Last Friday, Spend Matters Founder Jason Busch and Chief Research Officer Pierre Mitchell teamed up to present the webinar Risk and Compliance Management: Embedding Risk Management in Procurement and Supply Chain. Busch and Mitchell began with a segmentation of the types of supplier and supply chain risk and compliance management technologies out there, before moving into the topics of how to embed these technologies throughout your procurement and supply chain functions. They discussed the best ways to create linkages with other areas of procurement technologies, as well as how to create a procurement culture that is risk-aware.
The Supply Risk Category
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 Some companies have used the Altman Z empirical scoring model, but not only is Altman Z an outdated algorithm that has been shown to be inferior to more updated ones (to be discussed later), but you also have to spend the time compiling and interpreting the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.
The myriad technological and security risks posed by hacking flow all the way from sensitive government agencies on down to less sensitive national political committees, to corporations and even internal departments such as procurement… and the Internet makes it all possible.
I’m reminded of how everyone viewed the Internet — certainly by the time the year 2000 was coming around, but especially earlier in its nascent consumer-facing days in the mid-1990s, when the talk surrounded regulation — much as we’re talking about the Fourth Industrial Revolution (4IR) and artificial intelligence (AI) today.
Join Jason Busch (founder and head of strategy at Spend Matters) and Pierre Mitchell (chief research officer) tomorrow at 12 p.m. Central for The Supply Chain Devil's Dozen: Top 12 Supplier Risks for 2017.
What does 2017 have in store for your organization? When it comes to supply chain and supplier risks, Spend Matters analysts believe you have 12 areas to focus on for the year ahead.
How can you shift your investments and strategies to account for major global changes? How do you "map" these risks to their underlying causes and to the causes of different types of risk?
Sign up here!
While our fearless leaders are forging ahead on a new way to think about quadrants / 2x2s / matrices / [insert consulting-term du jour here] to help procurement practitioners make better decisions in real time — more on that initiative very soon — we figured we’d point to a classic 2x2-style look that the World Economic Forum takes on global risk in 2017, from its recent report. Hint: there's a lot of green.
The issue of forced labor is incredibly serious business when it comes to major supply chain risks. Not only that, it is also incredibly widespread and pervasive, covering myriad industries from clothing to mining, fishing to farming, and many in between. Awareness exploded onto the global scene with the Thai fishing scandal back in 2014. At the time, Spend Matters Founder Jason Busch wrote, “it seems every quarter there’s a new supply chain crisis involving supplier practices and labor management capturing the attention of consumers.” On this year's National Human Trafficking Awareness Day, here's some food for thought for procurement practitioners looking to get more visibility into slavery in their supply chains.
This post is part of our 2016 Year-End Procurement Tech Review series, in which we offer procurement practitioners a bird’s-eye view of key vendors and their solutions in select categories. This week, we’re highlighting companies in the risk management and spend analytics spaces.
Riskmethods, which Spend Matters estimates is the fastest-growing supply chain risk management provider, is more than just a cloud-based provider of supply chain risk management software. It is a new type of supply chain intelligence utility. While the provider is still too small to have a solution that is “going viral,” its growth rate is significant relative to all other vendors in the sector and also a bright spot on the broader procurement and supply chain technology market.
Only two weeks to go until our webinar with riskmethods. The supply chain risk management provider’s software identifies risk along global supply chains, assesses the risk impact and defines appropriate and focused measures for risk prevention or crisis mitigation. The firm is the perfect partner for our upcoming webinar, titled “Keep your enterprise out of the rough: How Titleist built transparency and increased resilience into their supply chain.”
Supply risk is almost always at the top of the CPO agenda (and if it’s not, it should be). Most organizations focus on supplier risk elements that are relatively easy to implement, such as supplier financial risk management, which is a good start. It essentially helps monitor supplier viability through the lens of the financial statements (assuming you can get them from your private suppliers too). But, supplier financial risk management only goes so far. It does provide an "assurance of supplier,” but it doesn’t necessarily protect your assurance of supply from that supplier. We have a handy diagram that illustrates this concept.
The latest version of ISO9001 (called ISO9001:2015) is a “quality system” that is really a business management system customers might ask you to get certified in — and that you may in turn ask your suppliers to get certified. The beauty of ISO9001:2015 is that it can actually help you do both of these things simultaneously while also using the power of a customer-required certification as a way to drive internal change management. In the previous two installments that I wrote on ISO9001, I focused on using ISO9001 for such transformation, specifically on how to align risk and compliance, and to build a business case for supply risk management.
In this two-part Spend Matters Plus brief, I highlight how to use ISO9001:2015 to not just run the business but more specifically the business of procurement. This will illustrate how to make a quality management system that is more than just a transformative business management system — a transformational supply management system.
More important, this brief delivers deeper dive into ISO9001:2015 and shows procurement professionals how exactly how to use it to drive 100% spend influence in strategic sourcing and supplier management. People often forget that spend/supply influence also includes supplier management, when, in fact, the leader of ISO9001:2015 described the capabilities from ISO9001 simply as “confidence that customers around the world right through the supply chain — business-to-business and business-to-consumer — right down to us as individuals, can have confidence in the products and services they’re receiving from their certified suppliers”
It makes complete sense, and the certification can help procurement drive a case for change on this simple idea.
Procurement organizations almost always say, “We can’t mandate anything around here.” Well, now you have a mandate. So, use it to your advantage. We’ll show you how.
I know what you’re thinking: How can ISO9001 be transformative rather than a hindrance? Of course, you might also be asking, “What the heck is ISO9001?” Let me explain. ISO9001 is a standard that spells out the requirements for a “quality management system” that companies use to show their customers that they can systematically meet their requirements. A quality system is basically about saying what you do and doing what you say.
So, you’re stuck in the supply risk swamp and bogged down by compliance regimes. And you know there is waste everywhere and opportunity all around. So, as a supply professional, what should you do? You need to align risk management and compliance management with not just each other but with performance management (including continuous improvement) — and tie them all into your value chain processes. As those processes go upstream and external, this is where procurement and supply chain groups feel this problem — and need for alignment — more than anyone in the enterprise.