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August 4, 2014 Issue

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Cloud-Based SaaS Platform for Supply Chain Transparency

About Source Intelligence

www.sourceintelligence.com

Source Intelligence® is the leading supply chain transparency company that provides a SaaS platform to help customers make informed decisions about their business partners and suppliers, so they can offer products that meet legal, ethical, and environmental standards. Its cloud-based platform and regulatory compliance and assessment services provide customers with visibility into supply chains and material sources, minimize operational and brand risk, and improve efficiency for the world’s largest brands.

Jess Kraus
CEO


Jess F. Kraus, CEO and Co-Founder, has over 30 years of experience in the fields of environmental and sustainability data management. In nearly four years Source Intelligence® has grown under Kraus’ leadership to become the #1 provider of supply chain sustainability data services and solutions, assessing suppliers for increased supply chain transparency and brand protection to comply with conflict minerals requirements. Prior to co-founding Source Intelligence® Kraus founded 3E Company and served as President, CEO and lastly as Vice Chairman (1986 - 2010). A graduate of University of California, San Diego, Kraus holds degrees in mathematics and chemistry and is a Certified Hazardous Materials Manager and a California Registered Environmental Assessor. He is active in many business and civic organizations, including YPO/WPO (Young Presidents Organization/ World President’s Organization).

“We are the next generation of supply chain compliance and risk management software companies; we provide visibility and information. We provide clarity in a world that seeks transparency.” - Jess Kraus


Source Intelligence

1921 Palomar Oaks Way

Suite 205

Carlsbad, CA 92008

877-916-6337

www.sourceintelligence.com


 

 

 

Interview conducted by: Lynn Fosse, Senior Editor, CEOCFO Magazine, Published – August 4, 2014

 

CEOCFO: Mr. Kraus, would you tell us the concept behind Source Intelligence?

Mr. Kraus: The concept behind Source Intelligence is to connect major global brands to their supply chain and business partners, to allow them to expose and pre-emptively address risk both from an ethical and legal standpoint. It is a way for them to monitor their suppliers, collect information from their suppliers and have their suppliers monitor for legal, ethical as well as compliance risk. We talk about suppliers and supply chain not just in the linear sense of a major corporation having thousands of tier-one suppliers who then supply the next tier up to the second, third and fourth levels. We look at the whole, often complex, web of a network of suppliers that a major corporation would have in order to operate.

 

CEOCFO: What have you been able to develop that perhaps other vendors have not?

Mr. Kraus: Visibility and information you can depend on and use to make informed decisions. One hundred of our customers are Fortune 500 Companies. The first thing that we have come to understand is that most major global brands have very little visibility beyond their tier-one suppliers. They do not have visibility into suppliers as they go up the supply chain to the raw material source so our customers are dependent on what their tier-one suppliers tell them, even though these tier-one suppliers may be many levels away from supply middle-men in their overall supply chain. Most of the risk does not necessarily reside with the tier-one suppliers, but deeper in the supply chain. A couple of examples include the risk of illegal importation of raw materials which exists deep in the supply chain rather than at the surface. Another example is corruption which usually occurs on foreign soil where key executives depend on agents and representatives and have less visibility and control on extended global operations.

 

The second place that we’ve created value for our customers is in predictive analytics, which requires having that supply chain visibility or transparency that I mentioned earlier. For example, let’s say in a supply chain you have a certain electronic component that was manufactured three levels up in your supply chain, and that component is in a country that suffers a natural disaster resulting in that key component no longer being manufactured. That’s going to cause disruption in the supply chain and that is a risk. With real-time visibility into the location of that supplier, you could take pre-emptive action to avoid that risk. Here’s another example. Say a company’s agent is convicted of bribery in a foreign country where there’s a growing trend of corruption. That can have a severe impact to a major corporation’s credibility, exposing the company to brand and organization reputation risk. Knowing the “hot spots” and offering a 24/7 “Anti-corruption concerns line” for business partners in that region enable pre-emptive action.

 

So what we’ve been able to develop is a platform that provides our customers with the relevant information they need to make the right decisions to ensure that they can produce products ethically and legally anywhere in the world.

 

CEOCFO: How do you find this information?

Mr. Kraus: We map these major corporations’ supply chains. Some of our customers have at the tier-one level more than ten thousand suppliers and some have twenty to thirty thousand total suppliers. So you can imagine for each supplier there are numerous suppliers upstream. We start by mapping their network. We have sophisticated software algorithms that help do this mapping. We reach out to their tier-one suppliers and give them a platform to work with to gather information from their upstream suppliers and, then, provide that information back down the supply chain. We combine technology with an expert team that takes a look at the information, implements a strict data assessment and data validation process, and challenges if the data reported makes sense.

 

For instance, if one company says I get my tin from supplier “A”, and that supplier says I get my tin from smelter “B”, we know whether supplier “A” actually exists or whether smelter “B”, in fact, produces tin. The platform is able to do a quality control check on the information as it comes in. We also double check companies’ names and aliases because most often there is more than one version of a name for a company. Once we have the names “cleaned” we monitor them through about one thousand different global sources. For example, we monitor their behavior, any operations incidents, the size of the company and their import-export patterns. We have an algorithm that tells us if the company risk profile is “high”, “moderate” or “extreme”. We are able to monitor if something goes wrong with the company just through an application that captures any relevant information on news wires and social media and through the power of the Internet. We put it all together and help our clients not only have transparency in their supply chain, but also have the relevant information to proactively and pre-emptively act in the event that the brand or organization is exposed to supply chain risk.

 

CEOCFO: Why do the tier-one suppliers willingly take the time to give you this information?

Mr. Kraus: Well, initially, 75% of them came along, the rest begrudgingly.

 

CEOCFO: How do you encourage them?

Mr. Kraus: While a portion were willing, we had to drag and pull the rest of them along before these suppliers became familiar with our multi-lingual supplier engagement team and/or utilized our educational resource center. To encourage them, we implement a “team-technology” process that involves a close partnership between both our clients and their tier-one suppliers. Because our clients are the suppliers’ customers, there is an incentive for the suppliers to understand and comply with information requests and we make it possible.

 

What we set them up with is a combination of 1) human support through a supplier engagement team, speaking in the suppliers’ native tongue; 2) tools customized for suppliers to utilize the platform and efficiently - not just for filling in a survey or telling us where they get their materials from, but a platform that allows them to give and get information to their suppliers; and 3) a centralized source of information that can be shared with multiple customers at their request, helping them to overcome what is known as “supplier fatigue”. We give them a tool that improves their business.

 

It’s important to note that we only share the information with their customers not the world. It is not like, “Hey come and register with Source Intelligence and we will expose everything you have to the world.” It is a very contained relationship. If you think of LinkedIn for instance and your Facebook you share information only to who you wish. That is similar to what we do. You might think of us a LinkedIn for business to business. They are able to take information their customers want and to share it not only with customer A, but they can share it with customer B, C, D, E, F and G should they choose. Suppliers around the world get drowned in requests for “hey send me your foreign corruption policy” or “your conflict of minerals information” (which is the new SEC requirement), we give them a tool that has value and we ensure that they understand what is required through an interactive education and resource center. This makes it a lot easier to gather the information. Rather than a stick we offer them a carrot.

 

CEOCFO: Will you eventually have a database of just about every company that exists?

Mr. Kraus: Our goal is to represent the thousand largest brands in the world and we are well on our way. Related to that is our secondary goal to also have more than two million suppliers in our supplier network. Two million represents almost 50% of the suppliers of the global Fortune 2000. We think that is a critical mass for us and that is what we are targeting. For each compliance program that is entrusted to us by our customers, we are paid to monitor suppliers and map supply chains. Our customers look to us to help them comply with legal requirements globally. One of those programs is conflict minerals compliance and another is anti-corruption. Our growing network of our suppliers and business partners up and downstream is clearly growing by about two thousand per week or more. As our customer base grows so does our supplier network base, so in two months it will be closer to three thousand per week. We think it will be a great platform for suppliers to exchange information thereby creating better transparency in the world. That is where we are headed. I have no third-party to support this, but we think that we have the largest supplier network in the world and when I say network, I mean active network. Suppliers are communicating and active and it is not just a database of names and addresses but these are people and companies that are transmitting meaningful information daily through our platform – in fact, that’s the concept behind our name, information exchange from suppliers or sourcing partners, hence, “Source Intelligence”.

 

CEOCFO: You have big plans!

Mr. Kraus: We do. We are a humble company with a little over a hundred people here in Carlsbad, California. We have a new office in Shanghai and another small one in San Francisco, but we are also looking to put people in the EU. Our strategy as a company is to connect big companies to their supply chains and the output of that is this growing web of supplier networks registering and using our platform to connect. For example, one company who is registered with us is YKK and you cannot find any clothing without a YKK zipper. We have fifty of the largest apparel manufactures as customers. The brand names are our customers and they buy through YKK. If you are YKK, and you all of a sudden get fifty requests from Source Intelligence to supply information, you take notice. Our goal is, “hey Mr. YKK, here is a platform that will allow you to communicate with your other one thousand customers”. That is what is driving our business forward - that viral proliferation of suppliers who are beginning to use our platform and tools for their suppliers. Suppliers see the value in these tools. That value is our “carrot” which keeps the active supplier base growing. That’s much more effective than demanding information from suppliers.

 

CEOCFO: When you are talking with a prospective customer, do they understand immediately what you are able to provide?

Mr. Kraus: Our customers come to us because they are looking for a specific solution for conflict minerals, anti-corruption, or restricted chemicals. In the end, they are all looking for solutions that pertain to their supply chain. They are looking for ways to mitigate, monitor and to eliminate these risks to their supply chain. We usually start one issue or compliance program for a big global brand and, then, once they see the capabilities of our platform and our unique approach with suppliers, they expand their portfolio of solutions. As the story goes, Dunkin Donuts knew they made most of their profit off the coffee. So their strategy was simple, which was the “coffee plus one”; it was not about selling their donuts, per se. Make sure you sell the coffee and sell something else along with it. When a customer comes to us and needs help with their conflict minerals SEC compliance, it makes sense for us to ask them if we can help them with other related matters like their anti-corruption compliance as well because these programs impact their supply chain and we have a platform that effectively scales across multiple regulated and non-regulated supply chain program needs which is a SaaS model.

 

CEOCFO: When you see a red flag how are you able to get to the bottom of it?

Mr. Kraus: Technology alone cannot solve the problem. It is a combination of technology and human diligence aligned with industry norms and the customer’s internal policy. Our deepest “reach” into a supply chain, so far, is seventeen layers which means seventeen steps to the root of the supply chain problem (or the top) depending on your perspective. It could be the manufacturer or seller of a product and that product could be a handbag, clothing or jewelry or it could be electronics and medical devices. We have a host of industries we serve. The industry usually predicts how deep we go. The retail industry is typically “top of the food chain” in this regard, with many layers of suppliers that go beneath them.

 

CEOCFO: Why pay attention to Source Intelligence?

Mr. Kraus: Ultimately, the supply chain is the greatest risk a corporation faces today. The technology to reduce that risk has never been available before. We’ve taken it a step further combining technology, a growing database and multi-lingual expert teams to ensure quality data assessment and validation. We are the next generation of supply chain compliance and risk management software companies; we provide visibility and information. We provide clarity in a world that seeks transparency.

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