SAP Ariba and MercadoLibre to Consumerize Business Commerce in Latin America

Transcript of a discussion on how the expansion of automated business commerce is impacting global markets, and what's in store for Latin America.

Listen to the podcast. Find it on iTunes. Get the mobile app. Download the transcript. Sponsor: SAP Ariba.

Dana Gardner: Hello, and welcome to a special BriefingsDirect podcast coming to you from the recent 2017 SAP Ariba LIVE conference in Las Vegas.

I’m Dana Gardner, Principal Analyst at Interarbor Solutions, your host as we explore the latest in collaborative commerce and learn how innovative companies are leveraging the networked economy.

Our next digital business insights discussion explores how the expansion of automated tactical buying for business commerce is impacting global markets, and what's in store next for Latin America. We’ll examine how “spot buy” approaches enable companies to make time-sensitive and often mission-critical purchases, even in complex and dynamic settings.

To learn more about the rising tide of such tactical business buying improvements, please join me now in welcoming our guests, Karen Bruck, Corporate Sales Director at MercadoLibre.com in Buenos Aires, Argentina.

Bruck

Karen Bruck: Thank for this opportunity, it’s great to be here, and it’s a great partnership with our friends at SAP Ariba.

Gardner: We are also joined by Diego Cabrera Canay, Director of Financial Planning at MercadoLibre.

Cabrera Canay

Diego Cabrera Canay: Thank you, very much. We’re very excited about this partnership.

Gardner: And we’re here with Tony Alvarez, General Manager of SAP Ariba's Spot Buy Business.

Tony Alvarez: Thank you, Dana. I appreciate it.

Gardner: Tony, let’s level-set this. SAP Ariba Spot Buy has been in the market a few years. Tell us about where it has rolled out so far, why certain markets are being approached, and then about Latin America specifically.

International integrity

Alvarez

Alvarez: The concept is a few years old, but we've been delivering SAP Ariba Spot Buy for about a year. We began in the US, and over the past 12 months the concept of Spot Buy has progressed because of our customer base. Our customer base has pushed us in a direction that is, quite frankly, even beyond Spot Buy -- and it’s getting into trusted, vetted content.

We are approaching the market with a two-pronged strategy of, yes, we have the breadth of content so that when somebody goes into an SAP Ariba application they can find what they are looking for, but we also now have parameters and controls that allow them to vet that content and to put a filter on it.

Over the last 12 months, we've come a long way. We are live in the US, and with early access in the UK and Germany. We just went live in Australia, and now we are very much looking forward to going live and moving fast into Latin America with MercadoLibre.

Gardner: Spot buying, or tactical buying, is different from strategic or more organized long-term buying. Tell us about this subset of procurement.

Alvarez: SAP Ariba is a 20 year-old company, and its roots are in that rigorous, sourced approach. We do hundreds of billions of dollars through contract catalog on the Ariba Network, but there's a segment -- and we believe it's upward of 15% of spend -- that is spot buy spend. The procurement professional often has no idea what's being bought. And I think there are two approaches to that -- either ignorance is bliss and they are glad that it’s out of their purview, or it also keeps them up at night.

SAP Ariba Spot Buy allows them to have visibility into that spend. By partnering with providers like MercadoLibre, they have content from trusted and vetted sellers to bring to the table – so it's a really nice match for procurement.

Liberating limits

Gardner: The trick is to allow for flexibility and being dynamic, but also putting in enough rules and policies so that things don’t go off-track.

Alvarez: Exactly. For example, it’s like putting a filter on your kids’ smartphone. You want them to be able to be liberated so they can go and do as they please with phone calls -- but not to go off the guardrails.

Gardner: Karen, tell us about MercadoLibre and why Latin America might be a really interesting market for this type of Spot Buy service.

Bruck: MercadoLibre is a leading e-commerce platform in Latin America, where we provide the largest marketplaces in 16 different countries. Our main markets are Brazil, Mexico, and Argentina, and that’s where we are going the start this partnership with SAP Ariba.

We have upward of 60 million items listed on our platform, and this breadth of supplies will make purchasing very exciting. Latin America is a complicated market -- and we like this complexity. We do very well.

It’s complicated because there are different rates of inflation in different countries, and so contracts can be hard to complete. What we bring to the table is an assortment of great payment and shipping solutions that make it easy for companies to purchase items. As Tony was saying, these are not under long-term contracts, but we still get to make use of this vast supply.

Gardner: Tony mentioned that maybe 15% of spend is in this category. Diego, do you think that that number might be higher in some of the markets that you serve?

Cabrera Canay: That’s probably the number -- but that is a big number in terms of the spend within companies. So we have to get there and see what happens.

Progressive partnership 

Gardner: Tony, tell us about the partnership. What is MercadoLibre.com bringing to the table? What is Ariba bringing to the table? How does this fit together for a whole that is greater than the sum of its parts?

Alvarez: It really is a well-matched partnership. SAP Ariba is the leading cloud procurement platform, period. When you look in Latin America, our penetration with SAP Enterprise Resource Planning (ERP) is even greater. We have a very strong installed base with SAP ERP.

Our plan is to take the SAP Ariba Spot Buy content and make it available to the SAP installed base. So this goes way beyond just SAP Ariba. And when you think about what Karen mentioned -- difficulties in Latin America with high inflation -- the catalog approach is not used as much in Latin America because everything is so dynamic.

For example, you might sign a contract but in just in a couple of weeks that contract may be obsolete, or unfavorable because of a change in pricing. But once we build controls and parameters in SAP Ariba Spot Buy, you can layer that on top of MercadoLibre content, which is super-broad. If you're looking for it you’re going to find it, and that content is constantly updated. You gain real-time access to the latest information, and then the procurement person gets the benefit of control.

So I'm very optimistic. As Diego mentioned, I think 15% is really on the low-end in Latin America for this type of spend. I think this will be a really nice way to put digital catalog buying in the hands of large enterprise buyers.

Gardner: Speaking of large enterprise buyers, if I'm a purchasing official in one of your new markets, what should I be thinking about how this is going to benefit me?

Transparent, trusted transactions

It saves a lot of time, it makes the comparison very transparent, and you are able to control the different options. Overall, it's a win-win ... a partnership, a match made in heaven.

Bruck: Let me talk about this from experience. As a country manager at MercadoLibre, I had to do a lot of the procurement, together with our procurement officers. It was really frustrating at times because all of these purchases had to be one-off engagements, with a different vendor every time. That takes a lot of time. You also have to bring in price comparisons, and that’s not always a simple process.

So what this platform gives you is the ability to be very transparent about prices and among different supplies. That makes it very easy to be able to buy every time without having to call and get the vendor to be in your own buying platform.

It saves a lot of time, it makes the comparison very transparent, and you are able to control the different options. Overall, it’s a win-win. So I do believe this is a partnership, a match made in heaven.

We were also very interested in business-to-business (B2B) industries. When Tony and SAP Ariba came to our offices to offer this partnership, we thought this would be a great way to leverage their needs with our supply and make it work.

Gardner: For sellers, this enables them to do repeated business more easily, more automated and so at scale. For buyers, with transparency they have more insight into getting the best prices, the best terms of delivery. Let's expand on that win-win. Diego, tell us about the business benefits for all parties.

Big and small, meet at the mall 

Cabrera Canay: In the past few years, we have been working to make MercadoLibre the biggest “mall” in e-commerce. We have the most important brands and the most important retailers selling through MercadoLibre.

What differentiates us is that we are confident we have the best prices -- and also other great services such as free shipping, easy payments, and financing. We are sure that we can offer the buyers better purchasing.

Obviously, from the side of sellers, this all provides higher demand, it raises the bar in terms of having qualified buyers, and then giving the best services. That’s very exciting for us.

Gardner: Tony, we mentioned large enterprises, but this cuts across a great deal more of the economy, such as small- to medium sized (SMB) businesses. Tell us about how this works across diverse economies where there are large players but lots of small ones, too?

Alvarez: On the sales side, this gives really small businesses opportunity to reach large enterprise buyers that probably weren’t there before.

Diego was being modest, but MercadoLibre's payment structure, MercadoPago, is incredibly robust, and it's incredibly valuable to that end-seller, and also to the buyer.

Just having that platform and then connecting -- you are basically taking two populations, the large and small sellers, and the large and small buyers, and allowing them to commingle more than they ever had in the past.

Gardner: Karen, as you mentioned from your own experience, when you're dealing with paper, and you are dealing with one-offs, it's hard to just keep track of the process, never mind to analyze it. But when we go digital, when we have a platform, when we have business networks at work, then we can start to analyze things for companies -- and more broadly into markets.

How do you see this partnership accelerating the ability to leverage analytics, leverage some of the back-end platform technologies with SAP HANA and SAP Ariba, and making more strides toward productivity for your customers?

Data discoveries

Bruck: Right. When everything is tracked, as this will be, because every single purchase will be inside their SAP Ariba platform, it is all part of your “big data.” So then you can actually drop it, control it, analyze it, and say, “Hey, maybe these particular purchases mean that we should have long-term contracts, or that our long-term contracts were not priced correctly,” and maybe that's an opportunity to save money and lower costs.

So once you can track data, you can do a lot of things, and discover new opportunities for either being more efficient or reducing costs – and that's ultimately what we all want in all the departments of our companies.

Gardner: And for those listeners and readers who are interested in taking advantage of these services, and ultimately that great ability to analyze, what should they be doing now to get ready? Are there some things they could do culturally, organizationally, in order to become that more digital business when these services are available to them?

Paper is terrible for companies; you have to rethink your purchase processing in a digital way.

Cabrera Canay: I can talk about in our own case, where we are rebuilding our purchase processes. Paper is terrible for companies; you have to rethink your purchase processing in a digital way. Once you do it, SAP Ariba is a great solution, and with SAP Ariba Spot Buy we will have the best conditions for the buyers.

Bruck: It’s a natural process. People are going digital and embracing these new trends and technologies. It will make them more efficient. If they get up to speed quickly, it will become less about controlling stuff that they don't need to control. They will really understand the benefits, so it will be a natural adoption.

Gardner: Tony, coming back full circle, as you have rolled SAP Ariba Spot Buy out from North America to Europe to Asia-Pacific, and now to Latin America -- what have you learned in the way people use it?

Alvarez: First, at a macro level, people have found this to be a useful tool to replace some of the contracts that were less important, and so they can rely on marketplaces.

Second, we’ve really found as we’ve deployed in the US that a lot of times multinational companies are like, “Hey, that's great, I love this, but I really want to use this in Latin America.” So they want to go and get visibility elsewhere.

Turn-key technique

Third, they want a tool that doesn't require any training. If I’m a procurement professional, I want my users to already be expert at using the tool. We've designed this in the process context, and in concert with the content partners. You can just walk up and start using it. You don’t have to be an expert, and it keeps you within the guardrails without even thinking about it.

Gardner: And being a cloud-based, software-as-a-service (SaaS) solution you're always analyzing how it's being used -- going after that ultimate optimized user experience -- and then building those improvements back in on a constant basis?

Alvarez: Exactly. Always.

Gardner: I am afraid we’ll have to leave it there. We’ve been discussing how the expansion of automated spot buying for business commerce is impacting global markets and what's now in store for Latin America.

And we’ve learned how SAP Ariba Spot Buy enables companies to make time-sensitive and often mission-critical purchases, even in complex and dynamic settings.

So a big thank you to our guests, Karen Bruck, Corporate Sales Director at MercadoLibre.com in Argentina; Diego Cabrera Canay, Director of Financial Planning at MercadoLibre, and Tony Alvarez, Global General Manager of SAP’s Spot Buy Business.

And a big thank you as well to our audience for joining this special podcast coming to you from the 2017 SAP Ariba LIVE conference in Las Vegas. I’m Dana Gardner, Principal Analyst at Interarbor Solutions, your host throughout this series of SAP Ariba-sponsored BriefingsDirect digital business insights 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 how the expansion of automated tactical buying for business commerce is impacting global markets, and now what's in store for Latin America. Copyright Interarbor Solutions, LLC, 2005-2017. All rights reserved.

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Making Procurement Awesome—Latest Trends in How Business Networks are Fueling Innovation and Transformation

Transcript of a discussion that defines specific successful habits, practices, and culture that contribute to highly effective procurement organizations.

Listen to the podcast. Find it on iTunes. Get the mobile app.  Download the transcript. Sponsor: SAP Ariba.

Dana Gardner: Hello, and welcome to a special BriefingsDirect podcast coming to you from the 2017 SAP Ariba LIVE conference in Las Vegas.

I’m Dana Gardner, Principal Analyst at Interarbor Solutions, your host, here the week of March 20 as we explore the latest in collaborative commerce and learn how innovative companies are leveraging the networked economy.

Our next digital business insights discussion explores the successful habits, practices, and culture that define highly effective procurement organizations. We will now examine unique new research that identifies and measures how innovative companies have optimized their practices to overcome the many challenges facing business-to-business (B2B) commerce.

To learn more about the traits and best practices of the most successful procurement organizations, please join me now in welcoming Kay Ree Lee, Director of Business Analytics and Insights at SAP Ariba. Welcome, Kay Ree.

Lee

Kay Ree Lee: Thank you, Dana. It's great to be here.

Gardner: Procurement is more complex than ever, supply chains stretch around the globe, regulation is on the rise, and risk is heightened across many fronts. Despite these, innovative companies have figured out how to overcome their challenges, and you have uncovered some of their secrets through your Annual Benchmarking Survey. Tell us about your research and your findings.

Lee: Every year we conduct a large benchmark program benefiting our customers that combines a traditional survey with data from the procurement applications, as well as business network.

This past year, more than 200 customers participated, covering more than $400 billion in spend. We analyzed the quantitative and qualitative responses of the survey and identified the intersection between those responses for top performers compared to average performers. This has allowed us to draw correlations between what top performers did well and the practices that drove those achievements.

Gardner: What’s changed from the past, what are you seeing as long-term trends?

On trend in the digital marketplace

Lee: There are three things that are quite different from when we last talked about this a year ago.

The number one trend that we see is that digital procurement is gaining momentum quickly. A lot of organizations are now offering self-service tools to their internal stakeholders. These self-service tools enable the user to evaluate and compare item specifications and purchase items in an electronic marketplace, which allows them to operate 24x7, around-the-clock. They are also utilizing digital networks to reach and collaborate with others on a larger scale.

We see compliance management as a way for organizations to deliver savings to the bottom line.

The second trend that we see is that while risk management is generally acknowledged as important and critical, for the average company, a large proportion of their spend is not managed. Our benchmark data indicates that an average company manages 68% of their spend. This leaves 32% of spend that is unmanaged. If this spend is not managed, the average company is also probably not managing their risk. So, what happens when something unexpected occurs to that non-managed spend?

The third trend that we see is related to compliance management. We see compliance management as a way for organizations to deliver savings to the bottom line. Capturing savings through sourcing and negotiation is a good start,  but at the end of the day, eliminating loopholes through a focus on implementation and compliance management is how organizations deliver and realize negotiated savings.

Gardner: You have uncovered some essential secrets -- or the secret sauce -- behind procurement success in a digital economy. Please describe those.

Five elements driving procurement processes

Lee: From the data, we identified five key takeaways. First, we see that procurement organizations continue to expand their sphere of influence to greater depth and quality within their organizations. This is important because it shows that the procurement organization and the work that procurement professionals are involved in matters and is appreciated within the organization.

The second takeaway is that – while cost reduction savings is near and dear to the heart of most procurement professionals -- leading organizations are focused on capturing value beyond basic cost reduction. They are focused on capturing value in other areas and tracking that value better.

The third takeaway is that digital procurement is firing on all cylinders and is front and center in people's minds. This was reflected in the transactional data that we extracted.

The fourth takeaway is related to risk management. This is a key focus area that we see instead of just news tracking related to your suppliers.

The fifth takeaway is -- compliance management and closing the purchasing loopholes is what will help procurement deliver bottom-line savings.

Gardner: What next are some of the best practices that are driving procurement organizations to have a strategic impact at their companies, culturally?

Lee: To have a strategic impact in the business, procurement needs to be proactive in engaging the business. They should have a mentality of helping the business solve business problems as opposed to asking stakeholders to follow a prescribed procurement process. Playing a strategic role is a key practice that drives impact.

Another practice that drives strategic impact is the ability to utilize and adopt technology to your advantage through the use of digital networks.

They should also focus on broadening the value proposition of procurement. We see leading organizations placing emphasis on contributing to revenue growth, or increasing their involvement in product development, or co-innovation that contributes to a more efficient and effective process.

Another practice that drives strategic impact is the ability to utilize and adopt technology to your advantage through the use of digital networks, system controls to direct compliance, automation through workflow, et cetera.

These are examples of practices and focus areas that are becoming more important to organizations.

Using technology to track technology usage

Gardner: In many cases, we see the use of technology having a virtuous adoption cycle in procurement. So the more technology used, the better they become at it, and the more technology can be exploited, and so on. Where are we seeing that? How are leading organizations becoming highly technical to gain an advantage?

Lee: Companies that adopt new technology capabilities are able to elevate their performance and differentiate themselves through their capabilities. This is also just a start. Procurement organizations are pivoting towards advanced and futuristic concepts, and leaving behind the single-minded focus on cost reduction and cost efficiency.

Digital procurement utilizing electronic marketplaces, virtual catalogs, gaining visibility into the lifecycle of purchase transactions, predictive risk management, and utilizing large volumes of data to improve decision-making – these are key capabilities that benefit the bold and the future-minded. This enables the transformation of procurement, and forms new roles and requirements for the future procurement organization.

Gardner: We are also seeing more analytics become available as we have more data-driven and digital processes. Is there any indication from your research that procurement people are adopting data-scientist-ways of thinking? How are they using analysis more now that the data and analysis are available through the technology?

If you extract all of that data, cleanse it, mine it, and make sense out of it, you can then make informed business decisions and create valuable insights.

Lee: You are right. The users of procurement data want insights. We are working with a couple of organizations on co-innovation projects. These organizations   actively research, analyze, and use their data to answer questions such as:

• How does an organization validate that the prices they are paying are competitive in the marketplace?
• After an organization conducts a sourcing event and implements the categories, how do they actually validate that the price paid is what was negotiated?
• How do we categorize spend accurately, particularly if a majority of spend is services spend where the descriptions are non-standard?
• Are we using the right contracts with the right pricing?

As you can imagine, when people enter transactions in a system, not all of it is contract-based or catalog-based. There is still a lot of free-form text. But if you extract all of that data, cleanse it, mine it, and make sense out of it, you can then make informed business decisions and create valuable insights. This goes back to the managing compliance practice we talked about earlier.

They are also looking to answer questions like, how do we scale supplier risk management to manage all of our suppliers systematically, as opposed to just managing the top-tier suppliers?

These two organizations are taking data analysis further in terms of creating advantages that begin to imbue excellence into modern procurement and across all of their operations.

Gardner: Kay Ree, now that you have been tracking this Benchmark Survey for a few years, and looking at this year's results, what would you recommend that people do based on your findings?

Future focus: Cost-reduction savings and beyond

Lee: There are several recommendations that we have. One is that procurement should continue to expand their span of influence across the organization. There are different ways to do this but it starts with an understanding of the stakeholder requirements.

The second is about capturing value beyond cost-reduction savings. From a savings perspective, the recommendation we have is to continue to track sourcing savings -- because cost-reduction savings are important. But there are other measures of value to track beyond cost savings. That includes things like contribution to revenue, involvement in product development, et cetera.

The third recommendation relates to adopting digital procurement by embracing technology. For example, SAP Ariba has recently introduced some innovations. I think the user really has an advantage in terms of going out there, evaluating what is out there, trying it out, and then seeing what works for them and their organization.

As organizations expand their footprint globally, the fourth recommendation focuses on transaction efficiency. The way procurement can support organizations operating globally is by offering self-service technology so that they can do more with less. With self-service technology, no one in procurement needs to be there to help a user buy. The user goes on the procurement system and creates transactions while their counterparts in other parts of the world may be offline.

If you can measure risk for your suppliers, why not make it systematic? 

The fifth recommendation is related to risk management. A lot of organizations when they say, “risk management,” they are really only tracking news related to their suppliers. But risk management includes things like predictive analytics, predictive risk measures beyond your strategic suppliers, looking deeper into supply chains, and across all your vendors. If you can measure risk for your suppliers, why not make it systematic? We now have the ability to manage a larger volume of suppliers, to in fact manage all of them. The ones that bubble to the top, the ones that are the most risky, those are the ones that you create contingency plans for. That helps organizations really prepare to respond to disruptions in their business.

The last recommendation is around compliance management, which includes internal and external compliance. So, internal adherence to procurement policies and procedures, and then also external following of governmental regulations. This helps the organization close all the loopholes and ensure that sourcing savings get to the bottom line.

Be a leader, not a laggard

Gardner: When we examine and benchmark companies through this data, we identify leaders, and perhaps laggards -- and there is a delta between them. In trying to encourage laggards to transform -- to be more digital, to take upon themselves these recommendations that you have -- how can we entice them? What do you get when you are a leader? What defines the business value that you can deliver when you are taking advantage of these technologies, following these best practices?

Lee: Leading organizations see higher cost reduction savings, process efficiency savings and better collaboration internally and externally. These benefits should speak for themselves and entice both the average and the laggards to strive for improvements and transformation.

From a numbers perspective, top performers achieve 9.7% savings as a percent of sourced spend. This translates to approximately $20M higher savings per $B in spend compared to the average organization.

We talked about compliance management earlier. A 5% increase in compliance increases realized savings of $4.4M per $1B in spend. These are real hard dollar savings that top performers are able to achieve.

In addition, top performers are able to attract a talent pool that will help the procurement organization perform even better. If you look at some of the procurement research, industry analysts and leaders are predicting that there may be a talent shortage in procurement. But, as a top performer, if you go out and recruit, it is easier to entice talent to the organization. People want to do cool things and they want to use new technology in their roles.

Gardner: Wrapping up, we are seeing some new and compellingtechnologies here at Ariba LIVE 2017 -- more use of artificial intelligence(AI), increased use of bringing predictive tools into a context so that they can be of value to procurement during the life-cycle of a process.

As we think about the future, and more of these technologies become available, what is it that companies should be doing now to put themselves in the best position to take advantage of all of that?

Curious org

Lee: It's important to be curious about the technology available in the market and perhaps structure the organization in such a way that there is a team of people on the procurement team who are continuously evaluating the different procurement technologies from different vendors out there. Then they can make decisions on what best fits their organization.

Having people who can look ahead, evaluate, and then talk about the requirements, then understand the architecture, and evaluate what's out there and what would make sense for them in the future. This is a complex role. He or she has to understand the current architecture of the business, the requirements from the stakeholders, and then evaluate what technology is available. They must then determine if it will assist the organization in the future, and if adopting these solutions provides a return on investment and ongoing payback.

Being curious, understanding the business really well, and then wearing a technology hat to understand what's out there are key.

So I think being curious, understanding the business really well, and then wearing a technology hat to understand what's out there are key. You can then be helpful to the organization and envision how adopting these newer technologies will play out!

Gardner: That sounds like very good advice. I’m afraid we’ll have to leave it there. We’ve been talking about new SAP Ariba research that identifies and measures how innovative companies overcome the many challenges facing B2B commerce. And we have learned about some of the latest successful habits, practices, and culture that define highly effective procurement organizations.

So please join me in thanking our guest, Kay Ree Lee, Director of Business Analytics and Insights at SAP Ariba.

Lee: Thank you, Dana.

Gardner: And a big thank you as well to our audience for joining this special podcast coming to you from the 2017 SAP Ariba LIVE conference in Las Vegas. I’m Dana Gardner, Principal Analyst at Interarbor Solutions, your host throughout this series of SAP Ariba-sponsored BriefingsDirect digital business insights 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 that defines specific successful habits, practices, and culture that contribute to highly effective procurement organizations. Copyright Interarbor Solutions, LLC, 2005-2017. All rights reserved.

You may also be interested in:

• Experts define new ways to manage supply chain risk in a digital economy
• How SAP Ariba became a first-mover as Blockchain comes to B2B procurement
• How AI, IoT and Blockchain will shake up procurement and supply chains
• Why effective IoT adoption is a team sport
• Diversity Spend: When Doing Good Leads to Doing Well 
• Seven secrets to highly effective procurement: How business networks fuel innovation and transformation
• Meet George Jetson – your new AI-empowered chief procurement officer
• SAP Ariba's chief strategy officer on the digitization of business and future of technology  
• Business in the Cloud: How Efficient Networks Help the Smallest Companies Do Brisk Business with the Largest
• A Hit with Consumers, Digital Payments Now Catching On Across the Business World Too  
• How new technology trends disrupt the very nature of business
• Winning the B2B Commerce Game: What Sales Organizations Should Do Differently

Managing Supply Risk in a Digital Economy

Transcript of a discussion on how companies are gaining improved visibility, analytics, and predictive responses through a data-driven business network approach.

Listen to the podcast. Find it on iTunes. Get the mobile app. Download the transcript. Sponsor: SAP Ariba.

Dana Gardner: Hello, and welcome to a special BriefingsDirect podcast coming to you from the 2017 SAP Ariba LIVE conference in Las Vegas.

I’m Dana Gardner, Principal Analyst at Interarbor Solutions, your host the week of March 20 as we explore the latest in collaborative commerce, and learn how innovative companies are leveraging the networked economy.

Our next digital business insights discussion explores new ways that companies are gaining improved visibility, analytics, and predictive responses to better manage supply chain risk.

We will examine how companies such as Nielsen are using cognitive computing search engines, and even machine learning and artificial intelligence (AI), to reduce risk in their overall buying and acquisitions.

To learn more about the exploding sophistication around gaining insights into advanced business commerce, please join me now in welcoming James Edward Johnson, Director of Supply Chain Risk Management and Analysis at Nielsen. Welcome, James.

Johnson

James Edward Johnson: Thank you for having me.

Gardner: We are also here with Dan Adamson, Founder and CEO of OutsideIQ in Toronto. Welcome, Dan.

Dan Adamson: Thanks, Dana.

Gardner: And lastly, we are here with Padmini Ranganathan, Vice President of Products and Innovation at SAP Ariba. Welcome.

Padmini Ranganathan: Glad to be here, Dana.

Gardner: Padmini, we heard at SAP Ariba LIVE that risk is opportunity. That stuck with me. Are the technologies really now sufficient that we can fully examine risks to such a degree that we can turn that into a significant business competitive advantage? That is to say, those who take on risk seriously, can they really have a big jump over their competitors?

Ranganathan

Ranganathan: I come from Silicon Valley, so we have to take risks for startups to grow into big businesses, and we have seen a lot of successful entrepreneurs do that. Clearly, taking risks drives bigger opportunity.

But in this world of supplier and supply chain risk management, it’s even more important and imperative that the buyer and supplier relationships are risk-aware and risk-free. The more transparent that relationship becomes, the more opportunity for driving more business between those relationships.

That context of growing business -- as well as growing the trust and the transparent relationships -- in a supply chain is better managed by understanding the supplier base. Understanding the risks in the supplier base, and then converting them into opportunities, allows mitigating and solving problems jointly. By collaborating together, they form partnerships.

Gardner: Dan, it seems that what was once acceptable risk can now be significantly reduced. How do people in procurement and supply chain management know what acceptable risk is -- or maybe they shouldn’t accept any risk?

Adamson

Adamson: My roots are also from Silicon Valley, and I think you are absolutely right that at times you should be taking risks -- but not unnecessarily. What the procurement side has struggled with -- and this is from me jumping into financial institutions where they treat risk very differently through to procurement – is risk versus the price-point to avoid that risk. That’s traditionally been the big problem.

For every vendor that you on-board, you have to pay $1,000 for a due diligence report and it's really not price-effective. But, being able to maintain and monitor that vendor on a regular basis at acceptable cost – then there's a real risk-versus-reward benefit in there.

What we are helping to drive are a new set of technology solutions that enable a deeper level of due diligence through technology, through cognitive computing, that wasn't previously possible at the price point that makes it cost-effective. Now it is possible to clamp down and avoid risk where necessary.

Gardner: James, as a consumer of some of these technologies, do you really feel that there has been a significant change in that value equation, that for less money output you are getting a lot less risk?

Knowing what you're up against  

Johnson: To some degree that value was always there; it was just difficult to help people see that value. Obviously tools like this will help us see that value more readily.

It used to be that in order to show the value, you actually had to do a lot of work, and it was challenging. What we are talking about here is that we can begin to boil the ocean. You can test these products, and you can do a lot of work just looking at test results.

And, it's a lot easier to see the value because you will unearth things that you couldn't have seen in the past.

Whereas it used to take a full-blown implementation to begin to grasp those risks, you can now just test your data and see what you find. Most people, once they have their eyes wide open, will be at least a little more fearful.  But, at the same time -- and this goes back to the opportunity question you asked -- they will see the opportunity to actually tackle these risks. It’s not like those risks didn't exist in the past, but now they know they are there -- and they can decide to do something about it, or not.

Gardner: So rather than avoid the entire process, now you can go at the process but with more granular tools to assess your risks and then manage them properly?

It’s not like those risks didn't exist in the past, but now they know they are there -- and they can decide to do something about it, or not.

Johnson: That's right. I wouldn't say that we should have a risk-free environment; that would cost more money than we’re willing to pay. That said, we should be more conscious of what we're not yet willing to pay for.

Rather than just leaving the risk out there and avoiding business where you can’t access information about what you don't know -- now you'll know something. It's your choice to decide whether or not you want to go down the route of eliminating that risk, of living with that risk, or maybe something in between. That's where the sweet spot is. There are probably a lot of intermediate actions that people would be taking now that are very cheap, but they haven't even thought to do so, because they haven’t assessed where the risk is.

Gardner: Padmini, because we're looking at a complex landscape -- a supply chain, a global supply chain, with many tiers -- when we have a risk solution, it seems that it's a team sport. It requires an ecosystem approach. What has SAP Ariba done, and what is the news at SAP Ariba LIVE? Why is it important to be a team player when it comes to a fuller risk reduction opportunity?

Teamwork

Ranganathan: You said it right. The risk domain world is large, and it is specialized. The language that the compliance people use in the risk world is somewhat similar to the language that the lawyers use, but very different from the language that the information technology (IT) security and information security risk teams use.

The reason you can’t see many of the risks is partly because the data, the information, and the fragmentation have been too broad, too wide. It’s also because the type of risks, and the people who deal with these risks, are also scattered across the organization.

So a platform that supports bringing all of this together is number one. Second, the platform must support the end-to-end process of managing those supply chain relationships, and managing the full supply chain and gain the transparency across it. That’s where SAP Ariba has headed with Direct Materials Sourcing and with getting more into supply chain collaboration. That’s what you heard at SAP Ariba LIVE.

We all understand that supply chain much better when we are in SAP Ariba, and then you have this ecosystem of partners and providers. You have the technology with SAP and HANA to gain the ability to mash up big data and set it in context, and to understand the patterns. We also have the open ecosystem and the open source platform to allow us to take that even wider. And last but not the least, there is the business network.

So it’s not just between one company and another company, it's a network of companies operating together. The momentum of that collaboration allows users to say, “Okay, I am going to push for finding ethical companies to do business with,” -- and then that's really where the power of the network multiplies.

Gardner: Dan, when a company nowadays buys something in a global supply chain, they are not just buying a product -- they are buying everything that's gone on with that product, such as the legacy of that product, from cradle to PO. What is it that OutsideIQ brings to the table that helps them get a better handle on what that legacy really is?

Dig deep, reduce risk, save time

Adamson: Yes, and they are not just buying from that seller, they are buying from the seller that sold it to that seller, and so they are buying a lot of history there -- and there is a lot of potential risk behind the scenes.

That’s why this previously has been a manual process, because there has been a lot of contextual work in pulling out those needles from the haystack. It required a human level of digging into context to get to those needles.

The exciting thing that we bring is a cognitive computing platform that’s trainable -- and it's been trained by FinCrime’s experts and corporate compliance experts. Increasingly, supply management experts help us know what to look for. The platform has the capability to learn about its subject, so it can go deeper. It can actually pivot on where it's searching. If it finds a presence in Afghanistan, for example, well then that's a potential risk in itself, but it can then go dig deeper on that.

And that level of deeper digging is something that a human really had to do before. This is the exciting revolution that's occurring. Now we can bring back that data, it can be unstructured, it can be structured, yet we can piece it together and provide some structure that is then returned to SAP Ariba.

The great thing about the supply management risk platform or toolkit that's being launched at SAP Ariba LIVE is that there’s another level of context on top of that. Ariba understands the relationship between the supplier and the buyer, and that's an important context to apply as well.

How you determine risk scores on top of all of that is very critical. You need to weed out all of the noise, otherwise it would be a huge data science exercise and everyone would be spinning his or her wheels.

SAP Ariba understands the relationship between the supplier and the buyer, and that's an important context to apply.

This is now a huge opportunity for clients like James to truly get some low-hanging fruit value, where previously it would have been literally a witch-hunt or a huge mining expedition. We are now able to achieve this higher level of value.

Gardner: James, Dan just described what others are calling investigative cognitive computing brought to bear on this supply chain risk problem. As someone who is in the business of trying to get the best tools for their organization, where do you come down on this? How important is this to you?

Johnson: It's very important. I have done the kinds of investigations that he is talking about. For example, if I am looking at a vendor in a high-risk country, particularly a small vendor that doesn't have an international presence  that is problematic for most supplier investigations. What do I do? I will go and do some of the investigation that Dan is talking about.

Now I'm usually sitting at my desk in Chicago. I'm not going out in the world. So there is a heightened level of due-diligence that I suspect neither of us are really talking about here. With that limitation, you want to look up not only the people, you want to look up all their connections. You might have had a due-diligence form completed, but that's an interested party giving you information, what do you do with it?

Well, I can run the risk search on more than just the entity that I'm transacting with.  I am going to run it on everyone that Dan mentioned. Then I am going to look up all their LinkedIn profiles, see who they are connected to. Do any of those people show any red flags? I’d look at the bank that they use. Are there any red flags with their bank?

I can do all that work, and I can spend several hours doing all that work. As a lawyer I might dig a little deeper than someone else, but in the end, it's human labor going into the effort.

Gardner: And that really doesn't scale very well.

Johnson: That does not scale at all. I am not going to hire a team of lawyers for every supplier. The reality here is that now I can do some level of that time-consuming work with every supplier by using the kind of technology that Dan is talking about.

The promise of OutsideIQ technology is incredible. It is an early and quickly expanding, opportunity. It's because of relationships like the one between SAP Ariba and OutsideIQ that I see a huge opportunity between Nielsen and SAP Ariba. We are both on the same roadmap.

Nielsen has a lot of work to do, SAP Ariba has a lot of work to do, and that work will never end, and that’s okay. We just need to be comfortable with it, and work together to build a better world.

Gardner: Tell us about Nielsen. Then secondarily, what part of your procurement, your supply chain, do you think this will impact best first?

Automatic, systematic risk management

Johnson: Nielsen is a market research company. We answer two questions: what do people watch? And what do people buy? It sounds very simple, but when you cover 90% of the world’s population, which we do – more than six billion people -- you can imagine that it gets a little bit more complicated.

We house about 54 petabytes of database data. So the scale there is huge. We have 43,000 employees. It’s not a small company. You might know Nielsen for the set-top boxes in the US that tell what the ratings were overnight for the Super Bowl, for example, but it’s a lot more than that. And you can imagine, especially when you're trying to answer what do people buy in  developing countries with emerging economies? You are touching some riskier things.

In terms of what this SAP Ariba collaboration can solve for us, the first quick hit is that we will no longer have to leverage multiple separate sources of information. I can now leverage all the sources of information at one time through one interface. It is already being used to deliver information to people who are involved in the procurement chain. That's the huge quick win.

The secondary win is from the efficiency that we get in doing that first layer of risk management. Now we can start to address that middle tier that I mentioned. We can respond to certain kinds of risk that, today, we are doing ad-hoc, but not systematically. There is that systematic change that will allow us to not only target the 100 to 200 vendors that we might prioritize -- but the thousands of vendors that are somewhere in our system, too.

That's going to revolutionize things, especially once you fold in the environmental, social and governance (ESG) work that, today, is very focused for us. If I can spread that out to the whole supply chain, that's revolutionary. There are a lot of low-cost things that you can do if you just have the information.

What is the good in the world that’s freely available to me, that I'm not even touching? That's amazing.

So it’s not always a question of, “am I going to do good in the world and how much is it going to cost me?” It’s really a question of, “What is the good in the world that’s freely available to me, that I'm not even touching?” That's amazing! And, that's the kind of thing that you can go to work for, and be happy about your work, and not just do what you need to do to get a paycheck.

Gardner: It’s not just avoiding the bad things; it’s the false positives that you want to remove so that you can get the full benefit of a diverse, rich supplier network to choose from.

Johnson: Right, and today we are essentially wasting a lot of time on suspected positives that turn out to be false. We waste time on them because we go deeper with a human than we need to. Let’s let the machines go as deep as they can, and then let the humans come in to take over where we make a difference.

Gardner: Padmini, it’s interesting to me that he is now talking about making this methodological approach standardized, part of due-diligence that's not ad-hoc, it’s not exception management. As companies make this a standard part of their supply chain evaluations, how can we make this even richer and easier to use?

Ranganathan: The first step was the data. It’s the plumbing; we have to get that right. It’s about the way you look at your master data, which is suppliers; the way you look at what you are buying, which is categories of spend; and where you are buying from, which is all the regions. So you already have the metrics segmentation of that master data, and everything else that you can do with SAP Ariba.

The next step is then the process, because it’s really not a one-size-fits-all. It cannot be a one-size-fits-all, where every supplier that you on-board you are going to ask them the same set of questions, check the box and move on.

I am going to use the print service vendor example again, which is my favorite. For marketing materials printing, you have a certain level of risk, and that's all you need to look at. But you still want, of course, to look at them for any adverse media incidents, or whether they suddenly got on a watch-list for something, you do want to know that.

But when one of your business units begins to use them for customer-confidential data and statement printing -- the level of risk shoots up. So the intensity of risk assessments and the risk audits and things that you would do with that vendor for that level of risk then has to be engineered and geared to that type of risk.

So it cannot be a one-size-fits-all; it has to go past the standard. So the standardization is not in the process; the standardization is in the way you look at risk so that you can determine how much of the process do I need to apply and I can stay in tune.

Gardner: Dan, clearly SAP Ariba and Nielsen, they want the “dials,” they want to be able to tune this in. What’s coming next, what should we expect in terms of what you can bring to the table, and other partners like yourselves, in bringing the rich, customizable inference and understanding benefits that these other organizations want?

Constructing cognitive computing by layer

Adamson: We are definitely in early days on the one hand. But on the other hand, we have seen historically many AI failures, where we fail to commercialize AI technologies. This time it's a little different, because of the big data movement, because of the well-known use cases in machine learning that have been very successful, the pattern matching and recommending and classifying. We are using that as a backbone to build layers of cognitive computing on top of that.

And I think as Padmini said, we are providing a first layer, where it’s getting stronger and stronger. We can weed out up to 95% of the false-positives to start from, and really let the humans look at the thorny or potentially thorny issues that are left over. That’s a huge return on investment (ROI) and a timesaver by itself.

But on top of that, you can add in another layer of cognitive computing, and that might be at the workflow layer that recognizes that data and says, “Jeez, just a second here, there's a confidentiality potential issue here, let's treat this vendor differently and let's go as far as plugging in a special clause into the contract.” This is, I think, where SAP Ariba is going with that. It’s building a layer of cognitive computing on top of another layer of cognitive computing.

Actually, human processes work like that, too. There is a lot of fundamental pattern recognition at the basis of our cognitive thought, and on top of that we layer on top logic. So it’s a fun time to be in this field, executing one layer at a time, and it's an exciting approach.

Gardner: It seems like the next few years we are going to be searching for that right balance of what the humans can do best, the machines can do best, and how to apportion that properly.

I am afraid we will have to leave it there. We’ve been talking about new ways that companies are gaining improved visibility, analytics, and predictive responses to better manage their supply chain risks.

SAP Ariba is building a layer of cognitive computing on top of another layer of cognitive computing.

And we have learned how companies such as Nielsen are using cognitive computing, engine searches, and even machine learning and AI to reduce risk in their overall buying and acquisitions.

So a big thanks to our guests, James Edward Johnson, Director of Supply Chain Risk Management and Analysis at Nielsen; Dan Adamson, Founder and CEO at OutsideIQ in Toronto, and Padmini Ranganathan, Vice President of Products and Innovation at SAP Ariba.

And a big thank you as well to our audience for joining this special podcast coming to you from the 2017 SAP Ariba LIVE conference in Las Vegas. I’m Dana Gardner, Principal Analyst at Interarbor Solutions, your host throughout this series of SAP Ariba-sponsored BriefingsDirect digital business insights 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 how companies are gaining improved visibility, analytics, and predictive responses through a data-driven business network approach. Copyright Interarbor Solutions, LLC, 2005-2017. All rights reserved.

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