Developing a Point of View (POV): Networks, Platforms and Applications (Part 2)

This analysis is excerpted, in part, from the Spend Matters Perspective: The Great Debate: Will Supplier Networks Thrive, Implode, or Evolve? (free, registration required). Authored by Jason Busch, Managing Director, Spend Matters, it explores the importance of understanding and developing an organizational point of view around procurement networks, forms and applications. Click here for the first installment in this series.

When it comes to supplier networks and platforms, I suggest scrutinizing commercial agreements, including any upside or downside risk for direct or indirect parties, including fees and sharing confidential network data. I also strongly suggest approaches that encourage interoperability and avoid lock-in between application and network/platform providers based either on technical limitations or fee structures.

Above all, if you take away one thing in developing a POV on this area, please remember to treat the space that exists between companies with the same level of investment and interest as traditional procurement, A/P, and risk software applications and processes. And don’t forget the transformative power of the network (and platform) to change how you do business.

Beyond these recommendations, which come from my contribution to The Great Debate: Will Supplier Networks Thrive, Implode, or Evolve?, it’s also important to consider how today’s networks will address direct materials connectivity between buyers and suppliers, an area currently addressed nearly entirely by EDI providers such as IBM/Sterling and GXS. The opportunity to uproot legacy EDI approaches is one that the EDI providers themselves are aware of. And it’s likely some may even cannibalize existing revenue channels to do so.

EDI currently has many limitations, including the fact it requires one-to-one based connectivity approaches between buyers and suppliers (at best, EDI hub models are one-to-many). The result for companies is that on-boarding and enablement does not get any easier or faster with smaller suppliers. Hence, supplier on-boarding and ongoing management (including data mapping) can be a time-consuming task. There’s also the challenge of requiring both parties to adhere not just to a set standard but to the same version of the standard (e.g., X12, UN/EDIFACT), which can change over time.

While EDI is certainly not without fault, it’s become the standard for direct materials and retail connectivity. It’s very much analogous to the traditional ERP/MRP systems it supports in its rigidness. Yet direct materials connectivity is complex with little room for error  – and the documents and data that trading partners interchange require a “lock-down” approach given the depth of information sets tied to a transaction and the fact that complex trading relationships not only can span parties and direct counterparties, but also multiple tiers of suppliers (and cascade across the entire procurement, sales, support and even warranty claims lifecycle).

The opportunity for supplier network vendors to disrupt the EDI ecosystem and standards is certainly significant. But it will be an uphill battle, especially given the limited architectural advantages of most current networks over the EDI systems and hubs (and VANs) they might replace. As SAP looks to add direct materials centric connectivity into the Ariba supplier network, we’ll monitor the developments closely. But perhaps it will be a dark horse – or even the EDI players themselves – who end up remaking this market and creating a new level of transactional value and visibility between direct materials and retail trading partners.

Download the Spend Matters Perspective on which much of this essay is based: The Great Debate: Will Supplier Networks Thrive, Implode, or Evolve? (free download, registration required).

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