Balancing Costs with Conscience -- How New Tools and Methods Help Any Business Build Ethical and Sustainable Supply Chains
Balancing Costs with Conscience --
How New Tools and Methods Help
Any Business Build Ethical and
Sustainable Supply Chains
Transcript of a discussion on new ways that companies gain improved visibility,
analytics, and predictive responses to better manage supply-chain risk and
Listen to the podcast. Find it on iTunes. Get the mobile app. Download the
transcript. Sponsor: SAP Ariba.
Dana Gardner: Hi, this is Dana Gardner, Principal Analyst at Interarbor Solutions,
and you’re listening to BriefingsDirect. Our next digital business innovations
discussion explores new ways that companies gain improved visibility, analytics,
and predictive responses to better manage supply-chain risk-and-reward
We’ll examine new tools and methods that can be combined to ease the
assessment and remediation of hundreds of supply-chain risks -- from use of
illegal and unethical labor practices to hidden environmental malpractices.
To learn more about the exploding sophistication in the
ability to gain insights into supply-chain risks and provide
rapid remediation, I’m pleased to welcome our panelists,
Tony Harris, Global Vice President and General Manager of
Supplier Management Solutions at SAP Ariba. Welcome,
Tony Harris: Thanks, Dana.
Gardner: We are also here with Erin McVeigh, Head of
Products and Data Services at Verisk Maplecroft. Welcome, Erin.
Erin McVeigh: Thank you, it’s a pleasure to be here.
Gardner: And lastly, we’re here with Emily Rakowski, Chief Marketing Officer at
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Emily Rakowski: Thanks so much. It’s good to be
Gardner: Tony, I heard somebody say recently
there’s never been a better time to gather
information and to assert governance across supply
Why is that the case? Why is this an opportune time
to be attacking risk in supply chains?
The perfect supply-chain storm
Harris: Several factors have culminated in a very short time around the need for
organizations to have better governance and insight into their supply chains.
First, there is legislation such as the UK’s Modern Slavery Act in 2015 and
variations of this across the world. This is forcing companies to make
declarations that they are working to eradicate forced labor from their supply
chains. Of course, they can state that they are not taking any action, but if you
can imagine the impacts that such a statement would have on the reputation of
the company, it’s not going to be very good.
Next, there has been a real step
change in the way the public now
considers and evaluates the
companies whose goods and
services they are buying. People
inherently want to do good in the
world, and they want to buy
products and services from
companies who can demonstrate, in full transparency, that they are also making
a positive contribution to society -- and not just generating dividends and capital
growth for shareholders.
Finally, there’s also been a step change by many innovative companies that have
realized the real value of fully embracing an environmental, social, and
governance (ESG) agenda. There’s clear evidence that now shows that
companies with a solid ESG policy are more valuable. They sell more. The
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People inherently want to do good in
the world, and they want to buy
products and services from companies
who can demonstrate, in full
transparency, that they are also making
a positive contribution to society.
company’s valuation is higher. They attract and retain more top talent --
particularly Millennials and Generation Z -- and they are more likely to get better
investment rates as well.
Gardner: The impetus is clearly there for ethical examination of how you do
business, and to let your costumers know that. But what about the technologies
and methods that better accomplish this? Is there not, hand in hand, an
opportunity to dig deeper and see deeper than you ever could before?
Better business decisions with AI
Harris: Yes, we have seen a big increase in the number of data and content
companies that now provide insights into the different risk types that
We have companies like EcoVadis that have built score cards on various
corporate social responsibility (CSR) metrics, and Verisk Maplecroft’s indices
across the whole range of ESG criteria. We have financial risk ratings, we have
cyber risk ratings, and we have compliance risk ratings.
These insights and these data
providers are great. They really
are the building blocks of risk
management. However, what I
think has been missing until
recently was the capability to
pull all of this together so that
you can really get a single view
of your entire supplier risk exposure across your business in one place.
Technologies such as artificial intelligence (AI), for example, and machine
learning (ML) are supporting businesses at various stages of the procurement
process in helping to make the right decisions. And that’s what we developed
here at SAP Ariba.
Gardner: It seems to me that 10 years ago when people talked about
procurement and supply-chain integrity that they were really thinking about cost
savings and process efficiency. Erin, what’s changed since then? And tell us also
about Verisk Maplecroft and how you’re allowing a deeper set of variables to be
examined when it comes to integrity across supply chains.
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What has been missing until recently was
the capability to pull all of this together so
that you can really get a single view of
your entire supplier risk exposure across
your business in one place.
McVeigh: There’s been a lot of shift in the market in the last five to 10 years. I
think that predominantly it really shifted with environmental regulatory
compliance. Companies were being forced to look at issues that they never really
had to dig underneath and understand -- not just their own footprint, but to
understand their supply chain’s footprint. And then 10 years ago, of course, we
had the California Transparency Act, and then from that we had the UK Modern
Slavery Act, and we keep seeing more governance compliance requirements.
But what’s really interesting is that companies are going beyond what’s
mandated by regulations. The reason that they have to do that is because they
don’t really know what’s coming next. With a global footprint, it changes that
dynamic. So, they really need to think ahead of the game and make sure that
they’re not reacting to new compliance initiatives. And they have to react to a
different marketplace, as Tony explained; it’s a rapidly changing dynamic.
We were talking earlier today about the
fact that companies are embracing
sustainability, and they’re doing that
because that’s what consumers are
At Verisk Maplecroft, we came to business about 12 years ago, which was really
interesting because it came out of a number of individuals who were getting their
master’s degrees in supply-chain risk. They began to look at how to quantify risk
issues that are so difficult and complex to understand and to make it simple,
easy, and intuitive.
They began with a subset of risk indices. I think probably initially we looked at 20
risks across the board. Now we’re up to more than 200 risk issues across four
thematic issue categories. We begin at the highest pillar of thinking about risks --
like politics, economics, environmental, and social risks. But under each of those
risk’s themes are specific issues that we look at. So, if we’re talking about social
risk, we’re looking at diversity and labor, and then under each of those risk issues
we go a step further, and it’s the indicators -- it’s all that data matrix that comes
together that tell the actionable story.
Some companies still just want to check a [compliance] box. Other companies
want to dig deeper -- but the power is there for both kinds of companies. They
have a very quick way to segment their supply chain, and for those that want to
go to the next level to support their consumer demands, to support regulatory
needs, they can have that data at their fingertips.
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Companies are embracing
sustainability, and they’re doing
that because that’s what
consumers are driving toward.
Gardner: Emily, in this global environment you can’t just comply in one market
or area. You need to be global in nature and thinking about all of the various
markets and sustainability across them. Tell us what EcoVadis does and how an
organization can be compliant on a global scale.
Rakowski: EcoVadis conducts business
sustainability ratings, and the way that we’re using
the procurement context is primarily that very large
multinational companies like Johnson and Johnson
or Nestlé will come to us and say, “We would like to
evaluate the sustainability factors of our key
They might decide to evaluate only the suppliers that
represent a significant risk to the business, or they
might decide that they actually want to review all
suppliers of a certain scale that represent a certain
amount of spend in their business.
What EcoVadis provides is a 10-year-old methodology for assessing businesses
based on evidence-backed criteria. We put out a questionnaire to the supplier,
what we call a right-sized questionnaire, the supplier responds to material
questions based on what kind of goods or services they provide, what geography
they are in, and what size of business they are in.
Of course, very small suppliers are not expected to have very mature and
sophisticated capabilities around sustainability systems, but larger suppliers are.
So, we evaluate them based on those criteria, and then we collect all kinds of
evidence from the suppliers in terms of their policies, their actions, and their
results against those policies, and we give them ultimately a 0 to 100 score.
And that 0 to 100 score is a pretty good indicator to the buying companies of how
well that company is doing in their sustainability systems, and that includes such
criteria as environmental, labor and human rights, their business practices, and
sustainable procurement practices.
Gardner: More data and information are being gathered on these risks on a
global scale. But in order to make that information actionable, there’s an
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aggregation process under way. You’re aggregating on your own -- and SAP
Ariba is now aggregating the aggregators.
How then do we make this actionable? What are the challenges, Tony, for making
the great work being done by your partners into something that companies can
really use and benefit from?
Timely insights, best business decisions
Harris: Other than some of the technological challenges of aggregating this data
across different providers is the need for linking it to the aspects of the
procurement process in support of what our customers are trying to achieve. We
must make sure that we can surface those insights at the right point in their
process to help them make better decisions.
The other aspect to this is how we’re
looking at not just trying to support risk
through that source-to-settlement
process, trying to surface those risk
insights, but also understanding that
where there’s risk, there is opportunity.
So what we are looking at here is how
can we help organizations to determine what value they can derive from turning a
risk into an opportunity, and how they can then measure the value they’ve
delivered in pursuit of that particular goal. These are a couple of the top
challenges we’re working on right now.
Gardner: And what about the opportunity for compression of time? Not all
challenges are something that are foreseeable. Is there something about this that
allows companies to react very quickly? And how do you bring that into a
Harris: If we look at some risk aspects such as natural disasters, you can’t react
timelier than to a natural disaster. So, the way we can alert from our data sources
on earthquakes, for example, we’re able to very quickly ascertain whom the
suppliers are, where their distribution centers are, and where that supplier’s
distribution centers and factories are.
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We’re looking at not just trying to
support risk through that source-to-
settlement process, trying to surface
those risk insights, but also
understanding that where there’s
risk, there is opportunity.
When you can understand what the impacts are going to be very quickly, and
how to respond to that, your mitigation plan is going to prevent the supply chain
from coming to a complete halt.
Gardner: We have to ask the obligatory question these days about AI and ML.
What are the business implications for tapping into what’s now possible
technically for better analyzing risks and even forecasting them?
AI risk assessment reaps rewards
Harris: If you look at AI, this is a great
technology, and what we trying to do is
really simplify that process for our
customers to figure out how they can
take action on the information we’re
providing. So rather them having to be
experts in risk analysis and doing all this
analysis themselves, AI allows us to
surface those risks through the
technology -- through our procurement
suite, for example -- to impact the decisions they’re making.
For example, if I’m in the process of awarding a piece of sourcing business off of
a request for proposal (RFP), the technology can surface the risk insights against
the supplier I’m about to award business to right at that point in time.
A determination can be made based upon the goods or the services I’m looking
to award to the supplier or based on the part of the world they operate in, or
where I’m looking to distribute these goods or services. If a particular supplier
has a risk issue that we feel is too high, we can act upon that. Now that might
mean we postpone the award decision before we do some further investigation,
or it may mean we choose not to award that business. So, AI can really help in
those kinds of areas.
Gardner: Emily, when we think about the pressing need for insight, we think
about both data and analysis capabilities. This isn’t something necessarily that
the buyer or an individual company can do alone if they don’t have access to the
data. Why is your approach better and how does AI assist that?
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Rather than [our customers]
having to be experts in risk
analysis and doing all this
analysis themselves, AI allows
us to surface those risks through
the technology … to impact the
decisions they’re making.
Rakowski: In our case, it’s all about allowing for scale. The way that we’re
applying AI and ML at EcoVadis is we’re using it to do an evidence-based
We collect a great amount of
documentation from the suppliers we’re
evaluating, and actually that AI is helping
us scan through the documentation more
quickly. That way we can find the relevant
information that our analysts are looking
for, compress the evaluation time from
what used to be about a six or seven-
hour evaluation time for each supplier
down to three or four hours. So that’s
essentially allowing us to double our workforce of analysts in a heartbeat.
The other thing it’s doing is helping scan through material news feeds, so we’re
collecting more than 2,500 news sources from around all kinds of reports, from
China Labor Watch or OSHA. These technologies help us scan through those
reports from material information, and then puts that in front of our analysts. It
helps them then to surface that real-time news that we’re for sure at that point is
And that way we we’re combining AI with real human analysis and validation to
make sure that what we we’re serving is accurate and relevant.
Harris: And that’s a great point, Emily. On the SAP Ariba side, we also use ML in
analyzing similarly vast amounts of content from across the Internet. We’re
scanning more than 600,000 data sources on a daily basis for information on any
number of risk types. We’re scanning that content for more than 200 different risk
We use ML in that context to find an issue, or an article, for example, or a piece
of bad news, bad media. The software effectively reads that article electronically.
It understands that this is actually the supplier we think it is, the supplier that
we’ve tracked, and it understands the context of that article.
By effectively reading that text electronically, a machine has concluded, “Hey, this
is about a contracts reduction, it may be the company just lost a piece of
business and they had to downsize, and so that presents a potential risk to our
business because maybe this supplier is on their way out of business.”
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We can find the relevant information
that our analysts are looking for,
compress what used to be about a
six or seven-hour evaluation time for
each supplier down to three or four
hours. That’s essentially allowing us
to double our workforce of analysts
in a heartbeat.
And the software using ML figures all that stuff out by itself. It defines a risk
rating, a score, and brings that information to the attention of the appropriate
category manager and various users. So, it is very powerful technology that can
number crunch and read all this content very quickly.
Gardner: Erin, at Maplecroft, how are such technologies as AI and ML being
brought to bear, and what are the business benefits to your clients and your
The AI-aggregation advantage
McVeigh: As an aggregator of data, it’s basically the bread and butter of what
we do. We bring all of this information together and ML and AI allow us to do it
faster, and more reliably.
We look at many indices. We actually just revamped our social indices a couple
of years ago. Before that you had a human who was sitting there, maybe they
were having a bad day and they just sort of checked the box. But now we have
the capabilities to validate that data against true sources.
Just as Emily mentioned, we were able to reduce our human-rights analyst team
significantly and the number of individuals that it took to create an index and
allow them to go out and begin to work on additional types of projects for our
customers. This helped our customers to be able to utilize the data that’s being
automated and generated for them.
We also talked about what customers are
expecting when they think about data these
days. They’re thinking about the price of
data coming down. They’re expecting it to
be more dynamic, they’re expecting it to be
more granular. And to be able to provide
data at that level, it’s really the combination
of technology with the intelligent data scientists, experts, and data engineers that
bring that power together and allow companies to harness it.
Gardner: Let’s get more concrete about how this goes to market. Tony, at the
recent SAP Ariba Live conference, you announced the Ariba Supplier Risk
improvements. Tell us about the productization of this, how people intercept with
it. It sounds great in theory, but how does this actually work in practice?
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[Customers] are thinking about
the price of data coming down.
They’re expecting it to be more
dynamic, they’re expecting it to
be more granular.
Harris: What we announced at Ariba Live in March is the partnership between
SAP Ariba, EcoVadis and Verisk Maplecroft to bring this combined set of ESG
and CSR insights into SAP Ariba’s Live resolution.
We do not yet have the solution generally available, so we are currently working
on building out integration with our partners. We have a number of common
customers that are working with us on what we call our design partners. There’s
no better customer ultimately then a customer already using these solutions from
our companies. We anticipate making this available in the Q3 2018 time frame.
And with that, customers that have an active subscription to our combined
solutions are then able to benefit from the integration, whereby we pull this data
from Verisk Maplecroft, and we pull the CSR score cards, for example, from
EcoVadis, and then we are able to present that within SAP Ariba’s supplier risk
What it means is that users can get that aggregated view, that high-level view
across all of these different risk types and these metrics in one place. However,
if, ultimately they are going to get to the nth degree of detail, they will have the
ability to click through and naturally go into the solutions from our partners here
as well, to drill right down to that level of detail. The aim here is to get them that
high-level view to help them with their overall assessments of these suppliers.
Gardner: Over time, is this something that organizations will be able to
customize? They will have dials to tune in or out certain risks in order to make it
more applicable to their particular situation?
Harris: Yes, and that’s a great question. We already addressed that in our
solutions today. We cover risk across more than 200 types, and we categorized
those into four primary risk categories. The
way the risk exposure score works is that
any of the feeding attributes that go into
that calculation the customer gets to
decide on how they want to weigh those.
If I have more bias toward that kind of
financial risk aspects, or if I have more of
the bias toward ESG metrics, for example,
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The customer gets to decide … if
I have more bias toward financial
risk aspects, or if I have more
bias toward ESG metrics, for
example, then I can weigh that
part of the [risk exposure] score,
the algorithm, appropriately.
then I can weigh that part of the score, the algorithm, appropriately.
Gardner: Before we close out, let’s examine the paybacks or penalties when you
either do this well -- or not so well.
Erin, when an organization can fully avail themselves of the data, the insight, the
analysis, make it actionable, make it low-latency -- how can that materially impact
the company? Is this a nice-to-have, or how does it affect the bottom line? How
do we make business value from this?
Rakowski: One of the things that we’re still working on is quantifying the return
on investment (ROI) for companies that are able to mitigate risk, because the
event didn’t happen.
How do you put a tangible dollar value to something that didn’t occur? What we
can look at is taking data that was acquired over the past few years and
understand that as we begin to see our risk reduction over time, we begin to
source for more suppliers, add diversity to our supply chain, or even minimize our
supply chain depending on the way you want to move forward in your risk
landscape and your supply diversification program. It’s giving them that power to
really make those decisions faster and more actionable.
And so, while many companies still think about data and tools around ethical
sourcing or sustainable procurement as a nice-to-have, those leaders in the
industry today are saying, “It’s no longer a nice-to-have, we’re actually changing
the way we have done business for generations.”
And, it’s how other companies are beginning to see that it’s not being pushed
down on them anymore from these large retailers, these large organizations. It’s
a choice they have to make to do better business. They are also realizing that
there’s a big ROI from putting in that upfront infrastructure and having dedicated
resources that understand and utilize the data. They still need to internally create
a strategy and make decisions about
We can automate through technology, we
can provide data, and we can help to
create technology that embeds their
business process into it -- but ultimately it
requires a company to embrace a culture,
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It requires a company to embrace
a culture, and a cultural shift to
where they really believe that
data is the foundation, and the
technology will help them move in
and a cultural shift to where they really believe that data is the foundation, and
that technology will help them move in this direction.
Gardner: Emily, for companies that don’t have that culture, that don’t think
seriously about what’s going on with their suppliers, what are some of the
pitfalls? When you don’t take this seriously, are bad things going to happen?
Pay attention, be prepared
Rakowski: There are dozens and dozens of stories out there about companies
that have not paid attention to critical ESG aspects and suffered the
consequences of a horrible brand hit or a fine from a regulatory situation. And
any of those things easily cost that company on the order of a hundred times
what it would cost to actually put in place a program and some supporting
services and technologies to try to avoid that.
From an ROI standpoint, there’s a lot of evidence out there in terms of these
stories. For companies that are not really as sophisticated or ready to embrace
sustainable procurement, it is a challenge. Hopefully there are some positive
mavericks out there in the businesses that are willing to stake their reputation on
trying to move in this direction, understanding that the power they have in the
procurement function is great.
They can use their company’s resources to bet on supply-chain actors that are
doing the right thing, that are paying living wages, that are not overworking their
employees, that are not dumping toxic chemicals in our rivers and these are all
things that, I think, everybody is coming to realize are really a must, regardless of
And so, it’s really those individuals that are willing to stand up, take a stand and
think about how they are going to put in place a program that will really drive this
culture into the business, and educate the business. Even if you’re starting from
a very little group that’s dedicated to it, you can find a way to make it grow within
a culture. I think it’s critical.
Gardner: Tony, for organizations interested in taking advantage of these
technologies and capabilities, what should they be doing to prepare to best use
them? What should companies be thinking about as they get ready for such great
tools that are coming their way?
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Synergistic risk management succeeds
Harris: Organizationally, there tend to be a couple of different teams inside of
business that manage risks. So, on the one hand there can be the kind of
governance risk and compliance team. On the other hand, they can be the
corporate social responsibility team.
I think first of all, bringing those two teams
together in some capacity makes
complete sense because there are
synergies across those teams. They are
both ultimately trying to achieve the same
outcome for the business, right?
Safeguard the business against
unforeseen risks, but also ensure that the
business is doing the right thing in the first place, which can help safeguard the
business from unforeseen risks.
I think getting the organizational model right, and also thinking about how they
can best begin to map out their supply chains are key. One of the big challenges
here, which we haven’t quite solved yet, is figuring out who are the players or
supply-chain actors in that supply chain? It’s pretty easy to determine now who
are the tier-one suppliers, but who are the suppliers to the suppliers -- and who
are the suppliers to the suppliers to the suppliers?
We’ve yet to actually build a better technology that can figure that out easily.
We’re working on it; stay posted. But I think trying to compile that information
upfront is great because once you can get that mapping done, our software and
our partner software with EcoVadis and Verisk Maplecroft is here to service those
kinds of risks inside and across that entire supply chain.
Gardner: I’m afraid we will have to leave it there. You’ve been listening to a
sponsored BriefingsDirect discussion on new ways that companies are gaining
improved visibility, analytics, and predictive responses to better manage supply-
And we’ve learned how new tools and methods can be combined for easy
assessment and remediation of hundreds of supply-chain risks. So, a big thank
you to our guests, Tony Harris, Global Vice President and General Manager of
Supplier Management Solutions at SAP Ariba; Erin McVeigh, Head of Products
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Safeguard the business against
unforeseen risks, but also ensure
that the business is doing the
right thing in the first place, which
can help safeguard the business
from unforeseen risks.
and Data Services at Verisk Maplecroft, and Emily Rakowski, Chief Marketing
Officer at EcoVadis. Thank you, all.
I’m Dana Gardner, Principal Analyst at Interarbor Solutions, your host throughout
this series at SAP Ariba-sponsored BriefingsDirect discussions. Thanks again for
listening and do come back next time.
Listen to the podcast. Find it on iTunes. Get the mobile app. Download the
transcript. Sponsor: SAP Ariba.
Transcript of a discussion on new ways that companies gain improved visibility,
analytics, and predictive responses to better manage supply-chain risk and
sustainability factors. Copyright Interarbor Solutions, LLC, 2005-2018. All rights
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