In the last issue of NSIDE Magazine, I introduced the importance of electronic procurement and ultimately, the bottom line to a company’s operations. In this issue, I will discuss one of five important topics in e–Procurement, as well as the single biggest obstacle in the e–procurement process, supplier enablement.
Electronic procurement can offer cost savings of 5 to 20 percent of a company’s annual spending to the companies willing to implement it. This is achieved by mapping the corporate purchase policy across all business units to form a single electronic platform to automate, regulate and control the purchasing process. The ability of supply partners to engage in this process with you is critical to your success.
In the technology space of electronic procurement, this is commonly referred to as supplier enablement, which means that in order to realize all the benefits of eProcurement, your suppliers must be electronically enabled to interface with your procurement system across all business units.
The 80/20 rule still applies; 80 percent of purchasing occurs with 20 percent of your trading partners. Therefore, it must start with the companies that are supplying the largest majority of the goods and services that are critical to running your business. However, in order to achieve maximum ROI in your procurement system, you must engage the remaining vendors, as well.
Although they may make up only 20 percent of the dollar volume purchased, they may represent significantly more than those that share in terms of paper invoices. It is important to look at supplier enablement with all of your suppliers in mind when considering your end goal of completing supplier integration with your purchasing system.
Supplier enablement is important to understand from three perspectives: supplier cooperation, supplier capability and supplier integration. Supplier cooperation comes first because your trading partners must be willing to change the way they do business with you. Phone calls, faxes and emails are all very familiar to the large majority of the workforce because they are comfortable forms of communication and business exchange. However, they can be supplanted by software tools that are much more efficient at managing our daily processes. We just have to be willing to adopt them.
Change management is no small task. Moving purchasing to an electronic platform necessitates cultural change inside the buying organization and within supplier relations. You have the power to instigate change within your own organization, but you must also convince your suppliers to tackle all the issues associated with the conversion to electronic procurement. Your suppliers must be willing to invest in their own system capabilities in order to interact with you and continue to serve you as their client.
The supplier’s capability to adjust to the electronic process rests on their ability to identify what is required to engage with the buyer. They must adjust internal resources to accommodate fewer human touch points and update internal systems if necessary; the corporate buyer policy and the process that will be implemented must be clearly understood by all suppliers to achieve this. For this reason, according to Aberdeen Research Group in Boston, MA, most enterprises that have undertaken electronic procurement have established supplier enablement programs to facilitate the process. This includes sharing more data, such as sales data, release schedules and manufacturing plans, with their suppliers.
The size of the supplier will largely affect its ability to respond. This is where flexibility within the supplier enablement program will be helpful. A demand of a Fortune 500 company to be able to send and receive electronic files will be met with ease and quick fulfillment. Asking this of a smaller company, on the other hand, may require time, patience and assistance with options, particularly if it is a company that has been a loyal and dependable supplier. Of course, if the supplier values the partnership, the fulfillment will still occur.
Satisfying the buyer’s needs revolves primarily around the supplier’s ability to integrate with the buyer’s procurement system. The integration with the system will allow the transaction process from product selection to purchase order to payment to fully electronic. Full integration can be managed with the buyer’s system interface schedule, including EDI, XML or Flat File formats. It can also be managed through a user interface if the procurement platform is web–based with supplier account accessibility.
Another way for buyer systems to integrate is through webbased portals, which are fast–growing supplier enablement tools. These portals can be accessed by the buyer’s system through punchout technology that allows the buyer to exchange data with the portal system while the supplier keeps its own database of information up–to–date.
The easier the procurement system supports supplier enablement, the faster and more efficient the implementation will be. Supplier enablement is one of the largest reasons for project delay or failure in the entire implementation. AMR Research, another industry analyst firm, says, “Do not underestimate the work needed to get suppliers on board. Whether you’re a buyer or an exchange trying to get your supplier online, a great deal of work, well beyond just content management and fulfillment services, is necessary.”
Purchase management is a team effort between the corporate buying offices, including their business unit managers and their suppliers. Getting these suppliers to agree to move the entire process to an electronic platform is a big hurdle that must be addressed from the very start of implementation. Without it, the project will fail; with it, electronic procurement will not only return large cost savings, but also lead to long–term success with the program and maintain the loyal supplier relationships that are so important to a company’s overall success.
