Supplier networks – not a panacea for all procurement ills

We commented last week on developments in the e-invoicing market with exciting (yes, exciting) announcements from Basware and Tradeshift*.

We said then that a major development in the procurement technology world today is the desire to link buyers and sellers in a networked manner. That’s not new of course, but increasingly, it's being driven by the use of social media techniques and tricks to make the whole experience more communicative, collaborative, and intuitive. So the network becomes more than just a means to swap information and documents, and leads to other opportunities and drives new capabilities.

All that is true, but Jason Busch published a timely warning last week here, pointing out that networks “are not panaceas” – they’re NOT the answer to every procurement question, nor do they take away the need to execute “traditional “ procurement tasks and processes effectively. This came from a question posed to Jason at a conference –

 It came from someone who had been pitched by one provider that positioned supplier networks as potentially doing away with the need to put in place good contracts and proactively manage spend from a category perspective. This person suggested that the vendor hinted that the dynamics of a network tied to P2P -- 3-way matching, competitive supplier search/bidding/response, etc. -- would alleviate the need for the basics.

So if you use the network to search for new suppliers, hold bidding events via the network, then run your P2P through it...  then why would you need to do anything else?

Well, that’s rubbish of course. As Jason goes on to say, networks, (particularly if they’re sexy and user-friendly) can help achieve a lot in the buyer / supplier space, from document exchange to easier on-boarding.  I’d add that they seem to me one of a number of potentially useful sources of new suppliers, and an enabler for supply chain finance-type processes.

But, as Jason says, they don’t:

  • Somehow replace the need to create and manage contracts, clauses, amendments and agreements between buying organizations, suppliers and intermediaries (distributors, consortia, GPOs, etc.)
  • Get rid of the benefits of direct price discovery and price negotiation with suppliers -- through an RFI/RFP, multi-round sealed bidding, reverse auctions, advanced sourcing/sourcing optimization, etc.
  • Somehow make up for the advantages that come from getting to know and develop strategic suppliers directly -- in-person, on the shop floor, etc.
  • Solve the compliance and paper challenge for all types of spend -- non-PO, contingent labor, project-based services, etc.
  • Eliminate the need for internal buying and payment processes, controls and approvals

So, if a vendor tries to persuade you that “the network” means you don’t have to worry your pretty little procurement head about any other core tools and processes.. then we suggest you tell them to go and network elsewhere!

* I don’t believe the vendor in question here was either of these two firms by the way

Voices (2)

  1. Kevin Lynch (CEO Volerro):

    I agree with the points you made here. Supplier networks should be used to reduce the friction related to procurement best practices. In fact, by reducing the friction associated with managing the source to contract process and certain parts of the procure to pay process, supplier networks should actually help the buyer and supplier focus on best practices rather than the mechanics.

    Technology should continue to reduce transaction friction, improve communication and enhance discovery via access to market information – it won’t replace good business principles.

  2. Christian Lanng (CEO Tradeshift):

    I agree with most of the points, I don’t think the networks will disrupt buyer side software. We actually see spend management and procurement software as an ally, since we can boost their value proposition by offering smart network features integrated directly into their software and most of the providers in that space prefer an open network, which we can offer.

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