Supplier Enablement: The Secret to Sourcing Success
What is Supplier Enablement? It all depends who you ask. To some it is supplier networks, to others it is catalog management and / or ((c)XML-based) punchouts, and to others still it is a type of e-document management or supplier portal that enables e-procurement and / or e-sourcing. The common thread between most of the definitions that one encounters is a greater utilization of technology solutions to streamline procurement and / or sourcing processes by seamlessly connecting the buyer to its suppliers through a common application.
However, none of these definitions really get to what supplier enablement solution should be. Supplier enablement should be about providing a buyer's supplier with the solutions that the supplier needs to more efficiently and productively do business with the buyer in such a way that the buyer is also able to conduct business with the supplier more efficiently and productively. It is true that such a solution will need to be based on one or more technology solutions, but the focus needs to be on the business processes required and the capabilities of the supplier, not on the capabilities of the technology supplier. The best technology in the world is useless if the supplier doesn't have the technical capabilities in-house to make use of it.
Supplier Enablement is relevant as it can significantly increase performance metrics such as spend under management and enterprises that leverage supplier enablement solutions enable their suppliers faster, better, and more efficiently than those that do not. According to recent Aberdeen studies (referenced in the bibliography), best-in-class enterprises, which have 78% of spend under management compared to an average of 44% for all other peer enterprises, enable 50% of their suppliers, versus the 23% enabled by their peers, are 25% more likely to document and share their best practices, and are almost twice as likely to have full visibility into enablement activities while realizing transaction processing costs 47% lower than their peers. Well executed supplier enablement reduces administrative errors, increases inventory turns, eliminates parallel processes, reduces cycle times, maximizes value, and improves compliance.
This wiki-paper is defined to overview the different components of a supplier enablement solution, address some of the common challenges, and provide some best practices to get the reader started on her journey to the land of supplier enablement.
This section overviews the core capabilities that may be required in a supplier enablement solution, depending on the e-Sourcing and e-Procurement solutions the buyer is using and the degree to which they are being used.
For a buyer who has adopted an e-Procurement solution and is looking to make regular use of it, especially for the purchase of commodities and commoditized-services, catalog management is quite important. After all, if the goods and services the intended users of the e-Procurement system need to order on a regular basis are not in the system, this will just result in the system being by-passed and proliferation of the maverick spending that the organization hoped to avoid through the acquisition of the e-Procurement system. Furthermore, the catalog needs to be kept up to date not only with respect to the goods and services available, but with respect to current (contracted) prices, classifications, and terms and conditions.
Thus, catalog management is often a very important part of e-Procurement and the solution needs to not only make it easy for both parties to manage the information, but if the supplier, or a third party on behalf of the supplier, needs to manage a catalog for multiple buyers, the solution needs to enable an update-once, publish-many solution on behalf of the supplier.
This is why there are a number of e-Catalog solution providers out there who claim that third party catalog management through a centralized network, portal, or punch-out mechanism is the best way to enable suppliers, since they are able to provide all of the buyers access to a current catalog at all times with just a single update from the supplier who needs minimal technical knowledge, but the solutions don't address e-document and information management, integration between supplier catalogs that use different third party providers or technologies, or integration with the buyer's platforms.
A good supplier catalog management solution will provide multiple access mechanisms for the buyer and supplier that will allow each party to choose between a simple web-based portal(-like) interface for access and content management, regularly-scheduled batch integration with their existing systems using a common, well-defined file-format (such as a variant of XML), and real-time integration using well-defined APIs, depending on their technical expertise and the expected return on investment.
A supplier network, which is becoming a staple offering of many of the larger e-Procurement providers, is a single point of integration that provides a many-to-many connection between buyers and suppliers, allowing them to transact in real time. The major selling points of these networks is pre-enabled suppliers and the ability to find new suppliers almost instantaneously to a buyer and the ability to support multiple buyers through the same technology platform and win new opportunities for business to a supplier.
A well designed supplier network allows a buyer to locate multiple suppliers, send out a (multi-stage) RFx, receive the suppliers' responses, select a supplier for an award, send a purchase order, receive a shipment confirmation, send out a goods receipt, receive an invoice, send a payment, and query (historical) order status at any time. It sounds like the panacea of supplier enablement, but unless you are using e-Sourcing and e-Procurement solutions provided by the same provider, it often does not address the integration issue, it may not contain more than a handful of the partners you are trading with and could be too costly or technically complex for them to join, and may not contain all of the trading partner information an organization needs to track.
A good supplier network, like a good catalog management solution, will support multiple access mechanisms for the buyer and supplier that will allow each party to choose between a simple web-based portal(-like) interface for access and content management, regularly-scheduled batch integration with their existing systems using a common, well-defined file-format (such as a variant of XML), and real-time integration using well-defined APIs, depending on their technical expertise and the expected return on investment. This way, a sophisticated trading organization can use the APIs to integrate the network into their own e-Procurement, e-Sourcing, and ERP solutions and an unsophisticated one can use the user-friendly web broswer-based interface to conduct business.
Probably the most critical, and most often overlooked, component of enablement, regardless if the trading entity is acting in a buyer or a supplier capacity, is that of information and document management. These days, each trading party needs to maintain a host of information on each party it trades with, including incorporation information and status, owners, home country, operating countries, financials, products, services, contacts, CSR status, regulatory compliance, and current contracts as well as a slew of documents including RFx's, purchase orders, shipping receipts, goods receipts, invoices, payment receipts, product information sheets, and trade documents. A mechanism that simply enables the transfer of these documents electronically is not a supplier enablement solution by any stretch of the imagination.
A real supplier enablement solution will allow the supplier, as well as the buyer, to manage, store, and track the status of all of the relevant trade-related documents through a searchable central repository that supports document meta-data based on an open standard and allow this repository to be integrated to the e-Sourcing, e-Procurement, or ERP systems being used through a batch-driven process based on a standard file-format or well-documented open API. The solution should automatically route and update (when new information is available) all documents automatically.
A supplier portal is a web-based interface designed to allow a supplier to easily conduct business with a buyer by providing them with a one-stop-shop access point for receiving and replying to RFX requests, participating in auctions, receiving and returning contracts, providing catalogs, receiving purchasing orders, replying with shipment receipts and invoices, and receiving goods receipts and payments. It also allows the supplier to maintain and update all of their information as required by the buyer and to check order and payment status at any time.
It's another solution that has been touted as the all encompassing enablement cure, and that may be true if the supplier is small or technically unsophisticated, but if the supplier is large and technically sophisticated, it will actually be viewed as a disenabling solution as an enabling solution is one that allows a supplier to use the processes and systems it already has in place.
For a portal to truly be a supplier enablement solution, as with the catalog and network solution, it will support multiple access mechanisms for the buyer and supplier that will allow each party to choose between a simple web-based portal(-like) interface for access and content management, regularly-scheduled batch integration with their existing systems using a common, well-defined file-format (such as a variant of XML), and real-time integration using well-defined APIs, depending on their technical expertise and the expected return on investment. This way, a sophisticated trading organization can use the APIs to integrate the network into their own e-Procurement, e-Sourcing, and ERP solutions and an unsophisticated one can use the user-friendly web broswer-based portal interface to conduct their business.
There are a number of challenges to selecting and implementing a supplier enablement solution on both sides. The buyer has to deal with issues of scale, communication, and resources while the supplier has to deal with issues of complexity, resources, and lack of visibility. This section overviews some of the challenges associated with a supplier enablement solution that need to be addressed up front for any supplier enablement project to be a success.
The following are some of the challenges an implementation team will likely encounter within their organization.
Lack of Knowledge About the Supplier Community
It is frequently the case that a buying organization knows little about its suppliers beyond the largest 20%, and all too frequent that a supplier does not even know very much about their top 20%. The starting point to address this challenge is to create a starting list of the critical suppliers that constitute the top 80% of spend, create an appropriate RFI to collect the information, analyze the situation, and create a staged action plan to enable groups of the suppliers in phases, according to criticality and capabilities.
Too Many Suppliers to Engage
It is the smallest invoices that are often the most expensive to process. This problem can often be alleviated by reducing the number of suppliers, but it is only a partial remedy and stop-gap fix. The solution is to enable a technology platform that cost-effectively and productively automates manual processes in a way that allows a large number of suppliers to be onboarded at low cost and effort to both parties.
No Time, Money, or Expertise to Manage an Enablement Program
Although a common ailment of many technology related efforts, it presents a double whammy challenge in supplier enablement since the project has to succeed in both the buying organization and the supplier organization to be a success. The key to success is to make sure sufficient funds are allocated up front, the project is properly scoped and the resources committed, and the right expertise brought-in and contracted up front.
Lack of Internal Commitment & Communication
Another common ailment of many technology related efforts, it also presents a significant challenge if the company is not committed to the program internally. The most successful programs are those that are introduced by the company's most senior procurement executives and enforced across all internal departments. Furthermore, all employees on the project should understand how the effort will help achieve business goals, how other business functions interacting with the suppliers will benefit, and how the program is being managed.
Lack of External Commitment & Communication
Even if a company goes to great effort to organize itself internally, commits appropriate resources to the project, and effectively communicates the effort to all employees impacted by the project, the initiative can, and will, still fail if external execution is poor. A company needs to be sure to effectively communicate its electronic trading and enablement strategy to its suppliers with a compelling business case using written, electronic, telephone, and in-person messages and communications. The supplier needs to understand the process, and the value it enables.
Fear of Imposing Too Great a Cost on Suppliers
A technology change always comes at a cost in terms of time, effort, and often dollars. Some companies will be concerned about the cost of the change for their suppliers, especially for those that are strategic or low volume. The key is to select a platform that can be incorporated by a supplier with little change and no cost, such as web-based portal interface, as a starting point, but one that can be more tightly integrated into the supplier's solution suite as time goes on.
The following are some of the challenges an implementation team will likely encounter within their suppliers' organizations.
Many suppliers are not very technical. Given that computer-to-computer information exchange is difficult even for large companies, it is quite easy for a supplier to be overwhelmed by a new technology solution. The key is to provide a supplier with a solution that accommodates their level of technological sophistication.
Lack of Money & Technical Resources
While a major supplier is likely to have the capacity and business volume incentive to make a significant investment in the necessary infrastructure to deploy and maximally utilize a supplier enablement solution, a smaller supplier is unlikely to have the capacity, resources, or know how to take advantage of a sophisticated solutions.
No Visibility of Return on Investment
Many suppliers believe that the benefits of a supplier enablement solution are restricted to the buyer. Although research has demonstrated that electronic transactions lower transaction costs, reduce error, and shorten cycle times, the greatest benefits are derived only by those companies that integrate the process into their standard business processes and e-Procurement and ERP systems. The key is to provide a supplier with a solution that they can easily integrate into their systems and processes.
This section overviews some best practices that should be employed to ensure that your supplier enablement project is a success.
Communicate the Value
As with any new e-Sourcing or e-Procurement initiative, the first key to success is to communicate the value to all internal and all external shareholders. Well executed supplier enablement reduces administrative errors, increases inventory turns, eliminates parallel processes, reduces cycle times, maximizes value, and improves compliance. Make sure that all parties understand this.
Focus on the Architecture
As described in the section on core capabilities, the key to an effective supplier enablement solution is the flexibility for each supplier to incorporate the solution at the level of their sophistication, be it through a simple web-enabled user-friendly supplier portal, batch file-based integration, or real-time API integration. The key is thus to select a solution that is architecturally structured to act as a many-to-many gateway / hub that supports multiple technologies, standards, protocols, and APIs (application programming interfaces) and is designed to handle generic transactions between multiple parties.
Adopt Technologies and Platforms that Minimize the IT-impact to (Smaller) Suppliers
Make sure that the platform is not only architecturally sound but is designed in such a way as to minimize the impact on a supplier's IT department. This will ensure that the supplier is more open to embracing the changes the buyer is requesting and will help the project to proceed more smoothly. Those solutions that put a technically complex and costly burden on a supplier's IT department are not likely to be adopted.
It's important not to overlook the value of technology, as many high-tech firms have found out. According to Aberdeen, high-tech firms have processing costs that are 60% lower than the average processing costs of all other sectors, and this is due to the greater utilization of appropriate technology solutions for supplier enablement.
Adopt Incremental BPO methodology and Related Services
Sometimes the best way to get a supplier enablement program up and running quickly is to use the services of a third party with expertise and experience. The best way to do this is to adopt an incremental business process outsourcing methodology that will allow third party services to be engaged in an incremental fashion, as both parties become ready for them. Given that most global 3000 companies need a large number of established suppliers connected, rapid supplier enablement capabilities, deep category and process capabilities, and scalability with usage volumes to succeed, the right methodology and third party assistance is often critical.
Select (a) Providers with a Track Record
When selecting a supplier enablement solution or a service provider to assist with the integration of a supplier enablement solution, be sure to select one with a track record and a successful client base that matches your particular situation. A lot of providers may wave the "enablement flag", but not all may be equipped to deliver the solution that your organization needs to successfully deploy your e-Procurement and e-Sourcing systems as well as those of your suppliers - finding the provider with the experience and solutions your organization needs is key. The right provider will have experience, global reach, financial stability, and the right breadth of solution offerings in services and software.
Don't Overlook Visibility
Be sure to understand how much the organization is spending, on what, and with whom. Focus on those suppliers with the most spend and on those suppliers which represent the greatest opportunity for process-enabled savings. Also, develop metrics for assessing performance and measure regularly to keep the supplier enablement effort on track.
Collaborate, Collaborate, Collaborate
Be sure to involve all internal stakeholders and the affected external stakeholders from key suppliers in the design and initial implementation of the supplier enablement program. It's important to get everyone onboard early, as the benefits of a supplier enablement initiative are only realized if the program is adopted across the board. Be sure to start off by tightly defining expectations to insure all parties are on the same page and have the same goals. Remember that the value of any enablement initiative corresponds to the number of suppliers enabled, so it's important to make every effort to insure that the project is a success.
A Selected Bibliography
Enterprises Find a Supplier Enablement Cure with Aravo
Aberdeen Group, May 2006
High-Tech Firms: The Bulls of Supplier Enablement Processing Cost Savings
Aberdeen Group, July 2007
How to Make the Relationship Work
David Butcher, August, 2007
(The) Next Generation of Supplier Enablement Solutions for E-Procurement
Vinimaya, June 2007
(A) Strategic Guide to Complete Supplier Enablement Tactics
Oracle, February 2006
Supplier Enablement: Connecting with Suppliers to Build Lasting Relationships
Aberdeen Group, May 2007
Supplier Enablement: Forging the Links that Make e-Business Viable
Dennis Howlett, Nov 2002
Supplier Networks Drive Supplier Enablement
Aberdeen Group, May 2007
Trading Partner Management
Michael G. Lamoureux, Ph.D. of Sourcing Innovation