What is Supply Chain Analysis? Supply chain analysis is a sophisticated methodology developed by Wall Streetquants and used increasingly by the most sophisticated securities analysts, securities traders and money managers as a means of risk assessment and as a species of predictive modeling. At its most basic level, it involves assessing the impact on a given company of an interruption in the supply of key inputs, or of a downturn in the demand for the products sold by key business customers.


More specifically, supply chain analysis is being deployed to predict the movement of stock prices in response to broad-based economic data and trends, as well as to changes in companies' relationships with suppliers and customers alike. According to a paper written in 2010 by its developers, supply chain analysis mimics some of the core analytic techniques employed by Google  to rank pages on the Internet. 

Examples: Computer chip maker Intel derives most of its sales from purchases by computer manufacturers such as IBM. A downturn in IBM sales, accordingly, will result in a downturn in Intel sales. Supply chain analysis will assess the sensitivity of Intel revenues, profits and share price to changes in IBM sales. Likewise, if suppliers of key components and raw materials to Intel cannot meet Intel's demand, that also will have a negative impact on Intel's sales. Supply chain analysis seeks to capture the potential effect of these changes as well.

The Lawsuit: The originators of supply chain analysis, Eric McGill and Paul Migardi, got to know each other as students at MIT (Massachusetts Institute of Technology) in a joint MBA and Master of Science program.

They later formed an investment company called Ashbury Heights Capital LLC in San Francisco, in yet another example of would-be Wall Street talent moving west.

In 2010, Ashbury formed a partnership with a provider of proprietary financial and economic information called Revere Data. Revere, in turn, offered Ashbury's analytic models under license to various hedge funds that engage in so-called program trading. Such trading based on mathematical models often is called quantitative investing. Even the United States Federal Government, specifically the Office of the Director of National Intelligence, has expressed interest in this data and analytic techniques.

Ashbury claims, in a lawsuit, that Revere violated the terms of their contract, using the former's proprietary models in unauthorized fashions and under-reporting revenues subject to sharing under the agreement. Revere subsequently was sold in 2013 to FactSet Research Systems, Inc. for $15 million. Accordingly, FactSet is also named as a defendant in Ashbury's lawsuit.

The defendants in this suit have petitioned unsuccessfully for the case to be moved out of the public court system and into a confidential arbitration proceeding. They lost this petition, and a trial date has been set in September 2016. Because this action is being brought in the public court system, many hitherto secret aspects of the supply chain models in question have been exposed to public scrutiny. Indeed, according to its filing with the court, Ashbury claims to have made a key breakthrough in estimating values that were not publicly available in the past.

Source: "Suit Lifts Lid on Secret Trading Sauce," The Wall Street Journal, June 23, 2015.