Supplier enablement continues to be one of the top challenges for procurement professionals.
This fact persists despite recent findings from leading industry analyst firm Aberdeen Group that enterprises with properly deployed supplier enablement strategies were able to drive down their costs by 71 per cent, while also realising an average cost more than 45 per cent lower than their peers.
Improved supplier enablement reduces procurement operating costs by utilising automated processes instead of manual systems.
It also enhances the quality of supplier relationships by improving communication channels and increasing the efficiency and accuracy of orders.
There is a catch, though.
Supplier enablement is not a one-time task but, in reality, it is an ongoing effort that requires the utilisation of software and the deployment of services.
My colleagues and I have helped 40 global buyers connect their suppliers into digital communities around the world.
But before a successful supplier enablement program can begin, it is important to engage the proper buyer-automation strategy.
Begin by recognising three general types of suppliers:
Key suppliers are strategic high-dollar, high-volume members of the community and need to be integrated directly into the online marketplace.
Mid-tier suppliers are high-volume, high-dollar, high-maintenance vendors whose products and services are used by many other buyers in the community.
Some of these mid-tier suppliers are integrated directly into the online marketplace, while others are hosted.
Infrequent/low-volume suppliers represent the largest number of vendors.
It’s best to deal with this group on a company-specific basis as you host some of their enablement and offer encrypted email channels for other low-volume suppliers.
There are also three major types of buyer-automation models: The first is a large buying organisation served by many suppliers.
Second is a large supplier that delivers to many buyers.
And third, a number of buyers and suppliers are connected through a single point of business.
The challenges in the first and second models are hard to overcome.
Both buyers and suppliers must incur high catalog management costs and suppliers may have to deal with incomplete process savings.
Supplier systems could become incapable of supporting the buying automation strategy.
Buyers may also encounter unanticipated costs of supplier acquisition, training and support and could have difficulty maintaining the supplier community due to cost.
These factors could alienate suppliers, especially those already resistant to change.
Similarly, large, individual suppliers support buying-process automation because it offers buyers increased access to sales support tools and supplier catalogues.
But without a large supplier community, there is no consistent buying process across suppliers or a consistent level of engagement from suppliers.
Since there are numerous buyers, the supplier is unable to integrate backend processes with individual buyers.
And with no other supplier options within the model, buyers may find it hard to exit with a given supplier.
Buyers and suppliers connected through a single point of business, such as an e-procurement software provider, experience the fewest supplier enablement challenges and often have the most successful supplier enablement programs. Why?
Because doing business through a single, unified, buying automation system greatly improves communication between suppliers and buyers within a network.
A single point of business allows for shared content to be mapped from multiple formats into one, consistent format.
Buyers and suppliers are also able to ramp-up extremely quickly.
In addition, an electronic marketplace supports complex B2B processes and offers a single plug in for new services.
An online marketplace is so flexible that it also supports trading communities and companies of all sizes.
Once a buyer-automation model is chosen, the next step is the implementation of an e-procurement software solution.
The success of the e-procurement system now relies on the number of properly on-boarded suppliers.
It is extremely important for staff overseeing the supplier enablement process to realize that the process will play out over many months.
Community management is hard because supplier expectations are high.
Suppliers need extensive education in all aspects of the e-procurement software, including each buyer’s business processes.
Buyers must enforce consistency so that all transactions operate the same way within the digital marketplace.
In addition, training is not a one-time event but must be available whenever there is staff turnover, and support must be on-going to re-supply passwords and ensure process flow.
One of the more challenging aspects of supplier enablement is dealing with supplier’s resistance to change.
Quadrem International, for example, deals with many buying organisations with operations in undeveloped areas looking to onboard small suppliers from rural regions.
Many of these suppliers don’t have access to the Internet, so buyers utilising the online marketplace have devised innovative ways to bring these vendors online.
To help buyers onboard suppliers in rural areas of South Africa, for example, Quadrem and a major buying organisation partnered with the Small Enterprise Development Agency, which is similar to the US Small Business Administration.
Together, they set up regional community mobile information centers so local suppliers would have access to the Internet.
In South Africa’s remote regions where these types of offices could not be established in corporate-style offices, they built them from repurposed shipping containers.
While the suppliers were offered free software, training, and technical assistance, the Small Enterprise Development Agency worked with local governments that were cautious about allowing suppliers to join the online marketplace.
Today there are more than two dozen business development centers in rural South Africa.
Software alone is not the silver bullet.
Services are also required. The major benefits of procurement automation are strongly correlated with the depth of penetration into the supplier base.
And the payoff of a properly deployed buyer-automation and supplier enablement system can be big.
For example, a global buying organization was able to gain tremendous efficiencies in source-to-settle processes with significant volume flows with their supplier community.
By on-boarding approximately 20,000 suppliers in the first year, the global buyer ran more than USD $5 billion through the online marketplace, transacting more than 1.5 million documents and saving more than USD $20 million in overall efficiencies.
Brandon Spear is Vice President of Operations at Quadrem International. He can be reached at bspear@quadrem.com.
This article first appeared in Supply Chain Management Review.