A smouldering issue
The recent crisis of volcanic ash might not seem as much of an international financial disaster as the collapse of Lehman Brothers, but it should once again focus treasurers’ attention on potential risks and disruptions in the supply chain. Had European air space controllers not relented on their air traffic ban, after test flights by various European airlines, then the results could have been severe for companies engaged not only in the travel and related industries, but also in the trading of physical goods and those who would be unable to provide full services because key people remained marooned in various parts of the globe, unable to make meetings, decisions and conduct business in some cases.
In these days of lean inventory and sometimes single suppliers to gain cost efficiencies, if the volcanic ash had continued for several weeks, the knock-on effect in corporate supply chains would have been significant.
While it is impossible to plan for every eventuality, the fundamentals of understanding your supply chain are critical. You should always have sound business continuity plans that take into account not just day-to-day threats of doing business but rare occurrences as well. You should ensure that all the companies that partner with you in your supply chain have detailed contingency planning. It is also time to recheck insurance policies as many companies would not pay out on the disruption that the volcanic ash caused because there were no physical damages.
Today, companies are exposed in more parts of the globe than they were 20 years ago and the threat of catastrophic occurrences in recent years, along with potential threats has increased: from hurricane Katrina to the South Asia tsunami, bird and swine flu to anthrax and terrorism, the list is endless. Well-managed companies have complex continuity plans in place based on a variety of scenarios, knowing that such plans can give them a competitive edge if things go wrong.
This month, in addition to our regular features, we look at the threat of weather risk and how its impact can affect companies in unexpected ways. You don’t have to be an ice cream vendor or heating company to have quantifiable risks relating to weather. We also look at how connecting up to SWIFT has an unexpected benefit to any counterparty risk policy.
A special feature on treasury reporting takes a look at the importance of visibility of information, and finally, we continue to expand our insight and analysis coverage of important news events to help you understand risks and opportunities as they unfold in the treasury space.