Financial services companies have ‘increased appetite for risk’, report finds

Financial services companies appear to have increased their appetite for risk compared to businesses in other sectors, a report has found.

The Q3 2018 Global Supply Chain Risk Report, published today (4th December, 2018) by Cranfield School of Management and Dun & Bradstreet, investigates the level of perceived supply chain risk faced by European companies with international supplier relationships.

The findings suggest that companies in the financial services sector – specifically finance, insurance and real estate businesses – seem to have more appetite for risk than those in other sectors such as manufacturing services, infrastructure and wholesale.

Chris Laws, Head of Global Product Development – Supply & Compliance at Dun & Bradstreet, said: “The Dun & Bradstreet data analysed by Cranfield shows that the financial services sector has experienced the biggest increase in supply risk exposure during Q3, with three out of the four risk metrics measured showing an increase, a trend that has been building over 2018.”

Both global sourcing risk and foreign exchange risk* increased by 8% during Q3, and by 31% and 13% respectively since the start of the year. Meanwhile, supplier financial risk increased by 5% over the past three quarters, remaining at a steady high during Q3.

In contrast, supplier criticality – which looks at how reliant buyers believe they are on individual suppliers -– has reduced significantly in the Financial services sector, dropping 27% in Q3, and 45% over the past two quarters.

Dr Heather Skipworth, senior lecturer in logistics, procurement and supply chain management at Cranfield, said: “The data suggests that there is an increasing risk appetite in the financial sector. In comparison to other sectors, financial service companies have a much more sophisticated approach to risk assessment and credit analysis of suppliers, and this ability to better assess risk may explain the increased propensity to risk taking.

“It is interesting to see that supplier criticality – the only measure based on perception rather than objective measures – is reducing, suggesting that companies in the financial services sector view their suppliers as less important or critical to them, perhaps due to more arms-length relationships and/or increased competition in the supply market.”

As well as increased appetite for risk from companies in the financial services sector, the report suggested that buying companies across other sectors analysed are looking to exploit worldwide geopolitical events such as currency fluctuations and the changing US foreign policy to identify cost savings. Data suggests more companies may be using the opportunity to pay suppliers in different currencies to reduce costs. The GBP/EUR exchange rate fluctuated more during Q3 than it has in the past year, between a peak of 0.91 and a low of 0.88 EUR/GBP. The EUR/USD also experienced significant fluctuations in the last quarter between a peak of 1.18 and a low of 1.13 USD/EUR.

The quarterly Global Supply Chain Risk Report uses four key metrics – supplier criticality, supplier financial risk, global sourcing risk, and foreign exchange risk – to assess overall supply chain risk and provides businesses with a view of trends within their industry sector and the wider economy. By analysing trends by sector, the report highlights areas for monitoring and consideration in procurement decisions.

Analysis in the Q3 2018 report was carried out using proprietary commercial data supplied by Dun & Bradstreet, which included around 120,000 anonymous transactions between European buying companies and their suppliers located in more than 150 countries worldwide.