The Hype of Physical and Financial Supply Chain Convergence – Part II

The previous post described the differences between the physical and financial supply and introduced the complexities in finding real convergence.

Supplier networks defined

My colleagues Pierre Mitchell and Jason Busch have so eloquently mapped it out in a three part feature they did - see E-Invoicing Forecast: 2014 Market Growth, Analysis, and Predictions   I think what struck me in their piece is that the whole idea of networks has not changed too much in the past decade, it has mostly been focused on leveraging the infrastructure corporates have around procurement, ERP, einvoicing, etc. to realize all the automation promises.  And then along came supplier networks.

Jason and Pierre define supplier networks as follows:

Supplier networks are sometimes referred to as “business networks,” eMarketplaces, or other terms. A supplier network is primarily a B2B destination site where buyers and suppliers can find each other and do business with each other, including supplier discovery, transaction processing, collaboration, and analytics / intelligence. The functionality of course will be personalized to provide a private network for them even though really just being a subset of the larger public cloud.

These networks offer supplier directories (with granular “supplier discovery” capabilities), buyer-specific supplier onboarding, integration services for B2B connectivity (including master data synchronization and B2B process integration), and additional services in areas of content management (to improve the data depth/breadth/quality needed for good B2B commerce), trade financing capabilities (in conjunction with a financial services partner), intelligence / insights derived from the network, and other value-added services. We don’t include advanced supply chain collaboration in the segment, but rather define a separate “supply chain [information] network” segment. A supply chain network is similar to a supplier network, but with much deeper multi-tier supply chain planning, execution, and collaboration functionality. It is less about commerce and more about collaboration and supply network orchestration.

Haha, me thinks these networks are the beginnings of physical and financial convergence.  Convergence is so difficult to do because if you look at a typical trade environment, the challenges corporations face are daunting and involve IT, Operations, and ComplianceConvergence is also difficult because there are lots of data points to manage as goods flow from one transit point to another, typically handled by a different company.

In the world of global trade, tying the physical and financial flows is something networks can do.  In the past, when supply chains were more domestic, companies could get away with little integration between the finance and the supply chain.   With global supply chains and large companies acting more like system integrators (note Boeing outsourced over 80% of the production of the Dreamliner), lead times are elongated, so information becomes extremely valuable.

No longer can Treasury, Procurement, Logistics, and Supply Planning exist in a vacuum.   The realization that excess inventory and downstream suppliers cost of money impact total supply chain costs should ensure supply chain and finance functions are more closely linked.

So my warning to you is be careful about convergence talk.  It sounds sexy, compelling, and intuitive, but it’s damn hard.  But perhaps these new networks, especially the ones offering platform-as-a-service (think Nipendo, Tradeshift) are the real deal.

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