Lauren McKinley
Hello everyone. Thank you for joining our session today, part of our supply Chain Optimization webinar series sponsored by Everstream Analytics. All attendee lines are on mute and if you have a question, please use the q and a box on the side of your screen. We will try to get through as many questions as we have time for today, right? Everyone will also receive a copy of the presentation. After the session is concluded, let’s introduce our content and our speaker. Today’s presentation is on sustainability and risk convergence. Part one, holistic management of strategic supplier risks. Today we have our host FIN who is our VP of Enablement Solutions Consulting and Sales Operations here at Everstream Analytics. Many of you have likely been on a session with FIN the Past as he is one of our leading industry experts here, and we’ll lead the conversation related to sustainability and risk conversions along with a little bit of a demo. So with that, I will turn it over to Ulf.
Ulf Venne
Hello everybody. Hope you’re all having a great day on this sunny day here in Cologne, and I hope wherever you are, the sun is shining as well. As you see this slide really wanted to come out and just jumped always ahead whenever it could. So we just leave it open. I will talk about it in a few seconds, but today everything is around risk scoring. Risk scoring means anticipating future potential problems that could be in your supply chain and understanding how this might impact your supply chain. Risk scores are typically used to change what we would call the supply chain surface, so essentially if you look at your whole network, you’re looking for, okay, where’s my highest exposure and your chunking of things using risk scores. You can also use it for other purposes, but we talk about this in a bit. Risk scoring is very important, especially if you look at all these different compliance laws and sustainability in general because it gives you an indicator if it’s worthwhile sourcing somewhere, if it’s worthwhile analyzing a supplier or if that one is safe enough so you don’t have to really deep dive and manage it.
These are very important facts that are generated for you. We host them here at Everstream and we’re going to deep dive on these because there are some challenges when it comes to risk scoring. First of all, compliance where sustainability risk scoring was used primarily is getting deprioritized. I mean, you see the headlines every day and there are, especially in the eu, every day you have a new suggestion on how you can even scrape off more and more of the laws that they plan to implement and now all delayed. So it is clear that compliance is not going to be the driver for why you should do sustainability in the future, which means sustainability has to somehow find more than just the potential long-term value gain that you have, right? Because compliance is not your argument anymore, and we are all passionate about sustainability if we’re on this call today, and we want sustainability to continue no matter what the compliance situation is, and therefore we need to find a way to somehow create a return on invest strategy.
On on the other side, you see that first of all, global risks are rising. Markets are very competitive right now. Tariffs is a big issue. Price pressure, so anything that can’t really prove return on invest, it’s less attractive these days. So another big point, right? So compliance waning and then even more pressure on sustainability because of the cost pressure we see everywhere and then we see a lot of, so there’s a big portfolio of sustainability issues that you can manage, right? Anything from diversity to human rights violation to CO2 emissions to different things, right? It’s a big portfolio and especially in times like these, we need to consider how we focus ourselves, and that’s something we’re going to discuss today, what our recommendation is. And then we also see that sustainability relies a lot on NGOs and that’s going to be less stable, and I want to talk about this a little bit as well as part of today’s session.
That’s what we’re going to do today. It’s an exciting journey. If you look at this, today’s part one of a two-part series today we talk all about the risk course, the input on how you analyze your network and how you set up your network. Next time we will talk all about alerting, which is where you react to things that are happening right now and try to best recuperate from it. But both of them essentially will have this one slide in there because we believe in order for sustainability to continue be relevant for you as an organization, if compliance really is not the main driver anymore, you have to converge your sustainability initiative together with your supply chain and your risk initiative to really drive a long-term supply chain risk management value. That includes as one of the many elements, sustainability. We all know that sustainability has more of a long-term add, long-term value gain, I would call it, right?
You will not be able to directly say, Hey, tomorrow we’re going to save that this much money. But then risk management, disruption management has that element so they can immediately with one alert, you can save a lot of money for the company. And if by continuously having these alerts, you can stay long-term relevant while you can use the same data set to manage your sustainability, and you essentially can build risk and sustainability managers at the same time and educate them so they can do both alongside pretty easily. And you can work on sustainability in a time like this in a cost efficient manner. That’s kind of the idea. So take a solution that has both elements well equipped and be pragmatic about it for the future. That’s kind of the idea of the convergence. So we need a new approach. Sustainability and risk has to be very close to each other, and it’s not going to be so much about compliance. It’s going to be about being able to incorporate it into the natural processes that your company already has and still be able to do good for the world.
As you can see, we believe there are a lot of value drivers and compliance costs will go down automatically because it’s deregulated, but essentially sustainability can be part of your quality control measures. You do anyway for your, you have a lot of quality control measures you do for purchasing already when you onboard new suppliers and so on so forth. We come to that with the next slide, but essentially you incorporate all of the data into this quality control by that raising the sustainability angle of your company and basing your decisions on also sustainability footprint, but you still get the value from all the other risk drivers that we see coming from risk. So reduce raw material sourcing costs, reduce your production costs because you don’t have so many outages. Reduce your transportation costs because you don’t need so much air freight. Reduce your inventory because you essentially are more resilient.
You don’t need as much buffer stock that probably is not in the automotive where buffer stocks are lean, but in others there’s a good likeliness that you can achieve that and then also reduce your recovery and mitigation costs. And mitigation costs also include sustainability mitigation. So right now, if you get an alert, which we’ll talk about next week, that can heavily damage your brand risk. That already is also a good value driver. It doesn’t happen so often as a port strike, but it still happens. So it can be essentially all of that can be naturally put together. And then you have the revenue growth, which often is you have fewer stability, but it could also be because you’re more sustainable, you’re able to promote your sustainability agenda and you have people that buy into your sustainability agenda because it’s kind of based in reality, and you can clearly show that you’re good in what you’re doing because you’re operationally sound and people will appreciate that and then maybe decide to buy more of your products.
One of the classical value gains from sustainability, I’m trying to make it very simple today, but I hope everybody understands what I mean. So sustainability can be a differentiator on the market and more and more we see that companies get called out for greenwashing, so making it operationally sound will avoid these doubters essentially because you can say, Hey, here’s exactly what we’re going to do and what we’re exactly going to do we see here. So what we take is we integrate it into our core operational processes that have to do with risk scoring suppliers. And the classical ones that we see happening all the time with our customers is onboarding. In the onboarding already consider risk scores to identify which of these 15 options for suppliers that I have, especially for suppliers that help me with my direct material that have production facilities. Which of these do I want to onboard, right?
Are there some I want to directly maybe not look into because it might be a prone high risk country. And then also it’s a product where child labor is a little bit more likely to happen. Then maybe you might want to not choose to go into a certain country, and if there are other safer options, you might take these. So it’s essentially not in the onboarding. It’s not only about the lowest cost, it’s essentially about the most reasonable lowest cost and the reasonable should include risk, should also include sustainability. Then there are monthly supplier review meetings in a lot of companies where you essentially look at all the suppliers in your group that might run out of contract within the next six months, six to eight months, and you then make a call on do we want to keep them? Do you want to renew with them, or do we want to maybe face them out or do we want to maybe build a second source up just because we kind of have a feeling that this is not going the right direction, and this currently is solely done on supplier performance often, so delivery on time, delivery quality, and so on, so forth.
But even there you can add sustainability as a factor, and if you see that the sustainability risk is rising in the area that he’s in, you might want to then decide, hey, maybe we do an audit or something else. So it’s essentially make it part of the decision meeting on what are the next actions after your supplier review meeting, and then also what you can do and what we see with a lot of our customers do they essentially scan the entire supplier base, especially on a tier one level for the most prominent risks that they have. And then based on the risks, generate action plans on what is the next step. This is something, again, that’s more akin to what the CS triple D law for example, wanted to do. They wanted to have you scan your entire supplier base and then find based on the risk-based approach, the highest supplier that you really have to manage and tackle.
And that is something depending on if CS triple D will now remain or how whatever it will change. And some of you will still have to do it, but others might volunteer to do it because with analytics and dashboards and the risk scoring being natively in a good solution, that’s pretty easy to do. Frankly, it’s not rocket science. And if you identify your top 50 highest risk suppliers and you then pragmatically talk to your purchasing managers and you try to work on solutions, for example, making sure that the code of conduct is getting signed and even doing an audit because maybe it’s convenient anyway, these are things that we in the situation like we’re in right now, that these are the things where we have to see how can we still make it in a time where things might get a little tougher. Good. So I talked about there’s a plethora, right?
A big portfolio of sustainability risks you can focus on. Given where we are, we believe a good way to start is first the baseline should always be human rights. I think this is a very heartfelt topic for a lot of people on this planet. Nobody wants human rights violation in the supply chain, obviously, right? So everybody that should be the baseline is starting with this. It also is something where consumers might react the most negatively on if something happens. And this includes things like U-F-L-P-A, child labor, forced labor and so on and so forth. That should be our baseline. These risks we should always look at. Then the intermediate level. So the next level is we can also look at how’s climate change going to change my supply chain? And then also look at ecological misconduct. So anybody who’s doing some where there’s a likeliness of something to happen that might harm the planet, why?
Because climate change actually in the future will have a big impact on the cost of your supply chain. Because for example, there might be areas where because of heat, people will not be able to go to work anymore every day, and then you have a lot of outages in your plan, which that long-term will be a big problem. And if they see scores and the development of that, that might raise a bar for ecological focus on this, right? Even if there’s no direct law that will force ’em to do that anymore, let’s see what happens. Nobody really knows what the laws, these dayss, they will still see, hey, if we don’t do anything, my company will have a massive impact in the next 30 years. That’s a problem essentially. So it’s essentially helping you again, raise the awareness for the importance of sustainability outside of just keeping compliance.
And then you also can work on it, do something about it, and then eventually we think what also could be great is having economic data in there that helps you understand trends of how our country is developing right now from an economic perspective, economy is going down a little bit. The likeliness of the sustainability related issues, for example, human rights that they rises is just a lot more likely than in a time where it goes well frankly. So changes in our risk scores around human rights a lot of times have something to do with the economical development of the respective countries. So adding these economic related risk scores can add a lot of value and bring expertise. But if you do this and integrate these into your practice first, we think that’s most valuable, the biggest bang for your buck if you want to, right?
I mean we again, trying to be realistic today. So what we also really, and that’s also a guidance that CS Triple D gave and other compliance laws, obviously it’s not only about is the supplier risky, but also do you have an option to go somewhere else? So is there availability to get the material somewhere else? And then also, can I influence them, right? What does my annual spend look like? And even better than annual spend would be if you know what is my revenue share with a supplier? Because even if you have a higher spend, if they are a billion, billion, billion, billion dollar company and you spend 50 million with them, it’s okay. Your influence might be okay, but they’re also limited limitations to what you will be able to influence ’em with. And then do I have contract termination clause I can execute on?
Did they sign the code of conduct? Which obviously would help a lot because you have something to enforce and rely on and do I have any other penalties in my contract that can help me force them onto a path of more sustainability? That also should be a good reminder that the contract phase of onboarding suppliers is pretty important. And if you see a high risk supplier, then there are some terms you might better focus on than you would do as a standard essentially. And that’s where risk scoring also proves a lot of value. Good. Having said that, I want to move over to one of my last slides and that is there’s a risk for sustainability risk scoring, and essentially I spoiled it at the very beginning of this meeting, but yeah, there is a big cut in funding and there is an elevated risk, higher risk, elevated risk of risk score updates being delayed because most of them are made by NGOs.
So the input, the basic input, obviously we put our own spin on it because we have an own team, but the inputs we get, we get a lot from the NGOs worldwide. And when you see now the numbers, how much these are billion dollars in funding that are getting reduced as we speak. So this is America this year started this with us eight getting shut down and now completely dispersed, so that’s 42 million all by itself. You have 8.26 million that the UK government will stop spending I believe in 2027, and that is because they want to invest more into the military. And then the same goes essentially for France, but they’re doing it right now as well with 2 billion. And you see that this is a big cut. So from 50 to 35% we see other countries follow suit. So it’s not only the three of them, but obviously us is by far the biggest spender in funding NGOs and support for foreign aid relief.
So that’s a big problem and especially if you look at the funding of four and eight data related projects, US was leading by a lot, a lot. And therefore we have to see how this develops. We just say right now that we think that is a risk. We have it on our radar, we understand the problem, but we also have a solution because we have a team that essentially has learned a lot about these scores over the years, knows where the input is coming from. So if push comes to shove, we could eventually look at taking this over, but right now for this year until now, those that should have gotten updated are getting updated. We believe it’s not a 2025 issue could be a potential 2026 issue. I think for you, the news should be, hey, somebody’s watching this, looking at this and understands potential impacts.
So good. Having said all of that, I believe my next slide is saying demonstration. There we go. See, I remember, it’s great. We’re directly going to my supplier of choice for today. It’s called bortech Electronics. And what we will see here is it’s pretty easy to actually manage strategic risk and everstream because we have the standard risk model. And the standard risk model is showing you all the scores that we have available in total. So from natural disasters to operational to political violence to social political to sustainability, to risk to individual, all of that can be there. And then you can even, as you can see here, you can deactivate, you can activate scores, it’s all just for you to showcase it and then you can weight them and you can even see how it’s weighted. In this particular case, you can see that naturally acids is very high.
And then the HA here is talking about tropical storm being very high in this particular category. So essentially the haze is telling you the weighting within the category and then this withdraw is telling you the weighting within the overall model, and that then culminates into one external risk score. So you can already incorporate sustainability risks into your total cost of ownership analysis and onboarding and create one score to rule them all. But you can also create different risk models. And one I wanted to show is the CS triple D risk model that I built here, which has work rights, corruption, personal freedom, and child labor. Again, child labor deactivated for this one. But then I also added my own scores as a company because for example, I have a dedicated score due to a survey that I either did with ourselves or we did with a third party to identify how their sustainability agenda is.
Then a compliance risk per industry. We’re talking about electronics. Electronics has a rather high compliance risk per industry. You see here the supplier spend is rather low, so my influence is rather small, which is a risk for sustainability. They didn’t sign a code of conduct, but they had our own one that had major deviations from ours. That’s why the score is 16. We did a site audit but we weren’t entirely satisfied. But the material actually, it’s easy for us to switch because based on the material classification, it’s a replaceable part and we can find an alternative. So this is a way of how you can essentially combine your internal data with external risk scores and therefore create a CS triple D specific risk score depending on if CS triple D is the future or not. You can also change that into a sustainability wide risk score and add more to it based on the risks that we feature in our system.
I also wanted to quickly shout out, I mentioned climate protection in one of the earlier things, and these are the climate risk course we have and they have a cool unique feature. You can go in here and see the visualization of how a risk will develop over time. So for example here, the heat stress, which could impact workers from being able to come to work or might create more sickness or might be rendering the plant being able to work completely. You can see that over time depending on the model. So if we go fossil fuel development pathway, this would be a major risk for this plant because we would be at a very high heat stress in this area, which would be unfortunate because if you can’t use a plant, building a new plant is pretty expensive. And I think that’s one of the many things company want to avoid in the future is having to completely relocate their own facilities and their whole supplier base because of some of these climate change issues having major impact to their operations.
Good. Having said that, we can also add, as I said, the tax and economic and legal data, which then helps you to give you an indicator if the sustainability risks might rise or fall in the future based on the development that you see right now. So here obviously we’re in Taiwan currently still a medium recession risk rather low, but medium elevated, maybe you could call it our risk go from one to 25, so 10 is still okay-ish. And yeah, overall looking pretty good, but these are the indicators you could use and in different countries, obviously different worthwhile. And then you cannot only do this on your tier one, but if you are one of the companies that has done a sub-tier discovery with us, then you could even go and look at your sub tiers and even for your sub tiers, you’re able to get the risk course, which is obviously great because you can then go into analysis based on this even for your sub-tier suppliers.
So the risk course is one part of the picture as said, and coming back to this at the end is we have a second version of this where we will talk about incident alerts, which is going to be next week in two weeks. We’re going to talk about how incidents alert are developing for sustainability and how to best use them in the new environment that we find ourselves in. And with that, unfortunately we do not have time for questions today, but I hope you still had fun. And if you have questions, please send them to us. And I will personally answer after this call directly or you sent me a LinkedIn message if you want to, can also ask me there directly.
Lauren McKinley
Thank you so much. Thank you everyone. We did have a quick question come in about can you be alerted to adjustments in these scores, which yes you can to these strategic risk scores. So we’ll follow up with all of the other questions and please join us next time for our next session, part two. Thank you everyone who attended and have a great day.
Ulf Venne
Have a nice day. Bye.