Managed Services and Connectivity Vs. Software and Networks

Evaluating a comprehensive business solution can be tricky, especially when the organization is evaluating just software capabilities which is to say “features and functionalities” but the provider brings more than this alone. For example, it can be difficult to do apples-to-apples sourcing comparisons when considering the types of value-added services that a solution provider can offer (by itself or a third party) to complement or strengthen its own technological solution.

In the case of business or supplier networks, it can be difficult to separate out the solution from the software alone. Consider all the components of e-invoicing automation, payment and financing automation, workflow process visibility, e-invoicing analytics, supplier management, catalog management, document exchange (PO/invoices/receipts) and collaboration (disputes, modification of documents, communications) between buyers and suppliers, etc. that combine different types of technology and value-added services components from providers.

In many cases the optimal solution is a mix of capabilities that could include software, with or without managed services. In order to illustrate this premise, here are six capabilities that could “go either way” for any given organization, which is to say selecting software capabilities alone or choosing managed services that incorporates technology capabilities:

  1. Onboarding suppliers to a supplier network / P2P
  2. Invoice capture
  3. E-invoicing compliance
  4. Payment and financing automation
  5. Supplier management supplier information management (SIM) and supplier relationship management (SRM)
  6. Analytics

Onboarding Suppliers to the Network

Supplier onboarding is the process of inviting, connecting and enabling a vendor onto a supplier network and/or P2P solution. This process can be as simple as filling out a form with a name and email address or as complex as filling out detailed questionnaires, uploading documents and certificates, and receiving special training on the features and functionalities of the network.

Supplier networks play an important role in supporting the automation and simplification of invoicing and payment processes. However, none of this can be possible without first onboarding and enabling suppliers within the supplier network. This is why the onboarding process is so critical!

For this process you can select from both types of offerings from supplier network providers. Some offer their technological capabilities to onboard supplies, while others offer managed services to facilitate suppliers in onboarding to the network.

The providers that use their technological capabilities normally onboard suppliers by sending an electronic invitation to register in the network, in addition to some required questionnaires and specific documentation that the supplier must complete before doing business within the network. In some cases the registration process is quick and easy, and the requisitioning of information is progressive and depends on what the buyer requires at a particular moment of the business relationship.

All information that the supplier uploads to the network goes through an approval process, which may require the use of mechanisms for collaboration and communication within the network and via email. Supplier training is normally supported by video tutorials and online user assistance. In this scenario, all the workload is shifted to the supplier, an approach that normally works fine with strategic suppliers that have the resources and expertise to support an onboarding effort, but not necessarily with the long tail of suppliers.

On the other hand, there are supplier networks that incorporate managed services to onboard suppliers and enable the process with all the information required by the buying organization. This approach usually invoices a range of technology enablers and supporting services (the line can be blurred) starting with document management, where the provider captures (receives) all documentation, reviews it, manages the approval process prior to uploading all data onto the network, and if required, trains the suppliers to use the network capabilities.

In this scenario, suppliers often manage less of the workload themselves compared with software-driven approaches that typically place all the emphasis on vendor self-service. All the work, including the invitation to the supplier and training, is facilitated by the managed service. This scenario works well for buying organizations that want to increase the number of suppliers working through the network and for organizations whose past enablement rates have been low (and/or their own resources to support an effort are low).

Invoice Capture

The optimal e-invoicing process should be able to capture 100% of its suppliers’ invoices on line, making sure that all the management is electronic and even turning invoices into e-invoices if required.

The goal of processing e-invoices is to require minimal human decision-making and have a no-touch process where all validations are managed with intelligent capabilities. Technology can (and should) play an essential role in this. However, this scenario (processing e-invoices) is where managed services providers are often most used in fulfilling the objective of capturing 100% of suppliers’ invoices and transforming them into e-invoices to be processed in the supplier network or portal.

In the case of supplier networks that depend on their technological capabilities, the process of capturing invoices is enabled by the ability to “flip” a PO to an invoice, Web capture (e.g., in the cXML file format) and EDI. The process may sometimes include emails with a PDF-XML invoice attached to be electronically imported to a specific template.

The complication in this scenario is how to incorporate paper or PDF email invoices with only technology capabilities (paper invoices are still frequently used in the North American and European markets). Some solution vendors are already tackling these type of cases with intelligent data capture mechanisms.

Managed services have been very successful in capturing all types of invoices and converting them into e-invoices, and as mentioned above, many providers who only use their technology capabilities for invoice capturing cannot yet secure electronic receipt of 100% of invoices from suppliers. Therefore managed services is certainly a value-add, as they provide a safety net over the entire invoice capturing process to maximize the rate of capture, while managing the digitization and data assurance processes (if required) and incorporating invoices into the approval and payment processes.

Invoice Compliance

Invoice compliance is a process that becomes relevant depending on the country in which the buyers and suppliers are operating. Sometimes technology alone is sufficient if the requirements are very basic (e.g., calculating taxes correctly). However, in countries where governance requirements are complicated and changeable and where buying organizations could have specific commercial requirements that must be contained in invoices, handling the process is complicated. And human support and specific knowledge can play a material role in ensuring compliance. In this case, having a third-party or managed service that can handle all the complexity of the process is a value-add, especially in challenging jurisdictions.

Government e-invoicing regulations that can be overseen via a managed service include government invoice validation, VAT compliance, digital signatures, e-documentation, fiscal and accounting e-reports.

There are some supplier networks that also offer managed services that include the upgrading of ERP systems (when required) to make sure that e-invoices are correctly registered in the financial systems when there are changes in the regulations or new requirements for the issuing of the invoice.

There are also other compliance offerings that are provided as additional services to software capabilities, such as e-archiving capacity (when required by government regulations).

Payment and Financing

A procurement organization completes its purchasing process with the receipt of an invoice, followed by payment processing. A payment has to be in compliance with the PO and the receipt of merchandise or service.

In order to comply with payment process requirements, the supplier network or software solution will normally be integrated with the accounts payable ERP solution, which will take care of the payment process. However, there are payment services that are managed by banks, card providers or specialized firms that an organization may wish to incorporate into the payments process. These offerings are centered on financing to facilitate early payment programs (e.g., invoice discounting, supply chain finance, card programs, etc.)

These financing services are useful typically when the company wants to include them in their offering to suppliers but do not want to necessarily fund early payment with their own balance sheet. All of these solutions (that incorporate third-party capital) are essentially managed services that can generate value to all participants (suppliers, buyers and banks service). Note: these managed services may be offered by supplier network and P2P providers as well.

Supplier Information Management (SIM) and Supplier Relationship Management (SRM)

Supplier networks typically still have a long way to go when it comes to matching the specialized software capability of supplier management, master data management and governance risk and compliance (GRC) capabilities of specialized providers focused outside of the accounts payable areas. However, the managed services and technology capability provided by networks may prove sufficient for core P2P enablement.

When it comes to network-based offerings for SIM and SRM, the management processes and data collection are typically basic and are managed by the provider itself through a technological capacity that is focused on collecting questionnaires and uploading data from suppliers (and potentially enriching data from various sources).  

To date, covering all the needs that an organization requires for supplier management across 100% of its vendors in a secure and centralized manner has proved challenging for most providers when it comes to software alone. The capabilities to avoid duplicate entries, update outdated information, actively manage risk and performance, etc. are typically best supported by networks offering managed services offerings today (or specialized best-of-breed software tools outside of the P2P area).

In a P2P managed services scenario, we typically see providers offering solution approaches dedicated to supplier relationship management, as well as gathering information. Taking advantage of these types of managed service are a common practice, especially for buying companies that handle thousands of suppliers. The managed service can feed a company’s own supplier management solutions or the supplier network itself (or a P2P solution). There are also third-party services that provide supplier information, which can be integrated into the network or supplier management solution.

Analytics

Supplier networks are increasingly exposing varying degrees of analytical capabilities (often to both buyers and suppliers). These are typically dashboard-type offerings without broader OLAP and drill-down support to conduct true spend/supply analytics. When a network or P2P provider does not offer these capabilities as a pure software capability, organizations can often integrate a managed service to drive analysis and visualize the information (from the provider). Managed services that do not involve software licensing are delivered as third-party solutions that provide batch or real-time systems information to analyze and deliver static and/or dynamic reports (dashboards).

Analytics is a complex area in which 99% of procurement and AP organizations that work with third-party solution providers typically take advantage of some type of managed services, usually in the area of spend data cleansing, classification and enrichment. While the BI layer may appear to be software alone, there is nearly always some type of managed services component behind the scenes.

Summary

As you can see, the decision to leverage managed services as opposed to just software capabilities will depend on a combination of business requirements, goals and the specific areas of support a network is providing. But perhaps even more important, it’s often best to evaluate technology and managed services together, as opposed to treating them as separate selections or choosing one approach over the other. The lines are simply “too blurred” in many cases when it comes to broad-based supplier enablement and P2P process management.

Stay tuned for the second and third installments of this series.

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