[From iSource Business, August 2001] When it comes to developing a technology company, evolution is sometimes the best strategy. That's how it happened at BMO ePurchasing Solutions, part of the Electronic Banking Services division of The Bank of Montreal in Toronto. The enterprise started five years ago by offering corporate purchasing cards to clients, but quickly added a back-end processing component that allows suppliers to capture data using special software, enabling suppliers to electronically transmit line-item details back to customers.
Then came the Internet. About 18 months ago, the company transferred its technology to the Web, and now, it's a full-blown, end-to-end system that allows buyers to do things such as view a catalog with products and prices from selected suppliers; and automatically make an order, sending it to a supplier's enterprise resource planning (ERP) system and processing a payment.
Leading this transformation has been Randy Ford, director of BMO ePurchasing Solutions. We recently talked with him about the pitfalls and promises that enabled technology brings to the supply chain.
iSource: Let's talk about the benefits of enabled technology. Where do you think the most value and potential for change in the supply chain lie?
Ford: The biggest benefits are in very significant savings. But that's coupled with process improvement in terms of just-in-time inventory, understanding when parts are available, and what's in suppliers' catalogs and in inventory.
At the end of the day, what we do is increase shareholder value. And we do that by taking unnecessary costs out of the process. In the majority of companies, even up until a year ago, many of the processes in B2B were done manually and lengthy delays resulted. The technology can now bring suppliers and buyers much closer together.
iSource: How successful have companies been?
Ford: In many companies, because of the hype, there's been a tremendous amount of pressure to have an e-commerce strategy. The logical thing for many of them has been to get into the buy side of the equation. But once they do, they find out it's just one piece of the equation. Companies that do a good job understand where their pain is, what's required to fix it, and then they apply the technology in the best way possible. That's opposed to buying technology and hoping it provides a magical solution. There's been a tremendous amount of pressure to play in this arena just for the sake of playing in it.
At 30,000 feet, most people realize they have to do something that is Web-enabled. When they come to 10,000 feet, though, it gets harder to understand what exactly it is that needs to be achieved.
iSource: Is the matter of business process crucial? Can you tell us more about your ideas on that subject?
Ford: We see a lot of companies still buying technology and thinking that automating existing processes will create benefits. That doesn't happen. I'll give you an example: We had one company come and ask us to provide data on 45 of their suppliers. We told them we couldn't enable that many suppliers, that they might instead figure out the best prices and relationships and then get it down to a number they could really benefit from. Ultimately, the company was trying to automate their existing practices without doing the necessary work to make the technology succeed. You can't electrify existing processes and expect results to improve.
I think you need to look at the business processes throughout your company, from the buy side through payment. You may have to reinvent some processes along the way, but that's where the real efficiencies are created.
iSource: How do you get started?
Ford: Companies need to understand the businesses they're in and what they're trying to improve. For example, if it's a paper-based process, they need to understand what they're trying to change and look for the right technology to bring about that improvement.
It has to start with goals and a commitment to solve the problem that needs to be addressed. If it's trying to cut costs, you might start with sourcing to find the best price, then look at the suppliers you use, and finally understand how best to apply the technology to what you're trying to achieve.
iSource: What's the best business model companies should use to achieve their goals?
Ford: On a large, corporate level, what's really needed is a strategic source model, almost a closed loop. Most corporations don't want to go to a marketplace. They don't need that for buying stationery or manufacturing goods. They've strategically sourced those things. They want to have employees buy from contractual arrangements with one or two suppliers in one category. It's a one-to-many model sourcing from known, trusted suppliers based on pricing and contracts that have been used in the past.
iSource: How does that analysis relate to your company?
Ford: That's why we've come up with the business model we use. We can do everything from cataloging for our clients at the front end to allowing for payment at the back end. But our cataloging is done only for our client's chosen selection of suppliers. It's the one-to-many model I spoke of before.
iSource: What about the challenges you and your clients encounter? Can you talk about those?
Ford: The biggest challenge companies face is the confusion that exists out there now. There are so many choices, so many suppliers, so many areas in the supply chain they can attack. And there's confusion among companies about what they want to achieve. They're confused about what to buy and what direction to take.
Everyone is hearing a pitch from a different perspective, but at the warp speed that happens in B2B, companies are being forced to make decisions that are not as well-founded as they should be.
iSource: So, the moral is to slow down?
Ford: Sometimes being a little slower is the wiser approach.
iSource: What are other roadblocks companies face?
Ford: When companies don't put into place the right process improvements, they don't get results and that creates big problems. After six months, management starts saying they're not getting the benefits they thought they'd get, and that discourages them from taking the steps really needed to make the technology work. If you weren't able to improve the return on investment (ROI), you're not likely to get the next million dollars you ask for. The danger is that they'll spend a whole lot of time in post mortem and fall behind the curve.
iSource: In other words, failure can have major implications?
Ford: Implementation is very risky. Of course, if you understand your goals, you can mitigate those risks. But, if it's going to work, it will require a lot of change management. You have to build in the infrastructure. If you don't do that, nothing will improve and no one will invest any more money.
iSource: Do you see any risks in the act of collaborating with other industry players?
Ford: Certainly not for the buyer. For the buyer, there's a big advantage. First, data around purchasing and pricing is always a well-guarded secret. And, with this technology, they can get this information readily from their enterprise resource planning (ERP) environment and analyze more clearly the key data about what they're buying.
iSource: What about the supplier?
Ford: For the supplier, there may be some danger that buyers will understand they don't need all the stuff they're buying. Many suppliers, and rightfully so, ask, Why should I do this for a client? I have to put my information up on a different system for each customer. I have to develop a whole new format each time. When one client uses one platform and another a different one, it causes a big headache for suppliers. They're trying to satisfy their buyers and they have an incremental cost every time a customer asks to be put up on another system. They have to ask themselves how many times they will have to do that and how much it will cost.
iSource: So, there's a special technological challenge involved for suppliers?
Ford: There is work to be done before the technology becomes seamless. However, the relationship works best when the customer is significant enough in terms of sales that the supplier wants to comply. You always try to protect your best customers.
iSource: Tell us about the supply chain in your company.
Ford: It's not that different for the bank, in terms of the pain we're trying to get rid of. We used to order everything by purchase order and paper. Now we're trying to automate that entire process, from discovery all the way through fulfillment and payment. The supply chain component is the same for everybody, there are just different twists in terms of what specific items you order. But the basic processes are the same.
iSource: What do you see happening in your crystal ball down the line?
Ford: In the next two or three years there will be a convergence of companies working to automate the entire process from buy side to payment. We may not see new technology, just improved technology.
I think you'll also see more partnerships. Players like Commerce One won't take over the payment business, so they'll need partners. And I don't see companies on the other side of the equation trying to change the business they're in. Take us, for example: We're not out there to sell software, we're out there to help get the payment completed.
iSource: Any other predictions?
Ford: I also think you'll see a lot of technology exchanges failing. The model is flawed. If you go into this with a bunch of your competitors, that's not in the best interest of shareholder value. What you've done is level the playing field. The big winner is the technology provider.
Buyers want to extract the best deal they can. And it isn't always true that they can get a better price if they band together. I think that you'll find the marketplaces doing better with the smaller buyers, which are companies that don't have the ability to extract strategically sourced prices on their own.
iSource: Then clearly, we have a long way to go, correct?
Ford: The journey certainly isn't finished. And along the way there will be many stops and starts. But whatever risks that exist out there will be faced eventually, because this is the way business is going.
