F E AT U R E D R E S O U R C ECPO Briefing: Supplier Networks – A DifferentApproach for “Breakthrough” Gains in SpendUnder ManagementIntroductionFor years, the quest to bring more spend under management has been a story of marginal gainsand minor victories.Certain initiatives have brought success, including electronic connections with suppliers, policyenforcement and training, but these have only gone so far. In fact, many CPOs and procurementleaders now feel they’ve hit a wall, finding it harder and harder to make any significant gains inspend under management.It is a classic case of diminishing marginal returns and one that has many CPOs concluding that theircurrent levels of spend under management are about as good as it gets.Of course, not all CPOs have settled for that. After running up against the limits of the current pro-curement paradigm, they realized that a different model would be needed to make further progress.The solution? Supplier networks: electronic ecosystems that enable greater collaboration betweenbuyers and suppliers across the entire spectrum of procurement, from sourcing, to purchase,to payment.The results? CPOs are using terms like “breakthrough” and “step-change” to describe the impact,and for good reason*. Supplier networks have given CPOs a degree of control, insight, and suppliercollaboration that is helping them take spend under management to heights they’d never thoughtpossible.For CPOs and procurement professionals who want to expand their understanding of supplier net-works, this short briefing will give you an overview of how they work; show you the results that otherCPOs are achieving; and help you understand what is required to move to a network approach ifyou decide if it is right for your organization.Supplier Networks in a NutshellThe typical approach for bringing more spend under management involves electronic enablementone supplier at a time, setting up EDI connections, bringing catalogs online and training staff.This approach works, but only up to a point. Once you have connected with your biggest suppliers,the cost of on-boarding and managing additional suppliers outweighs any benefit to procurementperformance.
CPO Awareness Piece on Network Procurement 2By contrast, a supplier network is built on a single connection to your ERP or other back-end system,which then exposes you to hundreds-of-thousands of suppliers, bound together through a commonnetwork interface. Everyone involved, from the procurement department to accounts payable tobuyers and suppliers, connects through this shared online community.Here’s how some of the typical procurement activities look under a network approach:Sourcing: Rather than having to start from scratch to find different suppliers, procurement staff canuse the network as their one-stop sourcing “marketplace”. They can search through a large pool ofpotential suppliers in different categories; evaluate them based on a common rating scheme; andsolicit bids and responses, all online.Electronic Enablement: Instead of creating a new point-to-point electronic connection for each oftheir suppliers, organizations can simply ask interested suppliers to join the network. By sharing theresponsibility, buyers avoid the resource drain that comes with managing a costly integration foreach supplier.End-User Purchasing: Rather than logging on to different systems for different suppliers, or notfinding their purchase category online at all, buyers simply access online catalogs connected to thesupplier network. In this environment they can search via a common and easy-to-use interface forpre-approved vendors and place orders for all categories of products and services from centralized,enterprise-wide catalogs.Invoicing and Payment: With a supplier network, the efficiencies and added transparency in theinvoicing process are significant. Transaction automation of all document types (POs, PORs, ASNs,invoices, etc.), allows for efficient collaboration and process flow between the buyer, the supplier,and the A/P department. Some supplier networks allow A/P to embed business and workflow ruleswithin the document flow to minimize blocked invoices and other delays that require resource-inten-sive follow up. Transaction visibility and transparency also improve with a supplier network, with eachparty able to query the status of invoices and payments on demand.To sum up, supplier networks give CPOs the opportunity to connect buyers and suppliers in a con-trolled, common marketplace that older procurement models simply can’t.The ResultsWhat could you expect from a move to a collaborative network model?We will take a look at a few organizations who have already adopted the network approach and thesuccesses they have had in a few key areas of procurement.CONSOL Energy: $6.1B revenue, 9,346 employees, Fortune 500Adoption: 45,000 e-invoices, 33,000 POs through the network quarterly, 700+ suppliers, 225+ cata-logs, and 128,412 items available on the network • Blocked invoice reduction from 60% down to 6% • Manually entered service entry reduction ($2.7 million savings) • Increased discounts taken ($7.5 million savings) • Total of $44 million in cost savings in less than four years
CPO Awareness Piece on Network Procurement 3Honeywell: $33.4B revenue, 122,000 employees, Fortune 100 • Adoption: 17,238+ suppliers, 645+ catalogs, rapid on-boarding time • Deployed globally in 17 countries (multiple languages)BASF: 73.5B revenue, 111,000 employees, 370 production sites worldwide • Adoption: 175,000 POs annually, 845 catalogs, 7,980,000 items, both external & internal catalogs, 85,000,000 transaction value per year • Item Master Synchronization: Exchange data between SRM and ERP systems via Hubwoo’s Busi- ness NetworkThese examples illustrate the dramatic improvements that become possible with a supplier network:mass on-boarding of suppliers, rapid adoption in multiple global locations, large gains in spend un-der management, and what counts above all: significant cost savings.This contrast is stark for any CPO laboring to achieve marginal gains under a traditional procurementmodel.Getting NetworkedIs a supplier network right for your organization? And what does it take to get there?Fit: Generally speaking, any organization with an ERP system and a CPO or senior procurement man-ager is a good candidate for a supplier network. Simply put, the more suppliers and more categoriesof indirect spend an organization has, the more it stands to gain by switching to a network approach.Budget and Timing: As a cloud-based solution, supplier networks are usually offered via the soft-ware-as-a-service model, which eliminates the need for any up-front capital technology investmentand means that most companies can deploy within a few months. In terms of impact, the savings areoften immediate. For example, in the case of CONSOL Energy, the reduction in blocked invoicesbegan right away, and after six months, blocked invoices were a tenth of their original level. The keyto realizing benefits like these is to select a partner who specializes in bringing suppliers on boardrapidly. The more suppliers on board and the faster they are enabled, the more value realized.Integration with Existing Systems: A supplier network will need to integrate with your ERP and P2Psystems, and this integration is a big factor in the overall deployment scope and on-going mainte-nance. Be sure to ask your provider about their past experience and how well their solution inte-grates specifically with your ERP and P2P systems.Supplier On-Boarding and Support: Another factor in your decision is the process of bringing sup-pliers onto the network. The costs of on-boarding and then maintaining suppliers in a global net-work, supporting many languages, can be significant. When looking at a supplier network provider,be sure to ask how many suppliers are part of the network, and how much support they provide foronboarding and ongoing management of suppliers, and whether a guarantee is offered to ensure allof your suppliers can be activated.