Spend Matters welcomes this guest post from Gary Hare, principal at the GWH Associates.
The e-procurement market has existed since the mid-1990s, when Ariba, Commerce One and Oracle (along with some pioneering companies whose names have long been forgotten), introduced solutions that automated indirect purchasing, simultaneously creating the B2B e-commerce market.
In most companies, indirect purchasing was a wild animal that needed taming — and if tamed, could save them millions. By 2002 the e-procurement market had arrived, validated by Ariba’s IPO, during which its stock price closed up 291% the first day of trading.
Fourteen years later, multiple analyst firms have recently stated that only 20% of companies using e-procurement systems are considered top performers. And this is in the enterprise market; mid-market penetration is negligible. Only 20%! What happened?
Well, like any emerging market, challenges inhibiting customer success appeared as solutions gained traction. For example, early systems were difficult to use until innovators like Vinimaya and Coupa “consumerized” their user interfaces. Upfront costs were often prohibitive until SaaS pricing models became mainstream. Supplier onboarding, possibly the most important piece of the e-procurement puzzle, was simplified by innovations like XML punchout, data bots and supplier networks.
Or was it? Simply put, today’s onboarding techniques only work for a minority of suppliers — large, national MRO and IT suppliers like Grainger, Staples and Dell — who have the resources to build and maintain the e-commerce infrastructure needed to support their multichannel selling strategy, which includes supporting customer’s e-procurement initiatives.
Successfully onboarding only these large suppliers — but not your medium and small suppliers — is a typical scenario today. A byproduct of this failure is an actual increase in maverick spend in the form of tail spend transactions. Wasn’t e-procurement supposed to end maverick spending?
The bottom line is companies must find an effective way to onboard small and medium suppliers — which can include regional suppliers, specialty suppliers and services suppliers — to maximize e-procurement benefits and keep the market moving forward.
One proven way to do this is for buying organizations to embrace sell-side e-commerce on behalf of their suppliers. Like the big boys, medium and small suppliers have multichannel selling strategies, but often lack the resources and know-how required to create the multichannel e-commerce infrastructure needed to support it. It’s no different than collaborating with a supplier on new fabrication process, or quality improvements. Both buyer and supplier will benefit, making it a worthwhile endeavor for both.
An approach that’s gaining traction is the use of B2B e-commerce providers. These companies, sometimes called punchout solution providers, exist in a subsegment of the multichannel e-commerce solutions market, which is populated by well-established vendors such as Intershop, Clarity, VARStreet (office supplies) and Aptos (retail), among others.
Unlike multichannel e-commerce providers, whose main focus is B2C and partner channels, B2B e-commerce/punchout solution providers, as the name implies, focus on enabling B2B selling via e-procurement, and some can also provide retail B2B capability via the same platform.
EqualLevel GO, Punchout2Go.com, SupplierSolutions.com, Greenwing Technologies and CoreXpand are five B2B e-commerce/punchout solution providers that have a track record of successfully working with buying organizations. Oh, and there’s one company that recently entered this subsegment you’ve definitely heard of — Amazon. If a company like Amazon is interested, you can assume there’s untapped value.
Regardless of what they call themselves, it’s what these providers can do for your suppliers that’s important — and that is provide them with a cost-effective, cloud-based e-commerce infrastructure that can support their corporate customer’s e-procurement sales.
The benefits to the buying organization are obvious — the onboarding of small and medium suppliers finally gets done! The best part? The service is free, so the ROI is immediate; although in some cases, buyers have subsidized their suppliers, in exchange for some other considerations, I’m sure.
For suppliers, the ROI can be quite impressive as they move from manual processes to full e-commerce quickly, without a large investment, as like any cloud solution, the fees are typically charged monthly based on actual use. And unlike supplier networks, there are no proprietary technical requirements, registration fees, transaction fees and sales commissions.
Interestingly, many of the 20% considered e-procurement “top performers” have worked with B2B e-commerce providers/punchout solution providers.
Could this be the secret weapon that made them top performers?