Editor’s Note: Over the next few weeks on CPO Rising, we’re publishing some “best of” 2018 articles as we reflect on the year and prepare for the new year ahead.
Business intelligence, namely procurement intelligence, can be a force for good in the world. Armed with good intelligence, Chief Procurement Officers (CPOs) and their teams have the power to not only identify and unlock hidden savings in a company’s spend, contracts, and categories, but also identify unethical or unsustainable business practices and spur systemic change. Beyond the list of conventional supply risks, like commodity price spikes and shortages, supplier insolvency, faulty parts, and regulatory compliance, is a growing list of matters that fall under a broad classification: corporate social responsibility (CSR). Things like:
- Environmental sustainability: engaging in “green” business practices, like reducing the use of plastics and pollutants, using viable farming and harvesting methods, recycling, and using recycled materials;
- Fair business practices: disclosing the use of genetically-modified (GMO) ingredients, adhering to General Data Protection Requirements (GDPR), and net neutrality;
- Ethical sourcing: sourcing from suppliers that do not use slave labor, that pay their workers fairly, that offer lateral / upward mobility, that do not subject them to harsh or unsafe working conditions, that do not fund armed conflicts, that do not trade in counterfeit or unsafe products; that treat animals well;
These and other CSR issues are becoming increasingly important — to government regulators as well as consumers. And procurement intelligence is helping to drive remedial efforts to clean up supply chains, like defending worker rights and human dignity, protecting and preserving the environment, and supporting animal welfare regulations and standards.
Just as consumers can “vote with their wallets” and influence businesses to make positive changes, procurement practitioners can “vote with their budgets” to drive ethical, sustainable business practices through their supply chains. After all, procurement teams literally have billions of dollars at their disposal; where they spend it matters. It’s a point that Emily Rakowski, chief marketing officer at EcoVadis made during the “Building Ethical, Sustainable Supply Chains” panel discussion on Day 1 at AribaLive, SAP Ariba’s annual user conference at Caesar’s Palace in Las Vegas. By applying consumer social conscience to procurement processes and technologies, CPOs and their teams can use intelligence to evolve from mere order takers and change managers to social change agents.
How SAP Ariba and its Partners Facilitate Intelligence-Driven CSR
At Ariba Live, attendees and industry analysts learned all about Ariba’s partnerships with other solution providers (click to read our coverage). Together, they are trying to solve the Big Data management problem for procurement not only to help enterprise procurement teams identify cost savings and risks and drive business performance, but also to drive social change through procurement (“procurement with purpose”).
According to Padmini Ranganathan, VP of products and innovation for supplier risk, compliance, and sustainability Solutions at SAP Ariba, procurement with purpose allows companies to act on CSR initiatives, like sustainability and ethical sourcing. But it is technology, and the supply chain intelligence it can provide, that can help organizations operationalize their CSR programs. Indeed, Big Data and spend analytics are effective resources for managing supply risk, driving compliance, and helping to build ethical, sustainable supply chains. But the resultant intelligence is only effective when enterprises can push it down to the contract or factory level where workers are codifying supplier relationships and building products. In effect, CPOs and procurement teams need “to push insights into action.” Making that push requires several layers of technology. Enter the Ariba Network.
The same capabilities on the Ariba Network that connect users to suppliers and provide a 360 degree view of enterprise spend and its supplier base can be used to drive CSR initiatives. Tony Harry, VP and GM of supplier management solutions at SAP Ariba, said that the Network can manage “more than 200 risk types across the source-to-settle spectrum” and enable customers to “make better decisions at the point of decision.” This holistic view can help CPOs and their teams understand their suppliers’ business ethics and sustainability and facilitate change. Here’s how it works.
Starting with the data ingestion layer, users can collect, collate, clean, enrich, and analyze enterprise spend data and supplier data, as well as third-party intelligence and risk analysis from niche solution providers, such as Verisk Maplecroft, Made in a Free World, and EcoVadis. These partners not only provide refined supply chain data and intelligence, with the ability to “drill down” on suppliers, categories, regions, and associated risks, they also allow practitioners to view their intelligence holistically. Buyers, category managers, and supply chain/risk managers can then “connect the dots” and ultimately use that body of knowledge to make informed business decisions.
The value of SAP Ariba and its partnerships, said Erin McVeigh, head of products and data services at Verisk Maplecroft, is that they enable their customers to be able to take a targeted Big Data analysis approach towards supply chain risk management. Moreover, they enable customers to predict risk events and become proactive instead of reactive. In a similar vein, the Ariba Network also integrates with the Global Disaster Alerting and Coordination System, said Padmini, which warns travelers of global natural disasters, and can be used to warn CPOs and procurement users of natural disasters and events in remote supply chains. Aggregation and machine learning-based algorithms that are embedded at data entry points and on top of the data ingestion layer provide users with “a proactive viewpoint in leading behaviors that can drive actions.” As a result, Ariba Network users can conduct “duty of care” operations in near-real time, and reach their people and potentially their suppliers faster with assistance and evacuation.
Finding Problematic Suppliers: Should I Stay or Should I Go?
With all this talk of intelligence and intelligence-driven CSR, the question of what to do when an enterprise discovers unethical suppliers or behaviors within its supply base remains unanswered. The reactive thing to do might be to cut and run — to put as much distance between a company and the supplier as possible, fearing guilt by association and the long-term costs (financial and reputational) in remaining with that supplier. That may be true of suppliers engaged in truly egregious behaviors, like sex trafficking, knowingly using slave or forced labor, or those that have direct ties to armed criminal groups. But in other circumstances, the more ethical and sustainable course of action is to stick with the supplier and collaborate to improve it business practices. As Padmini said, “You don’t want to move away from single-source suppliers, or dump the problematic suppliers; you want to work with them to improve conditions on the ground.” Also, organizations have significant financial influence to incentive suppliers to behave more ethically or sustainably. Otherwise, they risk losing business.
Good for You — Good for Us
A common perception is that CSR initiatives, like tamping down on slave labor in supply chains and ensuring that fair wages are paid to workers, hurts companies’ bottom lines. After all, as Erin told the crowd, “The greatest place for companies to operate is at the lowest cost margin with the lowest risk.” But for Tony, driving enterprise performance and positive social change are not mutually exclusive, and SAP Ariba is giving customers “the ability to cut costs with conscience.”
In fact, organizations might be surprised to learn that engaging in sustainable business practices also correlates with higher business performance. “What companies are finding,” said Erin, “is that purpose is not just about doing good; it can also be good for their bottom line.” By aligning a company’s business operations with industry regulations and their consumer’s social values, the three stakeholders “can help organizations move beyond and drive revenue forward.”
Emily agrees. “In general, sustainability is a leading indicator of whether a company is going to be a good partner to you,” she said. “Overall, companies that do well and have good systems in place around sustainability issues are very likely going to be more stable, financially and quality wise, and just be a better partner.”
Final Thoughts
Procurement intelligence has the potential to help business leaders and practitioners clean up supply chains of unethical, unsafe, and generally unsavory business practices. How? By identifying the problems to begin with, by informing business leaders, by educating consumers, and by empowering them both to take action to redress matters. And it’s not just good for the environment, the consumer, and the global labor force; it’s also good for business. Who would have thought?
RELATED ARTICLES
Procurement with Purpose: Dreaming Big at AribaLive and Beyond
Thoughts from SAP Ariba Live: The Network is Back and Corporate Social Responsibility Stands Tall
Dispatch from SAP Ariba Live: Blockchain, and the Rise of the Benevolent Supply Chain – Part Two
Dispatch from SAP Ariba Live: Blockchain, and the Rise of the Benevolent Supply Chain – Part One
SAP Ariba LIVE 2018– Refocusing on the Network and Driving Growth
