What is the Net/Net of the Network?

If you thought the noughts was the decade of the network, think again. At this point, every sourcing vendor and its mascot either has a supply network or is in the process of creating one. We’re long past the point where the only network you could get aribaed on is the ASN. We have the Ketera Network. We have the Coupa Supplier Network. We have the SciQuest Supplier Network. We have the OB10 Global e-Invoicing Network. And two more Bay Area companies are in the process of releasing (or, depending on the timing of this post, have just released) their own supplier networks. It’s the age of the supplier network. But what’s the net? Is it worth it?

Should we, and by we I mean the little guy who’s going to ultimately end up paying the price (as networks, like most other systems of taxes, are the ultimate means of quickly and efficiently pushing the cost down upon us little guys), embrace the new networks with open arms? Should we do whatever we can to resist their adoption? Or should we take a neutral wait-and-see stance.

To answer this question, let’s examine each of the “selling points” of today’s supplier networks from both the buyer and supplier perspectives. (Although we ultimately care how the networks impact us, we also have to understand how they affect the buyers in order to make an informed decision. We have to consider the net/net, because even if the networks are detrimental to us, if the benefits to the buyer far outweigh the detriments to us, we can’t outright reject them if the buyer could pass some of those benefits to us. I know it’s a big if, but we have to be fair!)

  • Find a supplier. / Find a customer. Like any buyer worth her salt doesn’t already know who her suppliers, and their competitors, are? (Heck, all you have to do to find out your supplier’s top three competitors are is to ask them why they’re better than one and the salesman will start to ramble about how they’re better than competitors A, B, C, etc. until you cut him off!) And as a supplier, you definitely know who your top customers are, and it’s pretty easy to find out who their big competitors are with Google. No real value here.
  • Electronically receive purchase orders and send invoices. How long have we had secure FTP? And what modern e-Procurement platform doesn’t do this? And how many freeware programs / (HTTPS/SSL) websites exist that let you do this? (More than I can count!) No new vaue here either.
  • Automate and Streamline Processes. And how is this different from every other supply chain tool? Marketing gibberish. For value, we have to keep looking.
  • Grow your business. Sorry, but I just don’t believe this. Exposure != Award for a supplier and using a back-end tool does not guarantee a front-end sale for a buyer. Besides, what B2B / B2C technology provider doesn’t make this claim?
  • Get paid (or make payment) faster. Maybe, maybe not. That depends on whether or not the buyer has the appropriate systems in AP and on their internal policies. If the buyer believes in waiting until the last possible day to pay an invoice (or has an internal policy that they won’t pay an invoice any sooner than the “net” date), the supplier won’t get paid any faster. Besides, how much faster is this than the e-cheque, ACH, e-mail, or wire transfers we all have access to through our online banking? It all goes over the wire, and all packets transmit at the same speed. So, technologically speaking, there’s no gain here either.
  • Participate in / run events. Every sourcing tool allows you to do this through your browser. In fact, there are a number of free tools (including WhyAbe) that buyers and suppliers alike can use to solicit, and conduct, business on-line. Another claim filled with empty calories.
  • Automated “lead” alerts of new RFX opportunities. Okay, so you can’t get this if you’re not on a network, but I’d argue that at least 99% of these alerts aren’t real “leads” anyway. If a supplier hasn’t contacted you directly, how likely is it that they are going to award you the business? More importantly, how likely is it that you can even meet the demand? Just because a dumb keyword matching algorithm (and let’s face it, since software is not intelligent, most searching algorithms are pretty dumb) detected that the buyer wanted processors and you manufacture processors doesn’t mean you have the right equipment to make the custom processors the buyer wants. Sorry, but the web isn’t semantic yet, and even if it was, you’d still get more false positives than real “leads”! So we have negligable value here.
  • Market Intelligence. Okay, so you can see who’s out there, who’s bidding, what they’re bidding on, and, to some extent, what they are being awarded, but you can get most of this intel from most reverse auction platforms if you regularly participate in on-line events. Of course, as a network member on an appropriate network, you can have access to all data from all events, which can be quite useful as you can make an informed decision as to whether or not its worth your time to participate in an event before you do so. This, in turn, allows you to focus on events where you have a reasonable chance of winning the bid. So, there is some new value in terms of market intelligence. As to how much that value is worth, that’s highly dependent upon how many users the network has, how much business is flowing through the network, and how much of that business is relevant to you. If the network is small, if it’s mostly used for “listings”, or if most business ultimately happens offline, the value could be quite minimal.
  • Benchmarking. This is about the only argument I’ve seen that actually has real, undeniable, merit. While many on-demand / SaaS / Cloud providers collect data and aggregate benchmarks, most are restricted to their customers and, furthermore, most don’t have enough customers to reach the transaction and spend level required to truly allow the derivation of meaningful metrics that can be defined relative to a specific category in a specific vertical. After all, most benchmarks defined at the global level are not that meaningful when each industry and category has its own individual nuances. But when all of the data across a large network is available for aggregation and analysis, the market intelligence becomes meaningful and usable by each and every member.

So what’s the net/net? There is undeniably some value in a supplier network, especially if it has a large number of members and an annual transaction volume in the Billion plus range, but the value provided is, at least for the time being, no where near as great as most of the providers claim it is. As a result, if you’re paying a lot for the pleasure of being a member, at least for now, you’re more likely to get aribaed then you are to see a profit. That may change in the near future, but make sure you go in with both eyes open and do the cost, and value, calculations before you make any long-term, big-dollar, commitment. And if the fee structure of the network model is designed to push all of the inflated costs and fees down upon you, the little guy, you should put up all the fight you can muster, because you’ll only end up getting aribaed if you don’t!

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Getting Your Supply Chain Ideas off the Ground

A recent article over on the HBR blogs on “five powers that get ideas off the ground” basically outlined the five things you need to do to get your supply chain ideas off the ground. To show you just how straightforward they are, I’m going to translate them for you in this post.

  1. Show UpWoody Allen once said that ninety percent of life is just showing up. It’s as true in business as it is in life. It might take a long time, but, generally speaking, the squeaky wheel gets the grease.
  2. Speak UpFor your ideas to take flight, they have to be heard. Put them forward. And don’t be afraid to stand up when others make claims you know are wrong. As Seen That pointed out in response to my post that Sunk Costs Are Not Underwater Treasure, you have to have the guts to stand up and say, “Yes, but what you bought us is completely useless, because (a) nobody uses it, (b) nobody knows how to use it, and (c) the one person in your department who apparently does know how to use it is up to her eyeballs with work. So you haven’t solved our problem”.
  3. Team UpFind an organization that will benefit and profit from your idea and create a joint initiative. There’s strength in numbers, and if you get enough support, it gets to the point where only the CEO could veto your effort, which she’s not likely to do if enough of her team stands behind you.
  4. Look UpDefine and focus on guiding principles that are ethical and sustainable. Not only is it the right thing to do, but it will score lots of points inside and outside the company in a world that’s becoming ever more focussed on corporate social responsibility.
  5. Don’t Give UpPersist, persist, persist. Everything is a failure until it succeeds. Never Give In!

Cultural Intelligence V: Germany

This series is edited by Dick Locke, SI’s resident expert on International Trade, author of Global Supply Management — A Guide to International Procurement (which was the definitive guide for almost a decade), and President of the Global Procurement Group and Global Supply Training which regularly gives seminars on International Trade and working with International Cultures.

As highlighted in last year’s post on Overcoming Cultural Differences in International Trade with Germany, Germany, which is one of the most influential nations in the EU, has a very distinct culture that is simultaneously easy and hard to sum up. About the only way to do it is to quote one of their favorite sayings — Alles lief wie am Schnürchen. (Everything went like clockwork.)

With respect to Locke’s seven key cultural differences (first outlined as six in his classic text on Global Supply Management), while the power distance is very low in German society due to the strong push for social equality, hierarchy is mandatory in a German company and this often results in exaggerated deference to one’s superior or CEO. Time is monochronic as German’s believe in punctuality to a tee, buyers and sellers are of more-or-less equal rank (though the buyer will be treated with great respect if the rules of German business are followed), and uncertainty is loathed. While harmony is a must with respect to business decisions, as a consensus must first be reached, they will likely be the most frank, direct, and blunt people you encounter in your international dealings. Face is important within their culture (so while they will openly disagree with you, they will only air their internal disagreements in private meetings), which is highly individualistic and private.

Verbal communication in Germany is extremely direct. The tone of the conversation will be reserved in a business setting, though they may be loud and boisterous in public. The volume will be low to moderate, so you should avoid raising your voice — it’s about the facts, not the emotions.

Non-verbal communication is relatively low compared to some of the other cultures we’ll cover, but body position is very important. It’s rude to have your hands in your pockets while talking or to shake with one hand in your pocket. Also, keep your gestures to a minimum, don’t use the OK sign, and don’t point to your head. Be reserved in your facial expressions, as the Germans are suspicious of emotions, but do maintain eye contact when speaking or being introduced (and use a firm handshake). Finally, keep roughly the same distance as you would with your North American counterparts. Depending on where you are from in North America, you’ll find that the German’s are either a little closer or a little further, but there will not be much of a difference either way (except in a supermarket or bakery, where they might literally be breathing down your neck). With respect to touching, European greetings are reserved for friends.

As per our last post, to them, business is serious. It’s not a joke, and jokes in a business setting will not go over well. Meetings are to start on time, follow the agenda, and finish on time between buyers and sellers with representation of equal rank. (Pay attention to titles. They are very important.) Negotiations, which are to be honest and straight-forward, are hard and concessions should be expected on either side. Meals are common, but they are not the affairs you’ll find in Asia. Germans want to get home to their families, so don’t plan on sticking around too long after dinner. Also, be sure that you don’t drink before the host.

Finally, the Germans believe in giving a detailed factual rendition of their own capabilities. Don’t mistake this for arrogance.

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The Missing Key to Supplier Performance in most SRM Initiatives

Trust.

That’s right, trust. Specifically, trust in the supplier. Now it’s not always possible, but if the supplier is providing a strategic product or service, shouldn’t you be able to trust the supplier? If you have to monitor each and everything the supplier does, is that really a desirable situation?

And if you have a supplier that is trustworthy, you might find that less monitoring improves results, as the supplier wants to demonstrate that your faith in them is well deserved. (Furthermore, the supplier will have more time to focus on their work if you aren’t nagging them for an update every five minutes). As proof, consider this recent tidbit buried about 2/3rds of the way into this recent article in the CPO Agenda on “When do we get to SRM?”

“One contract, for example, was managed by more than one full-time officer but this was adding no value. We decided it wasn’t a strategic supplier and the contract would have performed automatically anyway. So we took away the dedicated officer with no detriment to the service. In fact, it resulted in the supplier feeling more trusted.”

Now I’m not saying you shouldn’t monitor contracts and results, but that it should be done in moderation and that the best scenario is one where monitoring is automated and you only need to get involved when early warning indicators indicate that there may be a problem. You want to be spending your time building a better product or service for the end customer, not wasting it double checking every little thing your supplier does … because, in that case, you might as well be doing the work yourself!

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Have You Been Aribaed: The Harbinger of Getting Paid

Today’s guest post is from Richard Adin, founder of Freelance Editorial Services and blogmaster of An American Editor. It originally appeared on An American Editor on September 23, 2010 and is reprinted with kind permission.

Have you been aribaed (that’s ariba + ed to somewhat simulate the verbing of a company name)? I have and I must admit, I don’t like it.

It’s the modern megacorporation’s way of further shafting (squeezing mercilessly) the little person who really can’t fight back. It isn’t the battle between near-equals or almost-near-equals or even fantasy-almost-near-equals, but the battle of multiple giants against an ant.

Okay, I hear you asking, “so what’s the problem?” The problem is this: freelance editors are generally 1-person small businesses. They do not make million-dollar grosses, do not file SEC reports quarterly, and do not worry about being delisted on the stock exchanges. Instead, they worry about keeping expenses down, getting enough business to earn a living that is at least equivalent to what they could earn working at the local convenience store, and getting those who hire them to pay them the agreed-to amount on time. In other words, we are part of that cadre that both Republicans and Democrats seemingly want to protect when they speak of small business but consistently fail to protect because we don’t fork over enough cash to them.

What is Ariba? Ariba is a megacorporation1 that serves as an intermediary between suppliers and clients for invoicing and payment. I assume that the reason for a company to sign on with Ariba is so that it can eventually eliminate its own accounts payable department, saving the costs of writing checks, verifying invoices, and, of course, all the costs associated with having human beings working in these departments; I don’t know this for certain.

So far, so good — right? Well, setting aside the idea that if American companies continue to forcibly retire low-level workers so they can increase the perks to very-high-level executives there soon will be only a handful of people able to afford to buy the company’s products because the vast majority of people will have no disposable income (and let’s face it, if you manufacture a book, how many copies of a title is the company CEO likely to buy), there is nothing particularly wrong with delegating to a third party bill paying.

Except when you — the supplier of labor or goods — are aribaed, because when you are aribaed, you have to pay Ariba a percentage of your invoice in order to get paid. Imagine this. MegaMonolith Corporation (MM) hires you to edit a book and because of competition and outsourcing to packagers, in order to compete you have had to set your price at the same level as it was in 1995.

So you do the job with great skill and care, working long days and weekends to get the job done in time to meet MM’s compressed schedule — and getting no additional monies for working more than 8 hours in a day or on weekends — and submit your invoice for payment. Previously, your invoice went directly to MM, the client.

But out of the blue MM gets the bright idea to use Ariba. Now you get your chance to be aribaed. In order to edit books for MM, you have to get a purchase order (just like before, so no big deal) but now you have to submit your invoice through Ariba, who won’t process your invoice unless there is a matching purchase order. On the surface it looks great until you get your check and discover that you’ve aribaed — Ariba charges you a percentage of your invoice for sending you the money you are owed. And, if you don’t join Ariba, process your invoices through Ariba, and pay Ariba’s fee, you can no longer sell your services to MM. Welcome to the group of people who have been aribaed!

On wonders if MM needs to replace a thousand computers is it likely that Dell or IBM will voluntarily pay this fee? My guess is not, but they have the power that us freelancers don’t and offer goods that are relatively unique, which we don’t. In the end, it is the small fry like us who will pay MM’s operational costs or be barred from doing business with MM.

Ariba’s pitch is that it is a place of networking. Other potential customers will find you in its database and send you business. And my great-great-great-great-grandmother will be elected president of the United States right after her resurrection. Do they really think we are so naive as to believe that the people who make the decision to hire a freelance editor are searching Ariba’s database?

Unfortunately, just as many publishers have forsaken quality for quarterly returns, so they will squeeze the little person because they can’t squeeze the IBMs and Microsofts of the world. They will squeeze where they can, which means the workers in the trenches. And aribaing freelancers is just one more way to do so. It is a natural next step to the outsourcing of editorial services to packagers that began in earnest in the late 1990s as a way to squeeze editorial pricing.

Are you ready to be aribaed? If not, get prepared, because it is coming.

Thanks, Richard!

1 As per a recent post by Debbie Wilson on the Gartner blogs, it is a megacorporation with a market cap of 1.73 Billion.

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