20 Questions On Supplier Network Selection (Part 1)

Editor’s note: This Spend Matters Plus brief is a refresh of our 2013 series on supplier network selection, which originally ran on Spend Matters PRO. 

The space that exists between companies and trading partners receives more attention today than ever before. But the competitive environment is complicated. There are offerings that combine technology with banking and analytics capabilities; solutions that emphasize connectivity linked by buyer-centric applications; and platform-centric approaches that aim to open up the connectivity debate to not just buyers and suppliers but also other third parties that can enable commerce (e.g., third-party apps).

Tungsten is representative of that first group. By combining OB10 with a bank and real-time analytics capability, Tungsten argues that the physical and financial supply chains will be more closely linked than they are today, conferring significant advantage — and that by combining these two distinct areas into one, significant new areas of value will be created for both buyers and suppliers.

This makes sense on the surface. But so do other arguments that competitors make, often with a slightly (or very) different twist on the role of the network or connectivity intermediary. For example, SAP Ariba has argued that the core value of a network sits with delivering enhanced connectivity and linkages with suppliers that sits on top of buyer-centric applications (ERP/ECC, e-procurement, e-invoicing) for all spend types beyond just indirect and catalog-based connectivity.

Yet SAP Ariba’s push deeper into direct spend now pits it squarely against direct connectivity specialists such as GXS, with whom the ERP providers have worked on a complementary and partnering basis with in the past. No more. The separate worlds of business applications and connectivity for manufacturing environments is now about to crash together — and the supplier network market will never be the same again.

There are other companies that will battle to win the space that exists between organizations as well. Platform-centric approaches, which seek not only to provide specific value-added services into the connectivity equation but also to enable those of others (think about third-party applications that integrate with Facebook for community, gaming, collaboration, single sign-on, etc.), are also fighting for mindshare and traction. These providers include upstarts such as Tradeshift and Nipendo.

Even beyond these models, other network approaches are seemingly building on their core historic focus around helping customers get more from existing eProcurement and e-invoicing systems. These include network leaders like Basware. To varying degrees, these providers offer basic connectivity along with more advanced capabilities.

Yet another group of companies such as ThomasNet are also competing, yet in ways that are focused on an entirely different proposition – serving as broad on-ramps for suppliers. In ThomasNet’s case, beyond simply having one of the most adapted taxonomies in North America for industrial and custom parts supplier classification and supplier search, they also bring considerable expertise in building websites for suppliers and managing connections with customers over the web (including managing catalog and parts content). ThomasNet, of course, is not alone. IHS GlobalSpec, MacRae’s and Alibaba also offer different approaches to supplier enablement (as do provides like Jaggaer). And we can’t count Amazon and Google out of this area either.

This competitive landscape is creating a world where simply staying on top of all of the on-ramps to connected systems and commerce is challenging enough — let alone selecting and implementing actual networks and having them to talk to buy-side systems and each other. We’ve come up with roughly 20 questions that customers should consider as early as possible when developing a business case and selection approach to the different tools that are available.

Yet even before getting to this list, the most important question to ask is: what problem are we trying to solve? Is it P2P connectivity? Is it better supplier discovery? Is it to help meet compliance needs with the regulation du jour (e.g., conflict minerals)? Is it to build a business case on top of an ERP upgrade? Is it simplify our IT architecture? Is it to get better market and supplier intelligence?

Once you answer these demand-side questions, it’s then possible to create a market basket of IT requirements and compare these to existing capabilities, as well as those of new providers that might be an ideal fit.

To start, we’ll share the first five supplier network selection questions we think that every organization — once you’ve answered the “pre” question list above — needs to consider:

1. Do we understand what “best practice” and benchmarks are in supplier networks, engagement, on-ramping and collaboration – just as we would internal processes and IT systems? Do we even know where to look for such information? Have we invested the time to size up our maturity and to understand, quantitatively, what is possible in becoming more advanced?
2. How can we shift our business case and selection strategy from one of “competing different networks and on-ramps against each other” to understanding the complementary nature of different approaches? Do we truly understand the different models and value propositions (let alone the specific functional capabilities) of different providers? This question also becomes important when understanding whether supplier networks and on-ramps are attempting to foster an ecosystem rather than becoming “the one” – a scenario we think is the least likely to occur.
3. To this last point, what emphasis should we place on supplier network providers and on-ramps driving interoperability (both business model and integration) between themselves? Should we serve as the integrators or should they? This question also becomes important when looking at business models – not just standards/interoperability – especially when multiple “hops are involved.”
4. How important are communication and connectivity standards to selection and supplier connections? Should we look to expand the adoption of existing data standards already in deployment (EDIFACT, ASC X12, cXML, etc.) or should be take an agnostic approach that delivers more flexibility? This question also raises the broader one of true machine-to-machine connectivity rather than requiring suppliers to integrate (and access information) in a more loosely coupled manner, such as checking on invoice status through a portal.
5. Where are we with supplier and vendor file management maturity? To answer this question, ask yourself: if we had to notify all of our suppliers in the next 30 days about changes in payment terms, could we do it? Are we aware of how network intermediaries and supplier on-ramps could potentially help us in this area? The opportunity for networks to help govern and administer how we manage up-to-date vendor information including contact details, banking information, insurance and other certificates is significant. Yet it requires not just looking at these services as uni-directional on-ramps (which are infrequently traveled), but rather a highway where traffic is continually flowing in both directions.

In Part 2 of our analysis, we’ll explore the remaining fifteen questions.