Procurement used to be a buyer’s game. And the object was to line up suppliers and battle with them until they delivered goods and services at the lowest possible cost. But the game has changed.
Companies today are more reliant than ever on their suppliers. And increasingly, they are looking to them not as just as sources of cost reduction, but innovation. Whether it’s tapping contract manufacturers to assemble products in new and more efficient ways, outside design partners and knowledge workers to drive product and service innovations, or third-party logistics providers to enable new models for customer engagement, companies are asking their suppliers to play a more strategic role in running the business.
“Today’s new business models and empowered customers demand higher levels of agility and collaboration,” said Tim Minahan, SVP, Ariba. “Businesses are increasingly dependent upon their supply partners to help innovate ahead of the competition, adapt to changing customer needs, and secure long-term supply. To be the customer of choice, a business must embrace a new paradigm for buyer-seller partnerships and new networked engagement model that simplifies collaboration and delivers heightened transparency and insight at every stage of the relationship.”
Plugging into the Networked Economy
A growing number of companies recognize this and are leveraging business networks to create a more collaborative and efficient procurement process that creates value on both sides of the equation. Take Konica Minolta Business Solutions U.S.A. Inc.
Konica Minolta relies on an extensive network of more than 7,000 suppliers in the U.S. to make its business go. The company processes about 70,000 purchase orders a year. And until recently, it managed all of this—along with its contracts and invoices - using manual systems.
“I was spending a lot of time approving paper purchase requests,” recalls Konica Minolta Business Solutions’ Chief Financial Officer John Thielke. “And when it came time to pay for things, a dozen more people would check the supplier’s invoice against the contracts to ensure things were delivered according to the terms we had negotiated.”
Feeling there had to be a better, more efficient way, Thielke teamed up with Konica Minolta Business Solutions’ Director of Procurement Larry Reuter, to digitize things. And together they laid out a plan to create a central hub through which the company can manage everything from finding and evaluating potential suppliers and tracking and managing their performance, to sourcing goods and services and managing orders, invoicing and payment.
The company chose to build it on SAP’s Ariba Network, where about half of its suppliers were already connected and doing business. Using the network and a range of the cloud-based applications delivered on it alongside its SAP ERP applications, Konica Minolta aims to consolidate purchasing of about $350 million of US domestic spend on an annual basis and fuel a next-generation procurement process that effectively changes the game for the company and its suppliers.
“Business networks are going to transform the traditional way of treating suppliers as entities only to be pressured over price,” Reuter said. “The connectivity and insights they enable lead to better communication and more informed interactions, which is good for the supplier and good for us.”
Thielke agrees. “It is like social networking,” he said. “We will have both sides communicating with each other through the network. And that will create huge opportunities for both of us to improve our performance and productivity.”
Building a Better Mousetrap
And these improvements will come in many areas. Take sourcing. Konica Minolta needs to buy lots of things from lots of different suppliers. Because it uses different systems and processes to do this, there are lots of transactions to track. By consolidating them on the Ariba work, Konica Minolta can see all these transactions in one place and create an automated and standard process for sourcing that is easier for suppliers to navigate.
Konica Minolta also has vast amounts of paperwork, from contracts, to corporate purchasing and customer agreements. Whether hard copy or electronic, these contracts must be monitored to ensure that the right goods and services are purchased from the right suppliers and that expiration dates are tracked and renewals executed. “Using the network, we can store and manage all of our contracts in a single place and ensure that we stay on top of things,” Reuter said.
Requisitions and orders can also be entered in a fully automated way and invoices can be received, validated and processed for payment electronically. So buyers can get the goods they need more quickly and suppliers can be paid faster.
In their initial phase, business networks were all about connecting companies more efficiently to perform a discreet process. But companies like Konica Minolta are leading the way to the next frontier, harnessing their connectivity to optimize their spend and supply chain and enable new processes that can transform their business.
For instance, when it comes to filling customer requests, Konica Minolta receives orders for products, then sources them from other vendors. Orders are often placed manually, and vendors ship the products directly, leaving Konica Minolta with a large number of transactions to monitor and manage. Leveraging the network, Konica Minolta can create a consumer-like experience through which goods and services can be ordered with just a few clicks in compliance with corporate agreements and processes and tracked through delivery.
“By offering a virtual one-stop shop for customers, we can ultimately acquire new customers and more smoothly buy and ship products we don’t keep in stock,” Thielke said.
Plenty of companies are following Konica Minolta’s lead, joining networks to enable new processes that are only possible in a connected environment and drive innovation across their operations. Processes like dynamic discounting that allow them to secure discounts that can be reinvested in research and development and funding to expand their business. Or contingent workforce management through which they can identify and manage highly-specialized resources needed to develop that next-generation product.
And this trend will only accelerate. Buyers will harness the connectivity and insights of networks to find the right partners and optimize their spend and supply chain. Sellers will use them to engage with customers when, how and where they want to be engaged to increase satisfaction and wallet share. And together, they will continue to change the game.