Do Smaller Suppliers Benefit From E-Procurement?

Spend Matters welcomes this guest post from Jeremy Friedman, COO of Greenwing Technology.

E-procurement has come a long way from the days of just Ariba and the fortune 500 companies it supported. By my count there are now more than 50 platforms, and every few months I hear about a new platform entering the market, all claiming to revolutionize the industry. In every article, case study and seminar talk I hear about the benefits of how Corporation X saved $2 million by moving to e-procurement or University Y saved countless hours moving to a paperless environment. All that is great, but one thing I rarely see is how the suppliers of these large entities are affected.

After all the suppliers are catalogued, the organization starts by identifying those suppliers that can participate and their capabilities. The larger players have entire B2B e-commerce (known as a punchout catalog) departments and can relatively painlessly integrate with just about any e-procurement platform. The first to integrate are your frequently purchased items like office suppliers, MRO, computers and lab supplies. Now the organization can seamlessly create requisitions. Orders are more accurate and users can directly shop in the supplier e-commerce websites. Everyone is happy, right?

But what about small-to-mid-size suppliers that have e-commerce but haven’t heard of a punchout catalog and may not even have an IT department? They find a company to help them through the process and get their punchout catalog up and running. A small price to pay (but a cost nonetheless) and now they can participate on a level playing field with the bigger companies.

Now everybody has e-commerce/punchout and requisitions are flowing, so everything is great.

A mandate comes down from the purchasing department saying that all purchase orders must be transmitted electronically to ensure they are being received. Again the larger suppliers say, “No problem, we support EDI, cXML, XML.” They integrate and purchase orders start flowing. It actually helps speed up order transmission, so everybody benefits.

Let’s jump back to our supplier that set up a punchout catalog and now needs to figure out electronic purchase orders too. Sure it could just use whatever tools are available from the e-procurement system, but someone still has to manually key the order and process it. The supplier asks around and finds someone to do the electronic order integration so it can receive purchase orders electronically. Another cost for the supplier, but it actually helps the supplier streamline the order process and even reduces keying errors.

Now that all of the purchase orders are flowing, everybody is happy for a few months, right? The purchasing department then decides that it is implementing electronic invoicing. The big companies again say, “Great, we support EDI, cXML and XML invoices,” and implement in a short period of time.
You guessed it, the small supplier doesn’t have the capability and needs to find someone to do the e-invoicing. Another cost for them.

The moral of the story here is don’t forget about your smaller suppliers when implementing e-procurement. There is a cost involved for them if they need to implement a punchout catalog, order integration or e-invoicing. That cost may be rolled into the price of supplying the goods or services that they offer or, worse yet, exclude them from participating in e-procurement entirely. For those organizations that strive to include smaller suppliers (due to regulations or not), remember that the smaller suppliers may not be as adept at e-procurement, punchout and e-invoicing as the bigger suppliers.

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Voices (2)

  1. Gary Hare:

    Good post. The market’s inability to cost effectively onboard smaller suppliers is holding back the entire market from realizing the full benefits of e-procurement. We have to find a way to make sell-side e-commerce more easily doable for these smaller suppliers.

    1. Hampus:

      What about if the suppliers only get a cloud computing solution? Then they dont need to invest so mutch in the hardware. They only need a laptop.

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