Transcript of a discussion on new ways companies gain improved visibility, analytics, and predictive indicators to assess financial viability of partners across global supply chains.

1. Page 1 of 9
Financial Stability, a Critical Factor
For Choosing a Business Partner,
Is Easier to Assess Than You Think
Transcript of a discussion on new ways companies gain improved visibility, analytics, and
predictive indicators to assess financial viability of partners across global supply chains.
Listen to the podcast. Find it on iTunes. 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 risk remediation discussion
explores new ways companies can gain improved visibility, analytics, and predictive
indicators to better assess the financial viability of partners and global supply chains.
Businesses are now heavily relying upon their trading partners across their supply
chains -- and no business can afford to be dependent on suppliers that pose risks due to
poor financial health.
We will now examine new tools and methods that create a financial health rating system
to determine the probability of bankruptcy, default, or disruption for both public and
private companies -- as many as 36 months in advance.
To learn more about the exploding sophistication around gaining insights into supply-
chain risk of a financial nature, I am pleased to welcome Eric Evans, Managing Director
of Business Development at RapidRatings in New York.
Eric Evans: Thanks, Dana. I appreciate being on the
podcast.
Gardner: We are also here with Kristen Jordeth, Go-to-
Market Director for Supplier Management Solutions,
North America at SAP Ariba. Welcome, Kristen.
Kristen Jordeth: Hi, and thank you very much.
Gardner: Eric, how do the technologies and processes
available now provide a step-change in managing
supplier risk, particularly financial risk?
Evans: Platform-to-platform integrations enabled by
application programming interfaces (APIs), which we have launched over the past few
years, allows partnering with SAP Ariba Supplier Risk. It’s become a nice way for our
Evans

2. Page 2 of 9
clients to combine actionable data with their workflow in procurement processes to better
manage suppliers end to end -- from sourcing to on-boarding to continuous monitoring.
Gardner: The old adage of “garbage in, garbage out” still applies to the quality and
availability of the data. What’s new about access to better data, even in the private
sector?
Dig deep into risk factors
Evans: We go directly to the source, the suppliers our customers work with. They
introduce us to those suppliers and we get the private company financial data, right from
those companies. It’s a quantitative input, and then we do a deeper “CAT scan,” if you
will, on the financials, using that data together with our predictive scoring.
Gardner: Kristen, procurement and supply chain integrity trends have been maturing
over the past 10 years. How are you able to focus now on more types of risk? It seems
we are getting better and deeper at preventing unknown unknowns.
Jordeth: Exactly, and what we are seeing is customers
managing risk from all aspects of the business. The most
important thing is to bring it all together through
technology.
Within our platform, we enable a Controls Framework
that identifies key areas of risk that need to be addressed
for a specific type of engagement. For example, do they
need to pull a financial rating? Do they need to do a
background check? We use the technology to manage
the controls across all of the different aspects of risk in
one system.
Gardner: And because many companies are reliant on
real-time logistics and supplier services, any disruption can be catastrophic.
Jordeth: Absolutely. We need to make sure that the information gets to the system as
quickly as it’s available, which is why the API connect to RapidRatings is extremely
important to our customers. On top of that, we also have proactive incidents tracking,
which complements the scores.
If you see a medium-risk business, from a financial perspective, you can look into that
incident to see if they are under investigation, or if things going on where they might be
laying off departments.
It’s fantastic and to have it all in one place with one view. You can then slice and dice the
data and roll it up into scores. It’s very helpful for our customers.
Jordeth

3. Page 3 of 9
Gardner: And this is a team sport, with an ecosystem of partners, because there is such
industry specialization. Eric, how important is it being in an ecosystem with other
specialists examining other kinds of risk?
Evans: It’s really important. We listen
to our customers and prospects. It’s
about the larger picture of bringing data
into an end-to-end procurement and
supplier risk management process.
We feel really good about being part of SAP PartnerEdge and an app extension partner
to SAP Ariba. It’s exciting to see our data and the integration for clients.
Gardner: Rapid Ratings International, Inc. is the creator of the proprietary Financial
Health Rating (FHR), also known as RapidRatings. What led up to the solution? Why
didn’t it exist 30 years ago?
Rate the risk over time
Evans: The company was founded by someone with a background in econometrics
and modeling. We have 24 industry models that drive the analysis. It’s that kind of deep,
precise, and accurate modeling -- plus the historical database of more than 30 years of
data that we have. When you combine those, it’s much more accurate and predictive, it’s
really forward-looking data.
Gardner: You provide a 0 to 100 score. Is that like a credit rating for an individual? How
does that score work in being mindful of potential risk?
Evans: The FHR is a short-term score, from 0 to 100, that looks at the next 12 months
with a probability of default. Then a Core Health Score, which is around 24 to 36 months
out, looks at operating efficiency and other indicators of how well a company is
managing the business and operationalizing.
When you combine the two, or look at them individually, you can identify companies that
are maybe weak short-term, but look fine long-term, or vice versa. If they don’t look good
in the long-term and in the short-term, they still may have less risk because they have
cash on hand. And that’s happening out in the marketplace these days with a lot of the
initial public offerings (IPOs) such as Pinterest or Lyft. They have a medium-risk FHR
because they have cash, but their long-term operating efficiency needs to be improved
because they are not yet profitable.
Gardner: How are you able to determine risk going 36 months out when you’re dealing
mostly with short-term data?
Evans: It’s because of the historical nature and the discrete modeling underneath, that’s
what gets precise about the industry that each company is in. Having 24 unique industry
It’s about the larger picture of bringing
data into an end-to-end procurement
and supplier risk management process.

4. Page 4 of 9
models is very different than taking all of the companies out there and stuffing them into
a plain-vanilla industry template. A software company is very different than
pharmaceuticals, which is very different than manufacturing.
Having that industry depth -- and the historical data behind it -- is what’s drives the go-
forward assessments.
Gardner: And this is global in nature?
Evans: Absolutely. We have gone out to
more than 130 countries to get data from
those sources, those suppliers. It is a global
data set that we have built on a one-to-one
basis for our clients.
Gardner: Kristen, how does somebody in the Ariba orbit take advantage of this? How is
this consumed?
Jordeth: As with everything at SAP Ariba, we want to simplify how our customers get
access to information. The PartnerEdge program works with our third parties and
partners to create an API whereby all our customers need to do is get a license key from
RapidRatings and apply it to the system.
The infrastructure and connection are already there. Our deployment teams don’t have
to do anything, just add that user license and the key within the system. So, it’s less
touch, and easy to access the data.
Gardner: For those suppliers that want to be considered good partners with low financial
risk, do they have access to this information? Can they work to boost up their scores?
To reduce risk, discuss data details
Evans: Our clients actually own the subscription and the license, and they can share
the data with their suppliers. The suppliers can also foster a dialogue with our tool, called
the Financial Dialogue, and they can ask questions around areas of concern. That can
be used to foster a better relationship, build transparency, and it doesn’t have to be a
negative conversation to be a positive one.
They may want to invest in their company, extend payment terms or credit, work with
them on service-level agreements (SLAs), and send in people to help manage. So, it
could be a good way to just build up that deeper relationship with that supplier and use it
as a better foundation.
Gardner: Kristen, when I put myself in the position of a buyer, I need to factor lots of
other issues, such as around sustainability, compliance, and availability. So how do you
see the future unfolding for the holistic approach to risk mitigation, of not only taking
We have gone out to more than
130 countries to get data from
those sources, those suppliers.

5. Page 5 of 9
advantage of financial risk assessments, but the whole compendium of other risks? It’s
not a simple, easy task.
Jordeth: When you look at financial data, you need to understand the whole story
behind it. Why does that financial data look the way it does today? What I love about
RapidRatings is they have financial scores, and it’s more about the health of the
company in the future.
But in our SAP Ariba solution, we provide
insights on other factors such as
sustainability, information security, and are
they funding things such as women’s rights in
Third World countries? Once you start looking
at the proactive awareness of what’s going on
-- and all the good and the bad together -- you
can weigh the suppliers in a total sense.
Their financials may not be up to par, but they are not high risk because they are funding
women’s rights or doing a lot of things with the youth in America. To me, that may be
more important. So I might put them on a tracker to address their financials more often,
but I am not going to stop doing business with them because one of my goals is
sustainability. That holistic picture helps tell the true story, a story that connects to our
customers, and not just the story we want them to have. So, it creates and crafts that full
picture for them.
Gardner: Empirical data that can then lead to a good judgment that takes into full
account all the other variables. How does this now get to the SAP Ariba installed base?
When is the general availability?
Customize categories, increase confidence
Jordeth: It’s available now. Our supplier risk module is the entryway for all of these
APIs, and within that module we connect to the companies that provide financial data,
compliance screening, and information on forced labor, among others. We are heavily
expanding in this area for categories of risk with our partners, so it’s a fantastic
approach.
Within the supplier risk module, customers have the capability to not only access the
information but also create their own custom scores on that data. Because we are a
technology organization, we give them the keys so an administrator can go in and alter
that the way they want. It is very customizable.
It’s all in our SAP Ariba Supplier Risk solution, and we recently released the connection
to RapidRatings.
We provide insights on other
factors such as sustainability,
information security, and are they
funding things such as women’s
rights in Third World countries?

6. Page 6 of 9
Evans: Our logo is right in there, built in, under the hood, and visible. In terms of getting
it enabled, there’s no professional services or implementation wait time. So once the
data set is built out on our end, if it’s a new client that’s through our implementation
team, and basically we just give the API key credentials to our client. They take it and
enable it in SAP Ariba Supplier Risk and they can instantly pull up the scores. So there
is no wait time and no future developments to get at the data.
Jordeth: That helps us with security, too, because everybody wants to ensure that any
data going in and out of a system is secure, with all of the compliance concerns we
have. So our partner team also ensures the secure connection back and forth with their
data system and our technology. So, that’s very important for customers.
Gardner: Are there any concrete examples? Maybe you can name them, maybe you
can’t, instances where your rating system has proven auspicious? How does this work in
the real world?
Evans: GE Healthcare did a joint-webinar with our CEO last year, explained their
program, and showed how they were able to de-risk their supply base using
RapidRatings. They were able to reduce the number of companies that were unhealthy
financially. They were able to have mitigation plans put in place and corrective actions.
So it was an across the board win-win.
Oftentimes, it’s not about the return on investment (ROI) on the platform, but the fact that
companies were thwarting a disruption. An event did not happen because we were able
to address it before it happened.
On the flip side, you can see how
resilient companies are regardless of
all the disruptions out there. They can
use the financial health scores to
observe the capability of a company
to be resilient and bounce back from
a cyber breach, a regulatory issue, or
maybe a sustainability issue.
By looking at all of these risks inside of SAP Ariba Supplier Risk, they may want to order
an FHR or look at an FHR for a new company that they hadn’t thought of if they are
looking at other risks, operational risks. So that’s another way to tie it in.
Another interesting example is a large international retailer. A company got flagged as
high risk and had just filed for bankruptcy, which alerted the buyer. The buyer had
signed a contract, but they had the product on the shelf, so it had to be resourced and
they had to find a new supplier. They mitigated risk, but they had to take quick action,
get another product, and some scrambling had to be done. But they had de-risked some
brand reputation damage by having done that. They hadn’t looked at that company
before, it was a new company, and it was alerted. So that’s another way of not just
running it at the time of contract, but it’s also running it when you’re going to market.
They can use the financial health scores
to observe the capability of a company to
be resilient and bounce back from a
cyber breach, a regulatory issue, or
maybe a sustainability issue.

7. Page 7 of 9
Identify related risks
Gardner: It also seems logical that if a company is suffering on the financial aspects of
doing business, then it might be an indicator that they’re not well-managed in general. It
may not just be a cause, but an effect. Are there other areas, you could call them
adjacencies, where risks to quality, delivery times, logistics are learned from financial
indicators?
Evans: It’s a really good point. What’s interesting is we took a look at some data our
clients had around timeliness, quality, performance, delivery, and overlaid it with the
financial data on those suppliers. The companies that were weak financially were more
than two times likely to ship a defective product. And companies that were weak
financially were more than 2.5 times more likely to ship wrong or late.
The whole just-in-time shipping or delivery value went out the window. To your point, it
can be construed that companies -- when they are stressed financially – may be cutting
corners, with things getting a little shoddy. They may not have replaced someone.
Maybe there are infrastructure investments that should have been made but weren’t. So,
all of those things have a reverberating effect in other operational risk areas.
Gardner: Kristen, now that we know that more data is good, and that you have more
services like at RapidRatings, how will a big platform and network like SAP Ariba be able
to use machine learning (ML) and artificial intelligence (AI) to further improve risk
mitigation?
Jordeth: The opportunity exists for this to not
only impact the assessment of a supplier, but
throughout the full source-to-pay process,
because it is embedded into the full SAP Ariba
suite. So, even though you’re accessing it
through risk, it’s visible when you’re sourcing,
when you’re contracting, when you’re paying.
So that direct connect is very important.
We want our customers to have it all. So I don’t cringe at the fact that they ask for it all
because they should have it all. It’s just visualizing it in a manner that makes sense and
it’s clear to them.
Gardner: And specifically on your set of solutions, Eric, where do you see things going
in the next couple years? How can the technology get even better? How can the risk be
reduced more?
Evans: We will be innovating products so our clients can bring in more scope around
their supply base, not just the critical vendors but across the longer tail of a supply base
and look at scores across different segments of suppliers. There could be sub-tiers, as a
The opportunity exists for this to
not only impact the assessment
of a supplier, but throughout the
full source-to-pay process,
because it is embedded into the
full SAP Ariba Suite.

8. Page 8 of 9
traversing with sub-tier third and fourth parties, particularly in the banking industry or
manufacturing industry.
And so that coupled with more intelligence or enhanced APIs and data visualization,
these are things that we are looking into as well as additional scoring capabilities.
Gardner: I’m afraid we will have to leave it there. You have been listening to a
sponsored BriefingsDirect discussion on new ways that companies can gain improved
visibility, analytics, and predictive indicators to better assess the financial viability of their
partners across their global supply chains.
And we have learned about new tools and methods create a Financial Health Rating
system to determine the probability of bankruptcy, default, or disruption for public and
private companies.
So a big thank you to our guests, Eric Evans, Managing Director of Business
Development at RapidRatings in New York. Thank you so much, Eric.
Evans: Thank you, I appreciate it.
Gardner: And we have also been here with Kristen Jordeth, Go-to-Market Director for
Supplier Management Solutions, North America at SAP Ariba. Thank you.
Jordeth: Thank you.
Gardner: And a big thank you as well to our audience for joining us for this
BriefingsDirect digital business risk remediation discussion. I’m Dana Gardner, Principal
Analyst at Interarbor Solutions, your host throughout this series of SAP Ariba-sponsored
BriefingsDirect interviews. Thanks again for listening, and do come back next time.
Listen to the podcast. Find it on iTunes. Download the transcript. Sponsor: SAP Ariba.
Transcript of a discussion on new ways companies gain improved visibility, analytics, and
predictive indicators to assess financial viability of partners across global supply chains.
Copyright Interarbor Solutions, LLC, 2005-2019. All rights reserved.
You may also be interested in:
• How enterprises like McKesson digitize procurement and automate spend management
to slash waste
• SAP Ariba COO James Lee on the best path to an intelligent and talented enterprise
• How a Business Matchmaker Application Helps SMBs Impacted by Natural Disasters
Gain New Credit
• The New Procurement Advantage-How Business Networks Generate Multi-Party
Ecosystem Solutions
• How Data-Driven Business Networks Help Close the Digital Transformation Gap
• Building the Intelligent Enterprise with Strategic Procurement and Analytics

9. Page 9 of 9
• How SMBs impacted by natural disasters gain new credit thanks to a finance
matchmaker app
• The new procurement advantage: How business networks generate multi-party
ecosystem solutions
• SAP Ariba's chief data scientist on how ML and dynamic processes build an intelligent
enterprise