Rapid Ratings has released a very cool procurement content solution that I had a chance to kick the tires on. It’s called a “Financial Dialogue Report,” and basically it packages up Rapid Rating’s FHR (Financial Health Rating) score, CHS (Core Health Score) and supporting FHR components and data analytics into a scripted conversational guide that buyers can use to support their discussions with suppliers regarding “data of concern.”
All of Rapid Ratings’ procurement and supplier risk management clients have been piloting it, and I spent some time reviewing and must say that I’ve never seen anything like it. It’s a great example of using technology to transform information into higher-level knowledge and “applied intelligence” that a buyer can use to drive value.
If you’re not familiar with Rapid Ratings, the firm provides its FHR score of suppliers to buyers (and vice versa) and is a quantitative alternative to Dun & Bradstreet’s Supplier Evaluation Risk (SER) Rating. FHR differs from SER though in that it takes a purely quantitative view of supplier financial risk and specializes in engaging private suppliers to provide the data needed to produce the FHR Report (more on this unique methodology in a subsequent post). You can check out an example here of an FHR report on famed (or infamous) Apple supplier GT Advanced Technologies. You’ll notice that in Figure 3, the FHR score went from 84 (on a 1-100 scale) in 2011 to a score of 16 in 2012 — well before the bankruptcy debacle in 2014.
Of course, financial statements tell you only so much, but they do tell a story if you know how to read the proverbial tealeaves. That’s a big “if” though! Financial statement analysis is not necessarily a core competency for most procurement professionals (and even for finance professionals), so interpretation is key. One thing that Rapid Ratings does very well is using highly structured machine-generated reporting that turns the financial data and the related analytics into a much more digestible format. You can see it used in the above report, but the technology really shines when corporate buyers use Rapid Ratings “portfolio” (aka supply base) analytics that help pinpoint recent changes and trends focus on (part of its broader supplier risk management solution). FHR reports also contain a predictive element called the “estimated probability of default” (within 12 month timeframe) right out of the box.
Yet understanding the data isn’t enough. The real question is, “So what? How can I use this information to identify risks or opportunities that create value?” This is where the Financial Dialogue Report comes in. Basically, the primarily machine generated report (which you’d really have a hard time distinguishing from a human-generated analyst report) pinpoints a handful of “Priority Items for Financial Review,” which are derived from the FHR drivers. The report drills down into the “discussions” where each area of concern contains tailored questions for the buyer to consider asking suppliers. More importantly, each of these discussions has educational sections that describe why the concern is important and also the other factors to be aware of related to the concern. It’s pretty cool!
Honestly, I think this tool should be sold à la carte to universities and corporate training programs to use real-life data to illustrate these key concepts. Although the solution is sold on a subscription basis, companies can test out the report and the supporting FHR analysis for a sample public company in the Rapid Ratings database.
Rapid Ratings really shines though in applying this exact same methodology and set of supporting reports to private companies (which comprises the majority of the buyer-driven analyses it performs for large progressive enterprises), but this methodology and associated subscription will be the subject of a forthcoming Spend Matters PRO analysis. Stay tuned!