Platforms, Networks and Suppliers: Concepts and Benefits

Missed Part 1? Read it here.

What is a network? What is a platform? Technology providers often confuse customers with these terms. But it is important that procurement and AP organizations become comfortable with the terminology.

As we have said here, “a platform concept centers on building technology ecosystems that allow all participants to more easily — plug and play — new capabilities, apps and value-added services on top of core functionality.”

A network concept centers on supplier connectivity that joins buyers with suppliers. It can provide value in areas such as supplier management, catalog management, e-invoicing automation, payment automation, financing options and sourcing effectiveness while also offering value-add services for enhancing or simplifying these processes.

Networks can include platform elements. And networks can take advantage of platform-based technology.

Networks Enabling Process and Business Evolution

Networks are an important technology (and solution) offering that changes the way in which accounts payable, procurement and suppliers interact with each other, often driving significant economies of scale and automation for both groups. Proof of network success (for buyers and suppliers) may include evidence that:

• Communication (between parties) has been digitalized and strengthened
• The end-to-end processes (procurement, invoicing and payments) has been automated and real-time information is available
• There are fewer — under ideal circumstances, no — human “touches” unless information is incomplete or inaccurate
• The information exchanged (among parties) is 100% precise and accurate; otherwise it is not processed
• The connectivity support and business opportunities between buying organizations (including AP operations) and suppliers have increased
• Process integration (through the network) has improved the effectiveness of business decisions of all stakeholders

In short, when networks work as promised, the core benefits they bring are significant for accounts payables and procurement — and for suppliers as well.

Networks as Platforms

Going back to the definition of platforms, where the goal is to enable the ability to “plug-and-play” new capabilities, apps and value-added services on top of core functionality, it is possible for networks to also be platforms.

But in order for this to happen, a network would require the ability to allow for the incorporation of new applications and solutions (via third parties) to its core capabilities. These new applications or solutions would enhance the network's native capabilities to serve the business requirements of customers, without having to develop them.

Here as some external capabilities that a network can incorporate when also acting as a platform:

• Incorporating third-party e-invoicing compliance capabilities (e.g., for specific jurisdictions) besides its own
• Offering an e-invoicing solution for basic or advanced matching capabilities via other networks or EDI
• Delivering a digital mailroom as a value-added service component to capture invoices and transform them into e-invoices
• Providing commodity mapping and classification services for integrating analytics
• Offering third-party payment options with bank or card providers
• Delivering the ability to offer early payment financing options through third parties
• Providing a business intelligence solution for analytics
• Offering external supplier information services

Pain Points Before Business Networks or Platforms

In the old days (and even today when organizations depend on their ERPs to process all their procurement, invoicing and payment activities), the idea of having a fully integrated, automated, agile and effective end-to-end P2P process was only an illusion.

Here are some reasons why:

• Document exchange (purchase orders or invoices) and communications (buying organization and suppliers) were done (at least in part) with paper, fax or email, not enabling electronic acknowledgments or acceptance. The possible exception was EDI, which still did not enable agile or flexible communications (note: some EDI solutions today are incorporating a network concept to offer new collaboration capabilities)
• High probability of losing documents or not attending to urgent documents
• Document modifications or disputes were not done by phone or email and were complicated to follow and time consuming, and did not provide insight into visibility status
• Invoice-matching process with PO and goods receipts were typically not enabled, incomplete, or too complicated and time consuming to perform – and oftentimes impossible due to the lack of integrated information
• Supplier information was outdated since the verification process is time-consuming and AP’s responsibility (and AP is typically more focused on its daily payment operation than on keeping records updated)
• Supplier payments took days or weeks to be approved and depending on the organization’s policies, it takes 30, 60 or 90 more days to pay a vendor. Further, there is no visibility into when a supplier will be paid — the supplier has to check their bank account or call AP. The supplier’s cash flow and working capital suffer as a result of these delays, and there is no gain for the buying organization either.

Before network models, suppliers bore the brunt of many or all of these pain points and more with all their customers — and there were too many resources (people and money) required to attend to them. As a result, suppliers occupied far too much time in collecting payments — money and time spent that could be better applied to innovation and customer relationships.

In general, prior to networks, all related processes (e.g., procurement, invoicing and payables) were a semi-manual process, disconnected activities and business requirements.

Benefits to Integrating Networks to the Process Mix

As noted before, business networks and platforms have created a centralized location where buying organizations can interact in real time internally (e.g., procurement/AP) and externally (suppliers). The outcome of end-to-end automated processes include a range of benefits such as:

• All document exchanged (PO/invoices) and communications managed through a network environment (e.g., acknowledgments, acceptances and fulfillment notes - ASN) with real-time status visibility
• Collaboration occurring in real time, supporting dispute management scenarios or any other collaboration requirement
• All approvals, alerts and pending tasks enabled by automated workflows, accelerating the completion of processes such as payment approval
• All compliance issues managed via an automated process and supported through network or integrated third-party capabilities beyond just mapping processes between invoices, POs and goods receiving (e.g., e-invoicing VAT country-specific compliance)
• The supplier onboarding process and information requirements is fulfilled in one place (i.e., the network), including the corresponding automated verification and acceptance process from the buying organization
• Payments to suppliers are approved or programmed without any human interaction; even exceptions can have a fully automated process  
• Accounts payable (or a third party) can offer suppliers access to financing options such as early payments the same moment its invoice is approved in the system, thus improving DPO, cash flow and working capital management. These options can be funded by the buying organization or by the networks’ financing partnership
• The AP process performance and payments analytics can be executed by the network’s analytics capability. The network can identify cycle times consumed by each activity within a process and the invoice information at a line level, allowing for new levels of visibility and analytics
• Suppliers can integrate their own back-office systems to the network and benefit from a more integrated and automated solution, rather than just going to the network to re-key files
• Networks enable accounts payable process agility, certainty and better outcomes to drive better working capital visibility and management

Platforms can extend the capabilities of networks to enable these outcomes but may or may not be necessary depending on requirements. And as a final note, in a many-to-many network, suppliers can also access other buyers by connecting once, and even integrating their own suppliers to benefit from the network. This broader network today is just starting to gather momentum – especially the multi-tier concept, both with and without platform-models tied to it.