Procurement in Plain English: Supplier and Business Networks
Son: “Hey Dad, what do you do?”
Me: “Well, son, I help large global procurement organizations and Global 2000 as well as SMB suppliers make better business decisions on connectivity that brings their businesses together. Both groups are increasingly turning to supplier – or what Ariba would call ‘business’ – networks…”
Son (interrupting): “Right … what do you really do?”
Now, isn’t that the million dollar P2P and supplier network question? But my son’s got a point. Sometimes explaining in Plain English what we do in procurement, e-invoicing and supplier enablement is just about impossible. Next in my “Plain English” series (see the first two installments here and here), I’ll tackle supplier networks and give it a definitional shout.
What problems do supplier networks solve? What are supplier networks?
Supplier networks help companies leverage existing and planned procurement, accounts payable, and ERP investments by bringing greater spend under management more quickly and in a sustainable manner. This is ideally done through connectivity approaches that enable suppliers to avoid having to duplicate efforts with multiple customers. Supplier networks often address core P2P requirements, including supplier enablement, catalog and content management, and invoice automation and connectivity.
Networks also help organizations realize the automation promises that came with original P2P business cases and to take advantage of the best of ERP capabilities and integration without missing out on key enabling functionality. This is increasingly the case with “network” approaches that essentially allow companies to not upgrade SAP or Oracle financials and eProcurement systems while receiving a set of entirely new benefits “in the network cloud” so-to-speak on top, essentially freezing the ERP procurement investments behind the firewall.
Used properly, supplier networks can provide a multiplier effect on the success of eProcurement and e-invoicing deployments. They can also help address both supplier connectivity across a long tail of suppliers, as well as value-added services such as discounting/supply chain finance, supplier management (data management), etc.
What challenges and opportunities do companies face without supplier networks?
Without supplier networks, companies will find themselves having spent significant sums on other technology but without a connectivity approach to achieve the expected return on investment. It’s important to note in this regard that the Pareto principle does not apply to supplier connectivity & management. Supplier networks provide the ability to electronically enable all suppliers, not just the select largest vendors or manufacturing suppliers through EDI. To this point, networks enable companies to get past the Pareto principle where it does not apply and to free up resources to pursue more strategic opportunities (working capital management, dynamic discounting, etc.)
Networks can increase productivity in both buyer and supplier relationship management through reducing the need for duplication of effort across companies. I think that the networks of tomorrow will ultimately foster entirely new ecosystems that go beyond today’s capabilities to include supplier management and supplier risk management. The current “volume roll-up” activities of providers like Ariba/SAP and Basware are likely to serve as a Trojan horse (for much more) once networks reach a certain maturity stage.
What problems are typically not well addressed today by these solutions?
Supplier networks have significantly variable capability when it comes to value-added services they provide. At their most basic, they are just a hub/spoke model for routing documents and information. And in many cases, supplier networks are (typically) not a replacement for business applications themselves, except for those that specialize in augmenting or replacing ERP procurement investments. In addition, no supplier networks have yet cracked the code on mass adoption of receivables financing, dynamic discounting, or related accounts payable and treasury centric capabilities.