It's no big surprise to those in the supply chain industry that getting suppliers online is one of the biggest roadblocks to e-procurement today. Only 12 percent of suppliers are selling or presenting products online, according to 200 companies that AMR analysts Jim Murphy and Beth Barling surveyed in 2001. In their report Sell-Side Product Content: The Key to Supplier Enablement, Murphy and Barling found that just half of those surveyed have content management operational today. Additionally, they sell or present about one-third of their products online, and "Informal interviews indicate that no more than 20 percent of products are presented online by accurate, transactable product content, say Murphy and Barling.
No content, no order remains the major barrier and the process disconnect for e-procurement and its legitimate claim to being a magic bullet for the buy side of the organization. The technology for automating purchases of all kinds, direct and indirect, is fundamentally there, and early adopters have realized significant returns on investment from the small percentage of the goods that are bought online. However, there just aren't enough suppliers online.
The pressures to solve this problem are intensifying because many companies now believe that virtually all their suppliers of goods and services should do business with them electronically. They are rapidly adopting supplier-facing applications and setting goals far beyond getting the catalogs of their biggest and most important suppliers of indirect goods into their master catalog. They want the small and midsize firms on board as well. They want their innumerable services suppliers from product assemblers to contract personnel firms, and from cafeteria managers to advertising firms linked to them.
In this perfect world, employees and buyers would indeed be able to go through a single point one desktop interface to find what they need: current, understandable, configurable, contractually-correct product and service information and the ability to execute and track an order or requisition. And, companies would be happily oblivious to where this information is held or how the order actually gets to the supplier.
All Aboard
No company can, or wants to, force every supplier to participate in a certain way at a certain level. Therefore, the answer for e-procurement is a full-spectrum supplier enablement strategy in which a company has a variety of ways to link with its vast range of suppliers and the supplier has options for electronic commerce with its vast range of customers. In essence, a full-spectrum approach spells out what has to be done by buyers, suppliers and software/services purveyors to get and keep suppliers online with their customers, as well as evolve e-procurement, communication and collaboration between partners.
To be sure, this concept can encompass all of what's been dubbed supplier relationship management (SRM). However, a full-spectrum approach focuses more on the initial goal of getting suppliers online, and giving employees and corporate buyers a portal to all products and services.
Fundamental to this approach for the buyer or supplier is being technologically supported with an open-catalog strategy. This should enable content interoperability no matter where the catalog is stored (buyer system, supplier Web site, supplier network, content services host) or whether a catalog even exists. It should also satisfy the conflicting needs of suppliers and buyers.
Both Sides of the Issue
The Supplier: Satisfying the conflicting needs of suppliers and buyers may be harder than it seems. In order to understand how a catalog strategy can satisfy, one must look at the challenges being faced from both sides.
The supplier's neck is caught in a vise between its shortcomings involving its product data (non-standard and scattered all over creation), catalogs and general technological readiness and the intensifying pressures from customers, channel partners and supplier networks to produce product data and catalogs worthy of e-procurement.
Just how intense is this pressure? AMR's 2001 applications spending survey is a good indication, showing that global 1000 companies plan to raise their rate of adopting supplier-facing applicationsmost prominently, direct and indirect procurement applicationsto 42 percent in 2002, up from 23 percent in 2000.
Of course, you can't ignore the fact that many suppliers are trying to reengineer most of their major processes and implement and integrate enterprise resource planning (ERP), supply chain, customer relationship management (CRM) and other systems at the same time as buyers are pressuring them to change their catalog strategy.
The supplier has many decisions to make, such as who will manage and maintain content? Whose format and standards will we use? Will we build catalogs in all the popular e-commerce formats, or use one format and have the buyer access the Web site or supplier network or content services host & and/or let the buyer transform the catalog for their own use?
The Buyer: The enterprise as buyer obviously faces many of the same business, technology and content issues. It has suffered with cumbersome, inefficient paper-based procurement processes that has robbed its purchasing managers of the time needed to evolve supplier relationships.
Focused on products and catalogs, it's paid scant attention to the massive expenditures on services (said to average more than 50 percent of the total corporate spend) and the disparate methods of doing business with service firms.
Achieving Full View:
Obviously, reviewing and revising sourcing strategies and relationships is crucial, but e-procurement and full-spectrum supplier enablement require an answer to the basic question: How does your company want to do e-business with each supplier?
To illustrate, assume a company's e-procurement plan is to maintain the relevant catalog of key suppliers on its own site and access others through supplier networks, individual Web sites, phone, fax and e-mail. At the same time, it wants to give suppliers, including small ones, access to the company through a portal for information, communication and collaboration purposes.
The issue is how to categorize and prioritize the suppliers based on their technological ability and needs. For instance:
· Supplier A, a producer of PCs, has its own sophisticated Web site with a complete catalog of products and services, configuration capability and links to its back-office systems for availability and status. It's able to provide the buyer's e-procurement system with all needed product/service information, terms and conditions.
· Supplier B is a key supplier of copiers, but it has a small Web site presenting information on its products. A third party prints its paper catalog, and its business applications are outsourced.
· Supplier C is a small but important supplier of custom tooling with rudimentary IT capability, and it receives and confirms orders by fax.
· Supplier D provides many of the company's contract personnel, but different managers around the company who do the hiring typically call or fax their needs.
The first step for the buyer is to evaluate its corporate value and how that should be measured, technological readiness, and the supplier's own preferences in terms of how and where their catalogs will be accessed. Working with suppliers on technological requirements early in the e-procurement development process will save considerable time and accelerate benefits. Consider that critical suppliers that aren't technologically ready may need help in developing the right catalog, linking to back-office systems or simply making the connection through the Internet.
If suppliers make their catalogs open, buyers will get important suppliers online, evolve their capabilities and strengthen the buyer-supplier relationship.
The Open Catalog Strategy
An open catalog strategy applies all the necessary approaches to making supplier product and service information accessible wherever it is located and simplifies content and communications tasks. It costs less and it's simpler for the supply and buy sides than any other approach.
Further, this strategy helps the supplier get its own house in order. That is, it can facilitate the process of capturing and normalizing product content from all the repositories of data and documentation scattered throughout the enterprise.
This open strategy requires four pillars:
1. Internal content integration and management system
2. Supplier networks (marketplaces)
3. Content services network
4. Supplier portal
Pillar One: The content integration and management system is both a pillar and the linchpin of the open strategy. It has to take supplier catalogs and integrate them into a standard master catalog for its e-procurement system, a catalog of only those products and services, prices, and terms and conditions it has negotiated. This system is becoming crucial since more and more companies want at least the catalogs of key suppliers in-house because the relationship is strategic, based on more than just price. They don't want middlemen in the way.
The biggest job for the internal content manager is working with a group that may comprise from 30 to 90 percent of a buyer's priority list. It is made up of the key suppliers, typically midsize, that have electronic catalogs in some stage of readiness but can't get them on the major supplier networks. Why? Because supplier networks have been overloaded with big-volume customers waiting to get their catalogs on the network.
Pillar Two: Supplier networks that are transforming the catalogs of bigger companies into their own standard formats are the enormous value of the second pillar. Typically, a network's suppliers represent the top 10 percent of a buyer's preferred sources. The buyer that wants a customized subset of those catalogs in its master catalog, then, has only to deal with transforming one format, the supplier network's, into its own.
Pillar Three: The third pillar is the Content Services Network, made up of the content development firms, supplier enablement companies and catalog hosting services. Their largest market is the smaller companies or the catalog have-nots the bottom 30 percent that who are getting the message that they have to be part of e-procurement. They need all kinds of help building their catalog content from paper, spreadsheet, word processing files and scratch. The role for the internal content management system is to take the content from these services firms again, catalogs created to their standard and transform it for in-house use.
Pillar Four: The fourth pillar is the Supplier Portal. While the portal is important for communication and collaboration with all kinds of suppliers, when it comes to content development it is vital for the smaller suppliers, particularly those with a few important products and services. These suppliers can simply e-mail information through the portal to be made catalog-ready by the content management system.
Content Integration and Management
Clearly, the right content integration and management system is the linchpin of the open catalog strategy, providing the major path to content interoperability among all the pillars. But what is the right system? The literature from system providers talks about aggregation, normalization and syndication, but what do buyers and supplier basically want when it comes to catalogs?
The supplier view is, We'll build it or have it built and let the customer make it theirs. A supplier would ideally like to build its catalog once and provide direct access to it on its own Web site, or else ship it out to customers, channel partners and supplier networks to integrate and transform it into their standards.
We want to keep the edge, suppliers insist. They don't want their products, services, and creative catalog genius to be homogenized, commoditized and cannibalized in the name of uniformity. They need to be able to differentiate their product and services.
The customer view? You build it and make it ours, with the products/services we want and all terms and conditions. We have to homogenize it. We don't want our master catalog to look like everyone from Monet to Charles Schultz had a hand in developing it. Employees have to be able to comparison shop, and the company needs to have visibility of spend across all trading partners. And we must control it direct connection is valuable, but for control, the transaction must return and be completed in-house.
Normalization, differentiation, visibility and control, as well as a general desire to say, Let them do it. How will you address these conflicting needs? Who is going to do the work?
The right content integration and management system has to address those needs and simplify the labor through automation and collaboration among the people with the domain expertise, no matter where they are.
The right system provides the ability to:
· Transform the supplier's files through a predefined, iterative process. The system takes a major action on the supplier's file, such as building a classification hierarchy, and then checks it with the content manager. Errors are eliminated until a high confidence level is set and rules are well defined. It creates online reports at each step to verify success or failure. This same process can be applied to an e-mail of information from a supplier with no catalog.
· Build custom content views for each trading partner, adding branding and other supplier-specific information through a drill-down feature.
· Create and maintain product taxonomies, including creating an unlimited number of category levels and managing multiple taxonomies within a single item catalog.
· Define transformation and cleansing rules specific to each suppliers content.
· Import and update supplier catalog content without recreating the entire catalog.
· Automatically categorize products based on selected attributes, item names or supplier categories.
· Manage catalog versions without hindering day-to-day needs.
· Publish independent views of content.
· Manage customer pricing.
· Configure security models, managing users and groups.
Connecting All Pillars
In the early stages of prioritization for e-procurement, it's vital that buyers and suppliers talk to each other about the technological paths they are going to take.
The selection of the e-procurement system and the content management and integration tools that support it obviously has a major impact. A set of tools and technologies is required to connect e-procurement seamlessly to supplier networks, whether horizontal or vertical in nature, and to connect to a supplier's Web site either directly or through a supplier network.
These tools should adhere to an open standard that takes advantage of existing standards, while also allowing customization based on supplier-specific requirements. Not all e-procurement systems available today are designed to talk to multiple sources of data. Some suppliers lay claim to it, but their systems may only operate with the format and standards of a major supplier network.
That's why it's critical to choose providers of software, content services and supplier networks that are fully committed to existing standards, such as electronic data interchange (EDI) and UNSP/SC item categorization; and major standards initiatives, such as eXtensible Markup Language (XML).
This isn't simple, given differences from industry to industry and country to country, as well as and the instability of new initiatives. XML, the real e-commerce hope for standard exchange of information, is a good case in point. Numerous groups have formed to develop XML standards, but it is in its infancy and requires considerable commitment for users and developers. Some XML initiatives will eventually disappear from the scene, and the changes will be constant. So it takes major supplier resources to stay the standards course.
Picking Your Partners
As indicated, buyers and suppliers have to evaluate and set the level of the e-procurement relationship with each of their partners. For the open catalog strategy the same, of course, is true with the software and services suppliers and supplier networks they choose.
Life will be simpler if supplier and buyer can agree on the need for selecting suppliers and networks with an open strategy and what that means in terms of the capabilities, commitment and resources of each technology supplier and its products and services.
Today, we are seeing more meaningful partnerships among the providers of e-procurement, content management and major business systems. There are also more partnerships between application and service providers. Individual suppliers are increasing the breadth of their offerings, extending e-procurement with services procurement and content management and integrating those systems with supplier-related applications for strategic sourcing, production purchasing, services management, and SCM.
The stronger the partnerships and the stronger the commitment, the more likely we'll see the open catalog strategy and full-spectrum supplier enablement implemented and the more likely we'll see all aboard.
Mike Frandsen is the general manager of PeopleSoft's Supply Chain Management
division. Frandsen has twenty years of experience in all phases of enterprise
software systems including planning, development, marketing, sales,
installation and support. Frandsen holds a Bachelor of Science from the University of Colorado in Finance/Information Systems. He is certified in Inventory Management (CPIM) and in Resource Management (CIRM) by the American Production and Inventory Control Society (APICS).
