Category Archives: Supplier Management

Simplifying B2B for Suppliers Enables Buyers

As an enterprise software user, you’re tired of hearing about “Web 2.0” because, despite all of the buzz it has generated for the last few years, and all of the “value” it has delivered to consumers through Amazon, Google Apps, and Facebook, it hasn’t done a single thing for you. And it’s good that you’re sick of “Web 2.0”. Software is supposed to serve you — you’re not supposed to serve it.

That’s why Sourcing Innovation is proud to announce the release of the second white-paper in its 5-part B2B 3.0 series. B2B 3.0 (Business-to-Business 3.0) is the next generation of technology for the enterprise that not only generates value for you as a buyer, but also generates value for your supplier as it helps you both save time and money — the way enterprise software should. Enterprise software should free you from the mundane and allow you to spend your time conducting commerce instead of fighting with primitive interfaces that force you to do everything but accomplish your goal.

B2B 3.0 is the first generation of enterprise software technology that puts business users on the same footing as consumers (who have had “3.0” technologies at their fingertips for years). It enables true commerce in the global marketplace. Returning to the fundamentals of e-Commerce, that have been lost for the last decade or so, B2B 3.0 gives us connectivity that is open and free to all, content that is managed once in a non-redundant fashion by the content owner, and an open community where buyers and sellers can come together for short periods of time through virtual networks that allow them to conduct the business they need to conduct — when, and how, they need to conduct it. No “technical” strings attached.

B2B 3.0 is also the first technology to level the playing field between buyers and suppliers and put them both on the same footing. Previous generations of B2B technology focused primarily on the buyer, the target customer, under the fallacy that ‘streamlining’ the process for the buyer would lead to the greatest cost savings. The reality is that this ‘streamlining’ resulted in increased work, and thus increased cost, for the supplier who had to ultimately increase their prices to cover their costs. The technology should have focused on ‘streamlining’ the process for the supplier, because this not only results in cost and process savings for the supplier, but it results in cost and process savings for the buyer as well. True commerce is simple for all.

In Simplifying B2B for Suppliers Enables Buyers, we walk through the B2B 1.0 to B2B 3.0 revolution and illustrate how B2B 3.0 actually saves both parties time and money, whereas suppliers, like buyers, were lucky to break even in B2B 2.0. and, like buyers, usually lost their shirts in B2B 1.0. We end with some examples of B2B 3.0 in action, giving you a glance into the B2B 3.0 future and some companies that might very well be the leaders of tomorrow.

the doctor’s Seven Grand Challenges for Supply & Spend Management

Seven deadly sins
Seven ways to win
Seven holy paths to hell
And your trip begins

Seven downward slopes
Seven bloodied hopes
Seven are your burning fires
Seven your desires….
  Adrian Smith / Bruce Dickinson

In my last post, which announced the cross-blog series that this post is officially kicking off, I reviewed the seven grand challenges for IT over the next twenty-five years, as laid out by Gartner back in the spring. Although they ranged from the ridiculous to the sublime, and contained a fair amount of overlap when closely analyzed, it’s a worthwhile exercise to undertake every now and again, because in order to develop a useful solution, you need to identify what is needed and the path you should be on.

This inspired me to propose a set of “seven grand challenges” for supply and spend management, in the hopes that it would get you, dear reader, to think about what is important, what problems should be solved, and where we should go. Considering how important supply management is in these troubled times, I hope that all of my fellow bloggers chime in with their ideas on what’s good, what’s bad, and, what’s downright ugly in supply chain today — because the first step in solving a problem is properly identifying it.

So, without further ado, to kick off this cross-blog series, here are the doctor‘s proposals for the seven grand supply and spend management challenges:

  • Optimization
    There are a number of challenges here. The first challenge is getting people to use solutions that are already out there. There are currently a number of offerings that address strategic sourcing decision optimization, distribution network optimization, and freight optimization quite well, and that, when properly applied, can save the average company up to 12% above and beyond the best solution obtained with auctions. The second challenge is integrating the different problems (sourcing optimization, freight optimization, network optimization, etc.) into a common framework that allows the tradeoff effects of each decision to be adequately modeled and understood in the big picture. The third problem is addressing the emerging non-quantitative regulatory and compliance requirements such as RoHS, WEEE, and GHG emission limits in a consistent and value-oriented manner within the optimization model.
  • Supplier Enablement
    This is something we still don’t have a good handle on. Beyond “supplier enablement is the provision of technology based solutions that enable the supplier to be more productive and better serve the buyer”, there isn’t yet a general consensus of what this technology needs to be, as most companies have not yet embraced B2B 3.0. I’ve argued before that, today, it’s a combination of catalogs, networks, e-Document exchange and management, and supplier portal technology, and I still think that is a good start, but enablement should go beyond enabling the exchange of information, it should improve the supplier’s operations overall.
  • Integration of the Physical, Information, & Financial Chains
    For most companies, these are three different chains. Some companies that have embraced RFID, GPS, and e-document management have taken the first steps to integrating the physical and information flows, but the technology is still emerging, the integration isn’t smooth without extensive integration and customization between a number of different solutions (and only Fortune 500 companies can even afford to consider this), and we have only started to look at the financial supply chain and how to best integrate it with the information supply chain. I think it will be a while before solutions that truly support a holistic view will emerge, especially considering that even the gorillas in the space don’t have end-to-end sourcing and procurement.
  • Solution Globalization
    Let’s face it … supply chains today are truly global, but the solutions are not. Most “internationalized” solutions are only available in a smattering of languages, most “internationalized” solutions are not plugged into real-time currency exchange feeds — and few developers have thought about the need to maintain/display multiple conversions (including the rate at the time of purchase, the projected rate, the current rate, etc.), and most “internationalized” solutions don’t help you understand how to do business with the country of interest.
  • GHG Tracking and Reduction
    Most enlightened countries have woken up to the fact that, even though we don’t know precisely how damaging each ton of GHG and / or carbon we emit is, we do know that it’s damaging and that we have to reduce our emissions. The first step is to get a baseline of the emissions produced by your operations, but for many companies, this is a multi-year effort. Better product and service solutions are needed. Also, although there are multiple proposals on the table to reduce emissions, there are few total value management models out there to help us select the right ones.
  • Risk Prevention
    Not only is risk not going away, but it’s getting worse by the year. Supply chains are getting more complex by the year, and the likelihood of something going wrong is steadily increasing. Solutions that can help a company identify risks, in real time, and identify possible mitigations and actions required to implement them, are desperately needed.
  • Opportunity Analysis
    Costs are skyrocketing, but consumer discretionary spending is stagnant at best. They key to a successful supply chain is cost reduction and avoidance, and this requires continual opportunity analysis. I envision this starting with modern spend analysis, but it needs to go beyond true spend analysis to continual innovation, since the greatest cost reductions will come from true revolutions, and not just the shrewd identification of category-based overspending. I envision that this will start with the integration of PLM with Life Cycle Analysis and Next Generation Analytics and then morph into something that none of us can envision today.

Now, I realize that these are pretty much the same problems we have been facing for the last five to ten years, but I suspect that it will be quite a while before they are solved due to the overwhelming complexity of today’s supply chains.

When the series is done, I’ll compile the “master list” of challenges and, if any of my fellow bloggers can convince me there are bigger challenges out there, revise my list.

Automation Does Solve the Supplier Enablement Problem …

… but it has to be done right! Regular readers of the Supply Chain Management Review will remember an article from about four months ago that attempted to address “How Automation Solves the Supplier Enablement Problem”. Noting a study from Aberdeen that found that enterprises with properly deployed supplier enablement strategies are able to drive down their costs by 71 percent, while also realizing an average cost more than 45 percent lower than their peers, the article noted that the utilization of automated processes instead of manual systems improves supplier enablement.

The article is right in that automation improves supplier enablement, right in that it is an ongoing effort that requires the utilization of software and the deployment of services, and right in that you have to engage the proper buyer-automation strategy. But it’s wrong when it states that only key and high-volume/high-dollar mid-tier suppliers should be integrated directly into the on-line marketplace. I understand why the recommendation is being made — it’s authored by an employee of a vendor of a marketplace solution that still uses punch-out and hosted catalogs — B2B 2.0 solutions.

(Simply put, the B2B 2.0 vendor logic is as follows:
(1) High dollar, high volume, low-maintenance members of the supplier community are usually already punch-out enabled, and, thus, easy to hook up directly,
(2) About half of the high dollar, high-volume, high-maintenance members of the supplier community will be punch-out enabled, and easy to hook up directly. The rest will likely have staff dedicated to maintaining catalogs in a common format, so it won’t be too much work to get these catalogs on a regular basis in a form that allows most of the products and services to be automatically imported into the vendor’s hosted catalog. Furthermore, the transaction revenues should come close to covering our hosting costs, but
(3) Low-dollar, low-volume members of the supplier community are not only not likely to be punch-out enabled, but also not likely to have an up-to-date catalog in a modern, standard, data-format. Hosting these catalogs will require a lot of work on our part at a cost much greater than the transaction revenues we are likely to see from them.
Thus, since
(1) a buyer’s key suppliers are high-dollar, high-volume, low-maintenance suppliers who are already punch-out enabled, and since
(2) a buyer’s mid-tier suppliers are high-dollar, high-volume, high-maintenance suppliers with good catalogs in a clean XML format,
we’re safe in recommending that the buyer integrate these suppliers directly into the on-line marketplace as it will be relatively easy and cost effective for us. But since low-dollar/low-volume suppliers who are not punch-out enabled and without good catalogs drive up our costs, drive down our margins, and risk pricing us out of the deal, we have to recommend that buyers deal with this group on a company-specific basis and host some of their enablement and offer encrypted email channels for other low-volume suppliers … because, not being B2B 3.0, we just can’t do it at an affordable price-point.)

If you are still using a vendor who is still on B2B 2.0, then the approach outlined in the article is the right one for you, since there is a cost associated with every supplier you integrate and you should only integrate suppliers where you’ll achieve an ROI. However, if you’ve progressed up the value-chain to B2B 3.0, then it doesn’t matter what format the supplier has their data in — punch out, hosted catalog, flat-file, on-line database, or proprietary XML. This is because a B2B 3.0 solution uses meta-search, web services, agents and mash-up technology that can automatically convert and search the suppliers’ catalogs, in any format it happens to be in, in real time, to the format used by your procurement or marketplace solution, and the cost for each supplier, once you’ve purchased and deployed the solution (which is usually implemented as a web-service) is minimal, and, more importantly, always fixed because it is SKU and format agnostic.

Furthermore, B2B 3.0 gives the supplier the choice on how he wants to be enabled … he can come direct from his existing XML punch-out, he can send you his catalog, he can send you his web-based database connection information, or he can just send you the URL of his web-site with on-line, real-time, pricing information. He can even direct you to a third-party marketplace that is already hosting his catalog if he wants to. And regardless of where your suppliers’ data comes from, the enabling technologies of B2B 3.0 will give you a single, simple, unified, and meta-search enabled view of your suppliers and their product and service offerings. This is because B2B 3.0 technologies aggregate the catalogs, punch-outs, and marketplace listings into a single, virtual marketplace customized for you.

That’s why B2B 3.0, a revolution that is about to take the enterprise software world by storm, is so critical to your future success. As the first generation of enterprise technology to enable true B2B e-Commerce that consists of simple, fast, low-cost transactions at true market prices, it’s also the first generation of technology with no limitations on content or community, as it’s able to take advantage of the full underlying connectivity offered by the Internet. For more information on B2B 3.0, check out the inaugural Sourcing Innovation Illumination Introducing B2B 3.0 and Simplicity for All, and for more information on how the right automation truly solves the supplier enablement problem, watch for the upcoming Sourcing Innovation Illuminations that will describe how Simplifying B2B for Suppliers Enables Buyers and how Content Enablement Technologies Enable e-Procurement 3.0.

Downstream Supplier Performance Management

As per a recent Industry Week article, collaboration in the 21st century must be a tightly coupled relationship, not only between retailer and manufacturer, but also between manufacturers and all downstream suppliers and stake holders; including logistics, raw material, sub-contractors, packaging and quality / validation services, and, yes, even legal and finance. Otherwise, the chances of the right product hitting the right place at the right time are not very good, and neither are the chances of the final costs being on target. To this end, if you are to manage downstream supplier performance effectively, you need to be aware of the issues and trends. According to the author of the Industry Week article, Phil Friedman of QAD, there are four key issues and trends that consumer product manufacturers and retailers need to be aware of if they are to effectively manage downstream supplier relationships. They are:

  • Your raw material suppliers need visibility into your current demand plan.
    A root cause of missed delivery dates is a raw material supplier’s lack of visibility into a manufacturer’s current demand plan, which is often a constantly changing target in a demand-driven supply network. If a raw-material supplier believes a slowdown is coming, when in fact an upswing is just starting, delivery dates will likely be missed. Similarly, packaging suppliers need to align production, delivery, and, sometimes, design and art to support a manufacturer with tight schedules.
  • You need in-transit visibility since being in transit doesn’t guarantee you’ll get your shipment on time.
    You need to be aware of where the item is and whether there are any variances with respect to the original schedule. Otherwise, you won’t know that an item is going to be late until its late. However, if you know that your shipment sat on the dock three days longer than expected, and that it is going to be three days late, two weeks before the expected delivery date, you can adjust production schedules accordingly.
  • You need to know that supplier material meets quality standards before it is incorporated into your product.
    As recent years have demonstrated, poor quality materials can lead to massive recalls and significant hits to your brand and your bank account. Your suppliers should be able to prove to you that their materials meet specifications before they ship them to you, possibly through independent third party testing and validation.
  • You need to get all of your regulatory and business requirement ducks in a row well before you need the first shipment.
    As the article points out, orders are often missed not because the product is not ready, but because letters of credit are in error, quality assurance liability bonds have not been signed off by legal, and one delay after another causes raw material or contract manufactured products to sit and wait.

So if you make sure you are working in concert with your suppliers, distributors, partners, and internal counterparts, you can be sure that you’ll be a lot less likely to miss your delivery dates.

Avery Dennison’s Supplier Selection Insights

With the recent recall fiascos (salmonella in our produce, lead in our toys, and diethylene glycol in our toothpaste), supplier management is more important than ever. However, even before we get to performance management, relationship management, and risk management, we first have to select a supplier. A good supplier selection can go a long way to minimizing the management that we need to do – as a good supplier will strive to perform, connect and collaborate with you on a regular basis, and give you the visibility you need to mitigate risks before they occur.

That’s why Avery Dennison, as discussed in a recent Industry Week article, has adapted it’s screening process to insure that any new suppliers it engages with can guarantee consistent, quality products. Considering that it has to source many of its materials from multiple global sources, quality and reliability of supply are key factors.

As part of its new process, it now includes a strict set of environmental and social compliance guidelines — including labor laws and health safety standards — that suppliers must demonstrate they adhere to before they can advance to face-to-face discussions. In these discussions, Avery makes an effort to discern the extent of the supplier’s business, what markets they are involved in, their profitability and long term business solvency, their historical quality and service metrics, and whether or not they have the potential to meet Avery’s supply requirements.

If the discussions go well, the next step will be a plant tour. During the plant tour, Avery attempts to discern if everything the supplier put forward in the initial screening and face-to-face discussions is true and if key factors, such as quality assurance, worker treatment, and appropriate equipment and processes, are readily visible. In addition, during the face-to-face discussions and plant tour, they also look at the supplier’s supply base to make sure that there is a consistent supply of quality raw materials and that the supply base conforms to their environmental and social compliance guidelines.

According to Avery, the process results in invaluable insights that go a long way to selecting the right supplier, which is not necessarily the supplier with the lowest unit cost, or even landed cost, because the right supplier is the one with the lowest total cost of ownership — which includes the costs to manage the supplier, the costs to process returns when quality isn’t acceptable, and the costs, and time, to recover from delays or disasters when risks become realities. A good supplier is easy to manage, ships you good quality product consistently, and insures that you have significant downstream visibility into any interruptions or delays that might trickle their way up to you — and a good supplier certainly doesn’t employ child labor in smoke-stack dirt-floor factories that will ruin your image if the media finds out!