E-Sourcing Forum » Supplier Enablement: It’s More Important Than You Think

Supplier Enablement: It’s More Important Than You Think

January 17th, 2008 at 06:41am David Bush - Iasta

Aberdeen recently released an informative research brief entitled The Supplier Enablement Challenge that pointed out the importance of supplier enablement. They found that Best-In-Class companies that had achieved decent supplier enablement had 15% more spend under management (78% to 63%), requisition-to-order costs that were 30% less ($22 vs $32), requisition-to-order cycles that were 60% shorter (1.8 days to 4.5 days), and 21% less maverick (off-contract) spend (17% vs 23%).

More importantly, they pointed out that you should ignore the 80/20 rule when it comes to supplier enablement. Simply focussing your efforts on the top 20% of suppliers that constitute approximately 80% of your spend is not enough - it’s often the remaining 80% of suppliers that constitute the majority of problems when it comes to supplier interactions. You want at least 80% of your suppliers enabled, and preferably every supplier with web access.

The survey also found some very disheartening statistics. Even in best-in-class companies, the amount of spend that can be catalogued that is actually in a catalogue is only 35.3%, the percentage of requisitions off catalog is 30.1%, and the percentage of catalogs managed by suppliers is only 41.7%. Considering a solution like Vinimaya can easily catalogue anything available over the web, and all a supplier has to do to customize a catalogue for a buyer is provide a custom price feed, these statistics should be over 90% for catalog available items, under 10% for requisitions off catalog, and over 80% for catalogs managed by suppliers. Furthermore, the survey also found that it takes Best-in-Class enterprises approximately twenty-three days to on-board a new supplier. On average, it takes Vinimaya one.

The survey concluded that companies that want to be supplier enablement leaders need to leverage supplier networks, catalog hubs, and punchout catalogs. But while this is true, as the doctor pointed out over on Sourcing Innovation, what they really need to do is leverage agent technology - supplier network 2.0 technology, to speed up their enablement. Furthermore, they need to integrate their enablement strategies with their e-Procurement systems to make sure spend is on contract at the contracted rates. This is even more important than integrating your sourcing system with your e-Procurement system. In any given year, you’re only strategically sourcing a few of your big commodity categories. But you’re buying every category every day.

Entry Filed under: General, Suppliers, Supply Management Best Practices, Technology

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2 Comments Add your own

1. Eric Strovink | January 17th, 2008 at 10:36 am

Before we get all excited about Supplier Enablement, maybe we should take a peek at a few simple (but often embarrassing) things:

1) Do we have good contracts?
2) Are we getting fair prices that are spelled out clearly in (1)?
3) Are the prices we are actually paying (and the terms we are actually getting) compliant to our contracts?

Contrast the ROI of Supplier Enablement, a soft number no matter what your point of view, to the hard ROI of finding 1.3M in non-compliant charges on 13.4M of PC spend (real example), and bringing the vendor into strong compliance in future (not to mention walking down the hall waving a nice refund check or some credits to apply next year).

Typically process is not the problem, information is the problem. Everyone knows what to do if they have good information. Taking action is the easy part (for example, calling up the incumbent vendor and reaching a quick agreement on behavior modification, with the implicit (or explicit) threat of sourcing them).

Making an AP clerk’s job simpler only helps the AP clerk. It doesn’t impact the bottom line, unless your goal is to fire AP clerks, which is a drop in the bucket even if you can do it, and typically you can’t or don’t want to.

Finally, it should be pointed out that very large buckets of spend — PC’s, contingent labor, other services — aren’t in catalogs (and even if they are, the catalog does you little good in terms of the above). Buying through catalogs does nothing to assure you that (2) and (3) are holding (real example: a $700 Palm Pilot bought through an office supply vendor’s catalog — a purchase that went right through the system like you-know-what through a goose, at the same time that the Palm Pilot in question was advertised at $300 retail by the very same office supply vendor).

With regard to Aberdeen’s “best in class companies do X” survey research, I’m looking forward to the next installment of Pinky and the Brain over at Sourcing Innovation. Rumor has it that Brain is about to give Pinky a lesson in statistical analysis.
2. the doctor | January 17th, 2008 at 11:49 am

Eric:

Although it’s true you should have good processes, data, and contracts in place before you go down a supplier enablement process, it’s still very important - as long as it is “true” supplier enablement.

“True” supplier enablement is not forcing your supplier on a network, “true” supplier enablement is not just throwing up a clucnky portal, and “true” supplier enablement is not just allowing for e-document management - definitions that many vendors, who have limited offerings, would have you believe.

“True” supplier enablement is making it easier for the supplier to work with you and exchange data with you. This means giving them a solution that fits in with their processes, as well as yours, at a level of sophistication that they are ready for.

“True” supplier enablement is based upon an open-data exchange platform that supports standard XMI or XCBL protocols on which you can build supplier networks, supplier portals, and custom integration to ERPs and document management platforms so that you can exchange data electronically with the supplier through whatever systems they are currently using or looking to switch to.

If you have good contracts, and a good integrated e-procurement system in house, then you can create accurate POs on contracted rates, send this directly through the enablement solution to the suppliers system, who can then accept the order, ship it, and generate an innvoice off of this data which can be sent back into your system where, once the goods are received and receving creates a goods receipt, a 3-way match between purchase order (with contract rates), goods receipt (with a list of items received), and supplier invoice can take place. If the supplier didn’t change anything and shipped the entire order, then the invoice can be automatically approved and paid at the contracted rates. If not, it can be flagged as problematic and put into a queue for manual processing and appropriately corrected before payment is made.

Then analysts will be able to stop focussing on overpayment recovery and start focussing on the identification of categories where there are likely significant savings to be found, and then use the tools on market data to determine how to achieve these savings - i.e. whether bundling, raw material acquisition on behalf of the supplier, or more aggressive types of auctions are the answer.

And yes, the doctor is fully aware that most companies don’t even have good e-procurement systems yet and that one of the (very) few companies out that that has all of the pieces required to build the system the doctor is describing is Ariba, who has traditionally charged so much for this system, that you never really recoup the monies you spend on process and labor savings. But that doesn’t mean that one of the newer companies, or a partnership / merger between a couple of smaller companies, won’t hear the word and start offering the solution that is needed, thus enabling the dawn of an age where true supplier enablement becomes a possibility and they can start focussing on forward improvement as opposed to backward cleanup.

P.S. Brain is fully aware that Pinky needs a good lesson in statistical analysis, but I believe Brain has to explain to Pinky what “Best-In-Class” is first!