Spend Matters welcomes this guest post from Deepesh Jethwani, consultant at GEP.
If you had a genie in a magic lamp and you were allowed three wishes, what would they be? For me, owning a professional sports team or franchise would be right on top of that list. I have been following cricket, football and tennis since my childhood, and the prospect of owning Manchester United, Mumbai Indians or Indian Aces is exciting enough to dream about. Have you also wondered about the cost of owning a professional sports team? This blog is an attempt to identify those costs and to understand how a professional sports franchise can limit costs wherever possible.
In a related article last week, we tried to get (a little closer) to the bottom of the whole Mexico border tax issue. Although there are still two potential camps of “tax” — President Trump’s potential blanket tax on Mexican imports, and the broader Border Adjustment Tax (BAT) that comes from proposed Republican corporate tax reform — procurement organizations on both sides of the border have immediate concerns.
10%. 20%. 35%. These are all numbers that the Trump administration has put on the table, at various times, as suggested levels of import tax that the administration threatens to levy on goods from countries such as Mexico if the U.S. companies importing them don’t move their overseas operations back to the States...right? Not so fast. It turns out that there are a few different things this whole “border tax” thing could mean.
In the beginning of this Rapid Ratings Vendor Snapshot, the initial framework we incorporated showed how a supplier’s financial health was the keystone of broader risks in the supply chain. In other words, assurance of a supplier’s ability to deliver with consistency and quality requires assurance of a healthy supplier. To ascertain the financial health of the supplier, you can monitor its public financial data from Bloomberg or other external sources. This can be valuable if you know how to operationalize the information and can do it in a scalable and replicable way for many suppliers, over time.
But this doesn’t account for financial data from privately held companies that, for most corporations, account for 70%–80% of their strategic/critical suppliers. Such data on this group of suppliers is generally sparse, sometimes difficult to interpret, often unreliable for prediction and challenging to benchmark against peer firms. This is why Rapid Ratings’ approach to assessing supplier financial health (especially for this group) is attractive and unique. RapidRating’s FHR® (Financial Health Rating) is a focused and cost-effective supply risk monitoring solution that creates a forward-looking assessment of financial viability for the dozens or hundreds of key suppliers an organization may have — privately held or otherwise.
This Spend Matters PRO Vendor Snapshot explores Rapid Ratings’ strengths and weaknesses, providing facts and expert analysis to help procurement organizations decide whether they should consider the provider. The first installment of our analysis provided a company and solution overview and a recommend fit list of criteria for firms considering it. Part 3 will offer a SWOT analysis, user selection guide, competitive alternatives, and additional evaluation and selection considerations.
Ask any procurement organization what area of risk is most pertinent to them and supplier financial risk will usually rise to the top. In particular, suppliers that are classified as strategic or critical based on business impact (not just annual spend) need to be monitored more closely and regularly to maintain operational resilience, ensure business continuity and minimize business risk — and this monitoring obviously must include evaluating financial viability. This is a core aspect of broader supply risk..
Predictive analytics are key to getting early insight (especially relative to your competitors) on suppliers whose financial health is starting to waver. Getting such intelligence via predictive analytics requires basically two things: strong analytic models and good data.
For publicly traded suppliers, you can get financial statements, but you still have to extrapolate from the historical financials to gain actionable insight or develop some sort of predictive statistic. Some companies have used the Altman Z empirical scoring model, but not only is Altman Z an outdated algorithm that has been shown to be inferior to more updated ones (to be discussed later), but you also have to spend the time compiling and interpreting the data, which tends to fall outside the usual purview of the procurement professional.
The bigger problem, though, is the lack of financial data readily available for private firms — especially in the U.S. For most corporations, up to 80% of their strategic/critical suppliers are private and don’t typically share their financial statements with customers for various reasons. One of those reasons may be that they’re highly profitable and don’t want procurement to see this information, although this is certainly not always the case. In other circumstances, a supplier might feel that being private exempts them from disclosure. Or in the worst of cases (from a supply risk perspective), a vendor might not be doing well financially and is worried about losing additional business. Yet, a customer still wants to be sure that a supplier is not in financial distress — or moving in that direction. So, what the buyer would really like is a scalable managed service with a service provider that can help predict supplier financial health, including bankruptcies.
But this won’t happen unless such a provider can address the supplier concerns of protecting the confidentiality of their raw financials.
This is where Rapid Ratings comes in. Rapid Ratings is a provider of empirically driven financial health scoring of businesses — including private suppliers. The firm’s Financial Health System uses financial data as inputs and then utilizes them within 25 industry-specific, integrated analytic models that calculate a normalized financial rating (0-100 scale) designed to help predict future corporate defaults and identify companies’ inherent strengths. Think of it as a “FICO score for corporations.”
Rapid Ratings claims to have predicted 94% of bankruptcies at least six months in advance, and that the FHR provides predictive capabilities out to 12–18 months. The firm also specializes in working with private suppliers to obtain the necessary financial data to produce their FHR. In fact, nearly two-thirds of the more than 40,000 rating events performed by Rapid Ratings are of private companies. Most impressively, the firm claims a greater than 85% success in getting private suppliers to submit their data.
This Spend Matters PRO Vendor Snapshot provides facts and expert analysis to help procurement organizations make informed decisions about Rapid Ratings' solution offering. Part 1 of our analysis provides a company background and detailed solution overview, as well as a summary recommended fit suggestion for when organizations should consider Rapid Ratings in the procurement technology area. The rest of this Spend Matters PRO Vendor Snapshot research brief covers product strengths and weaknesses, competitor and SWOT analysis, and insider evaluation and selection considerations.
As we leap into the great unknown of 2017, this is our final review of the stocks portfolio we put together for 2016. It featured 21 firms with an interest in procurement and a quote on a major stock market, mainly London or New York.
The final month of the year was actually not very dramatic for our firms generally, but it was more so for the wider markets. At the end of November, our overall portfolio was just ahead of the London FTSE All Share Index for the year to date and just behind the Dow Jones. But in December, while our portfolio rose by just 1% or so, London jumped by no less than 5% and New York by 4%, meaning at year-end we trailed those wider indices – although we were still a couple of percentage points ahead of the Dow Jones Global Index.
Read on to find out the Biggest Winners and Biggest Losers — and tell us if you'd like us to keep doing these into 2017, would you?
November 2016 will not go down in history for anything to do with business, procurement or share prices. The election of Donald Trump certainly seemed to be a seismic event, although we will have to wait and see. Perhaps the biggest shock of all will be if he turns out to be an OK sort of president – not too bad, not brilliant either. Given that one camp has absurdly high expectations of him (“draining the D.C. swamp”) whilst another believes he will lead the world to Armageddon, wouldn’t that be the real surprise?
Procurement fraud comes in many forms and types. Recent front-page news stories can involve multi-million dollar frauds managed at the P&L level by suppliers, such as Pfizer’s recent complex overbilling scheme with the NHS. But procurement and payables fraud most often takes place on a smaller level, with varying degrees of sophistication. Oversight Systems provides an analytics managed service (and front-end software) capability for procurement and finance organizations to fight procurement fraud, whether perpetrated by suppliers, internal participants or both. It also provides similar capabilities to monitor for regulatory compliance (e.g., FCPA violations) as well as detect overpayment errors. Its solution is a complement to procure-to-pay (P2P), travel and expense (T&E) and various audit recovery solutions and approaches in the market today.
This third and final installment of this Spend Matters Vendor Snapshot covering Oversight Systems provides an objective SWOT analysis of the provider and offers a competitive segmentation analysis and comparison. It also includes recommended shortlist candidates as alternative vendors to Oversight Systems and provider selection guidance. Finally, it provides summary analysis and recommendations for companies that can best take advantage of Oversight Systems’ capabilities. Part 1 of this series provided an in-depth look at Oversight as a firm and its specific solutions, and Part 2 gave a detailed analysis of solution strengths and weaknesses and a review of the solution’s user experience.
What do you get if you cross P2P payment compliance, procurement and payables fraud detection and management, and a big data solution together? You get Oversight Systems. Unlike other overpayment prevention and recovery audit providers, Oversight decided to pursue what we might best describe as “data science as a service,” hiring data scientists who are experts –– or have become experts –– in spend areas including travel and expense (T&E) and procure-to-pay (P2P), as well as regulations affecting supplier management and payables such as the Foreign Corrupt Practices Act (FCPA). This team continually works to develop new algorithms to confront the types of continuously evolving over-billing and procurement and T&E fraud scenarios that employees, procurement staff and suppliers engage in, either intentionally or as a result of complacency.
This Spend Matters PRO Vendor Snapshot explores Oversight System’s product strengths and weaknesses, providing facts and expert analysis to help procurement organizations decide whether they should consider this class of solution alongside other P2P, T&E, payables/card and related investments. It also offers a critique (pros/cons) of the user interface. Part 1 of our analysis provided a company and detailed solution overview and a recommend fit list of criteria for firms considering it. The third part of this series will offer a SWOT analysis, user selection guide, competitive alternatives, and additional evaluation and selection considerations.
Procurement fraud typically gets everyone’s attention after it happens. Granted, in certain geographies and industries, regulations such as the Foreign Corrupt Practices Act (FCPA) have magnified the potential risk that procurement fraud can bring to expand beyond profitability impact through high fines and negative media coverage. Yet procurement and finance organizations generally are loath to invest in additional fraud controls and measures such as procure-to-pay (P2P), travel and expense (T&E) and payment solution (including p-cards) rollouts or upgrades at the same time. Oversight Systems, an Atlanta-based organization that focuses on fraud and overpayment controls and prevention and has raised almost $40 million in funding to date, is hoping to change this.
Existing P2P (SAP Ariba, Concur, Basware, etc.) and T&E (e.g., Concur) solutions can put in preventative steps to help reduce the risk of fraud and overpayment occurrences. But the controls they provide are insufficient to prevent fraud alone (as Best Buy discovered when procurement and a supplier colluded to steal millions of dollars from the company). Fraud and overpayment can occur in both expected and unexpected places, and Oversight has designed its solution to find and detect and find it through an advanced analytics platform, regardless of whether an employee, procurement, accounts payable or a supplier is the responsible party (or a combination of actors).
This Spend Matters PRO vendor snapshot provides facts and expert analysis to help buying organizations make informed decisions about Oversight Systems’ procurement and accounts payable fraud and overpayment solutions. Part 1 of our analysis provides a company background and detailed solution overview, as well as a summary recommended fit suggestion for when organizations should consider Oversight Systems as a complement to existing P2P, T&E and card investments. The rest of this multi-part research brief covers product strengths and weaknesses; competitor and SWOT analysis; user selection guides; and insider evaluation and selection considerations.
Spend Matters welcomes this guest post from Jonas Divine, in response to our first installment in our Spend Matters crowdsourcing series.
In response to Pierre Mitchell’s article “A TRULY Open Supplier Discovery Network” on the promise of distributed ledger technology applied to the management of vendor master databases, I would like to add to his consideration of the possible efficiency gains in this area, as well as reflect on some other areas of procure to pay (P2P) that may be ripe for the introduction of blockchain-based innovations.
It was a dark month for our share portfolio of 20 companies that have an interest in the procurement solutions market. Last month, we were commenting that it was several percentage points ahead of the general stock market performance for the year to date, but that changed in October. Markets were pretty flat through October, but our portfolio lost no less than 6% of its value, to end October less than 5% up year to date, still marginally ahead of the Dow Jones and global indexes but behind the U.K. index performance for 2016.