By Andrew K. Reese
Fortune 500 corporations have embraced supplier diversity initiatives in recent years as they have sought to ensure, among other things, that their supply bases reflect the growing diversity in their customer bases. However, corporations sometimes struggle to balance their drives toward e-procurement with their supplier diversity goals, as the small and midsize businesses that make up the bulk of diversity vendors frequently do not have the technical resources to integrate with advanced e-procurement systems.
Now, office supply retailer Office Depot is leveraging its own diversity initiative to help historically underutilized businesses not only win new Fortune 500 clients but also adopt a fully enabled procure-to-pay process. In the process, Office Depot is improving its own efficiencies, winning new business and reducing its days sales outstanding.
Partnering for Enablement
The Tier One Program at Delray Beach, Fla.-based Office Depot is aimed at developing a nationwide network of viable, independently owned historically underutilized businesses, or HUBs, to service top-tier corporate customers, as well as public sector customers, such as state governments and institutions of higher education, which may also have diversity spend goals. "When an organization comes to Office Depot wanting to engage with us on tier-one minority vendor spend, we identify a minority vendor with an established relationship with us to service that customer, and Office Depot becomes the distributor," explains Glenn Trommer, director of e-commerce and implementation services with Office Depot. Trommer adds that Office Depot may also incorporate HUB partners into the program at the suggestion of the customer organization, but only after a stringent qualifications appraisal process to ensure that the supplier is a true diversity vendor business.
Through the program, Office Depot provides HUBs — which include certified minority, women, disabled, veteran and small enterprises — with product, order fulfillment and a shared services package. The office supply retailer also has formed a relationship with technology company Osiris Innovations Group to offer the HUBs a procure-to-pay solution that they can use as an "on-demand" e-procurement engine and e-invoicing platform for doing business with the large enterprise clients. This is particularly important for smaller vendors that do not have large IT staffs or that might not have sophisticated e-commerce systems already in place.
Osiris, based in Oakland County, Mich., provides solutions aimed at meeting the process-specific needs of each of the three stakeholders in the purchasing cycle: the buyer, the supplier and finance. It's OS Procura, Fulfillment and Payment solutions are offered in a Web-based, "software-as-a-service" model that requires no applications running at customer sites, which made them particularly suitable for the smaller vendors participating in Office Depot's Tier One Program. In fact, Office Depot originally tapped a competing e-procurement solution to handle the purchasing side of the equation while Osiris handled the payment side, but the office supplies company later, in April 2006, handed the entire procure-to-pay process over to Osiris' platform. "Their technology was more flexible, so we felt that Osiris made more sense as an end-to-end solution for us," Trommer says.
That flexibility was important, first of all, because the solution had to work with Office Depot's own enterprise resource planning (ERP) systems. "We had to look at all the different protocols that needed to be put into place to facilitate the different transactions with Office Depot's ERP," says David Saroli, CEO of Osiris, "and we had to be able to grow with them as they made changes to their systems." In particular, Osiris was able to adapt its solution to handle the CXML communications standard that Office Depot uses for transactions with its trading partners. In addition, Osiris had to be able to adapt its solution to handle the processes and systems already in place at the various small vendors and large enterprises that might participate in the program.
As part of its arrangement with Osiris, Office Depot presents the technology platform to the targeted HUBs jointly with the solution provider. Since the vendors pay for the solution and also have the responsibility for presenting the benefits of the solution to their prospective Fortune 500 customers, it is vital that they fully buy into and understand the technology, according to Trommer. "It is really a joint selling effort between both Office Depot and Osiris to convince the minority vendors that this solution is economically feasible and the best solution for them," he says.
"There's always a bit of skepticism at first," Trommer continues, "but ultimately they see how easy the product is to implement, how scalable it is, and how it is going to benefit their organization. They have the ability to provide their customers with an efficient e-procurement engine, with approval workflow capabilities and inventory information, as well as the capability for the vendors to get paid faster, increasing their cash flow and profitability."
Training the Trainers
After the vendor partner buys into the program and agrees to participate, both Office Depot and Osiris take a "hands-on," consultative approach to help the vendor ramp up the program, particularly with regard to overcoming any technical challenges — again, most of these vendors have few IT resources to devote to a project of this scope. "We almost look at ourselves as a Big Six consultant without charging the high fees," Trommer says, only half in jest. For its part, Osiris takes a "train-the-trainers" approach, focusing on educating the vendors as to the nuances of the solution so that they can, in turn, sell it to their own customers and provide all the necessary after-sale training and service to ensure the customers' success with the e-procurement platform. "We make sure that the vendors are ‘Osiris certified,'" says Saroli, "so that they can literally walk into a buying organization and talk about and present the solution just as well as we do." That helps the vendors build the skills — and the confidence — to take their e-procurement platform to new customers. And when the vendors win new business, that in turn increases business for Office Depot.
Trommer says that in addition to bringing in new top-tier customers for Office Depot and helping its Fortune 500 clients in meeting the diversity spend objectives, the office supplies company has benefited from the automation of its transactions with a growing number of HUB suppliers. "We have definitely seen a significant reduction in days sales outstanding (DSO)," he says. That's in addition to the contribution that the program has made toward meeting Office Depot's own corporate social responsibility goals. "We have a significant initiative to make sure that we engage with multiple minority vendors as well as minority partners, and we've seen a significant increase in this initiative ever since we started working with Osiris," Trommer notes.
Office Depot has been working with Osiris since 2005 on the Tier One Program, and from the initial work to enable two HUB vendors, the project has expanded to include more than ten vendors at present. When the office supplies retailer initiated the program four years ago, a preliminary survey of the potential market identified 70 possible partners for the program, so Trommer sees his company continuing to expand the project to encompass new HUBs as well as additional top-tier buying organizations. "We want to facilitate electronic trading relationships around the world, whether through the small minority vendors partnerships or directly with Fortune 500 customers, so this program fits very well into our e-commerce strategy," Trommer concludes.