articles be used to predict a company's financial collapse?
The results were revealing. LexisNexis and State of Flux were able to identify early warning signs of risk in more than 80% of the sample companies researched. In more than half of the companies researched, the early warning signs were either 'strong' or 'very strong'.
Warning signs could be clearly seen six months before companies became insolvent and these signs became more pronounced the closer the companies got to failure. Critically, the pattern of early warning signs was unique to failing companies and not seen in a sample of healthy companies.
Commenting on the survey's findings, Owusu Akoto, Head of Market Intelligence at State of Flux, said:
As supply chains continue to fragment, companies struggle to gain visibility of the risks posed by financial vulnerability among their suppliers and clients. From contract-risk audits, to multi-functional executive workshops and joint buyer-supplier risk management plans, there are many things organisations can do to protect their supply chain. But if they don't see the risks, they can't act upon them. This is why the whitepaper is a breakthrough for the functions whose job it is to monitor and measure threats to their organisation.
James Ritchie, Head of Strategic Alliances at LexisNexis UK added:
By licensing over 35,000 of the most authoritative news, business and trade publications from around the world - and using sophisticated filtering and classification techniques - we are able to focus on very specific warning signs from credible sources. Traditional tools will still have their place, but we believe that systematic news monitoring can provide a valuable additional capability for organisations looking to optimise their risk management approach.
About the survey
LexisNexis and State of Flux have conducted a case study-based research project looking at 23 failed companies since 2008. The research analyses more than 90,000 news articles written about the companies in the run up to bankruptcy and uses specific Smartindexing terms to identify trends in companies that are at risk of failure. The companies selected were geographically diverse, ranged in size from million to billion dollar companies and operated in a variety of industry verticals. The Nexis database contained more than 90,000 news articles about these 23 companies in the two years leading to each company's failure.
Please see a full copy of the research report and contact us State of Flux, on +44 020 7842 0660 for more information on how to make this work for your organisation.