Source Intelligence: Mapping the supply chain and monitoring for risk

Whether a company is driven by concerns about the human rights of its suppliers’ employees, minimizing its carbon footprint, or complying with new conflict minerals regulations, responsible sourcing is becoming an important issue for supply and supply chain management professionals.

In Viewpoint: Fair Trade and Human Rights in the End-to-End Supply Chain, authors Andrew Pederson, Robert Handfield, and Andreas Wieland highlighted some of the challenges facing companies trying to do well by doing the right thing. They also looked at some of the solutions coming to the market to provide supply chain transparency.

Last week, I spoke to Jess F. Kraus, the CEO and co-founder of Source Intelligence, about the development of this space. Kraus has over 30 years experience in the fields of environmental and sustainability data management. He was the founder and former CEO and Vice Chairman of 3E Company. Source Intelligence, which was founded in 2009, is a platform for mapping supply chains, validating and verifying suppliers, and monitoring supply chain activities for telltale signs that something is amiss. Currently, there are over 219,000 registered suppliers exchanging information with some 200 customers. Think of it as a LinkedIn for sustainable, ethical, and responsible sourcing.

SCMR: How did you get interested in this space?

Kraus: My career in environmental management started in the 1980’s, right around the time of the chemical disaster in Bhopal, India. I was working for General Dynamics and, like a lot of companies, we began to look at our internal operations because we didn’t want something like that to happen to us. Back then, there was no Internet. There was no way to track the pebbles that fall into the pond and send out ripples before something big happens. That’s what got me interested in trying to get transparency into the supply chain.

SCMR: Bhopal is back in the news as you and I speak, some thirty years after the event. That tells you the lasting impact an event like that can have on a company.

Kraus: That’s true. And, when you look back, the ripples were there that could have prevented the accident if someone had been listening.

SCMR: 3E, your previous company, focused on compliance in the chemical industry. What was that the catalyst for Source Intelligence?

Kraus: We started Source Intelligence in 2009 as a sustainability platform. My co-founder developed technology that allowed a company to map the carbon footprints of finished goods all the way down to the source materials. With the emphasis on being green, we thought that would be a selling point. But, the companies that approached us weren’t really interested in their carbon footprints per se. They wanted to know what their supply chains looked like down to Tier 2, Tier 3, and Tier 4. So, we developed the tools and a platform that lets them get transparency into their supply chains.

SCMR: What has happened since then?

Kraus: Conflict minerals. There is no other requirement in the US that requires you to map your supply chain, determine where your materials are coming from, and have that audited by a third party. In fact, there’s never been anything like it. We are able to validate suppliers and monitor them for risk management. That has been driving the growth of the company for the last two-and-a-half years. Without the conflict minerals requirement, I’m sure we wouldn’t have over 200,000 registered suppliers.

SCMR: How have most companies responded to conflict minerals?

Krauss: You have some companies like Apple and Intel that have been leaders, but there was also some kicking and screaming. Now, companies are discovering a secondary benefit because they can see their whole supply chain. For instance, several of my customers learned they were buying gold from North Korea. It’s been eye-opening.

SCMR: How does the platform work?

Kraus: When a company becomes a customer, they provide us with a list of their suppliers. In some cases, there is a lot of detail; in other cases it’s just the name of a company; and in some cases, even that is wrong. We clean up the list, enter the suppliers’ names in the database, and then initiate a dialogue with them. Once we’ve made contact by email, a supplier clicks on a link and sets up a profile, just like setting up a LinkedIn page. After that, the supplier fills out a lengthy survey based on what our customer has contracted us to do. We validate each question they answer. Let’s say it’s a conflict minerals assessment related to tin. We will ask the supplier where they source their alloy. Since we already have every tin company in the world in our database, we can validate whether information about the source of the alloy is true. If not, we send that back and ask again, and then we validate that. We know we can accurately map 95% of a supplier’s supply chain.

SCMR: This has to be foreign to many suppliers, especially in emerging markets.

Kraus: It can be. For that reason, we have customer call center that operates 24 hours a day, 365 days a year. That gives us the ability to work with suppliers around the world. For instance, we can explain to a small industrial supplier in China why we need conflict minerals information when they’ve never heard the term and then coach them through the process.

SCMR: Do you monitor once a supplier is registered?

Kraus: That’s the risk management piece, where we begin looking for the pebbles in the pond and the background noise. There are going to be multiple checkpoints where they have to re-engage with us and upload information. In addition, we’re connected to about 1,000 databases around the world. We monitor whenever a supplier’s name pops up or materials they are involved in pop up. That could be a press release, social media, a Twitter feed, a news story or a government action. We take all of this noise and assign values to it. If the value falls into a certain range, that’s acceptable noise. If it gets above that, we alert the customer. So, we’re mapping the supply chain and then monitoring and evaluating the risk.

SCMR: Do you offer alternative suppliers?

Kraus: We are supplier agnostic. We don’t tell a customer to drop a supplier or recommend alternative suppliers. We’re like the sensor in your tire: When we sense things are happening, a warning light comes on. But, it’s up to the customer to do something with the information.

SCMR: What’s next?

Kraus: We think what’s next will be monitoring the supply chain for other activities that are subject to compliance. For instance, we know that the SEC is focusing on foreign corruption and bribery. It could be monitoring the supply chain for human rights abuses or monitoring agents who work on behalf of a company. The fact that we have over 219,000 suppliers doesn’t mean anything. The fact that they are uploading their information is important.

SCMR: Source Intelligence is not alone. How do you see this space evolving.

Kraus: Our goal is to continue to grow that to a community of one million registered suppliers. At the same time, there are other people in this space and I think that in time, there will be two or three platforms where customers go to gauge suppliers.

SCMR: Ultimately, what’s the ROI to a company from mapping its supply chain?

Kraus: It’s transparency and brand reputation. If the chief compliance officer of your company says we’re going to spend $100,000 on conflict minerals, but when we’re done, we’re going to be able to do so much more, that’s compelling to the CEO who doesn’t want to be the next Bhopal.

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