Electronic business-to-business trading through messaging hubs, or value-added networks (VANs), has well-documented advantages for organisations who have embraced the use of such technologies.

A survey of 170 companies by Aberdeen Research found that companies using e-procurement solutions increased their spend under management by 38 percent, reduced their requisition order cycles by 84 percent, reduced their requisition to order costs by 59 percent, and reduced maverick spending by 40 percent.

And as the impact of the global economic downturn begins to bite, e-procurement is set to become an even more attractive tool for businesses.

Purchasing software vendor Coupa Software points out that implementing a cost cutting tool like an e-procurement solution can allow organisations to more rapidly improve their business processes, and put them in a better position to grow when economic conditions improve.

Multiple benefits
Coupa says the benefits organisations can achieve through e-procurement include the ability to automatically enforce budgets to pre-defined limits, curb non-essential spending, better manage inventory and improve order tracking.

The vendor says e-procurement can also enable an organisation to negotiate better pricing from suppliers based on detailed spending reports. It can also streamline approval processes to reduce overhead costs, and boost staff efficiencies across the procurement side of its business.

Advances in internet technology, along with increased uptake of broadband and reductions in the costs of applications, mean e-procurement solutions are getting cheaper and more effective.

But despite all the advantages, a significant number of organisations are yet to embrace e-procurement’s potential. So what is holding back wider adoption?

Moving beyond EDI
Traditional e-procurement was about EDI – electronic data interchange – which, because of its high implementation costs, has been seen as the domain of large organisations. “When a VAN is offering a service they need to look at more than just EDI,” says Debbie Young, B2B manager at ECN Group.

“Typically one of the things that has restricted a hub from expanding is the cost of getting all of its suppliers onboard because the cost of EDI has been too high for many of the smaller suppliers,” she says.

“This is where VANs can add value – by offering options such as web portals, so that smaller suppliers can log onto a website, fill out their invoices and received their orders electronically. The hub is still doing everything electronically but the small supplier doesn’t have to go out and buy software or pay a lot for EDI implementation. Because they are dealing in low volumes they’re happy to key data.”

Rod Hall, managing director of Tranzsoft Group, says EDI has traditionally been a technology suited to about 20 per cent of suppliers but for e-procurement to reach its potential that had to change, and that change is about making it easy for suppliers of all sizes to connect to VANs.

“Our mantra has been about making it affordable for all and going for connecting 90 percent of the supply chain electronically. That means you have to get it right down to be able to deal with whatever data sets people have or whatever functionality they have,” he says. “We have to be able to cater to all levels of functionality.

You have to find ways to fully integrate – use web forms, use some other smart technologies that we’ve got, like a print-to-file connection to Tranzsoft – just make it so that you lower the barrier of difficulty for people trading. When you look at successful hubs, if someone driving it says: ‘you have to trade this way’ that’s all very well but you’ve got to make sure you have all levels of functionality covered, otherwise you can’t reach the entire supply chain.”

Young says providing solutions to span the full range of supplier technology requirements is where VANs can offer value to the service they offer.

“It’s not just about saying: ‘Hey, we do EDI.’ It’s about saying: ‘We do EDI but we have other options and we can help you bring on your suppliers. It’s about offering an end-to-end service,” she says.

“If a hub doesn’t offer solutions that cover both ends of the spectrum to their suppliers they won’t get good supplier engagement. They’ll cover off the big ones, and in a lot of cases that might be sufficient for their business, but generally speaking there are quite a large number of smaller suppliers who make up their overall business.”

Getting buy-in
Young says many smaller suppliers take an approach of “if it isn’t broken why fix it?” when it comes to e-procurement. “The supplier often feels that way, if they’re happy with the way things are going. For a lot of people who haven’t dealt with EDI, they don’t see the benefits, because a lot of the benefits are intangible or might reside on the by-side.” Those benefits can include making more sales because stock gets onto shelves quicker as a result of an electronic system. Supplier payments may also be processed faster through an efficient e-procurement set-up.

Hall says you need to educate and guide those suppliers who aren’t aware of the benefits.

“Those people are not necessarily looking at the bigger picture. They’re not necessarily looking at their customer correctly, and they’re not looking at their business and putting true values and costs against manual systems – and that’s not uncommon,” he says.

“Part of the solution is to say: ‘It’s not that difficult. If you think faxing is easy, let me show you a way that you can do this electronic stuff as easily as that.’,” he says.

“That’s where our print-to-file application comes into effect, because if you’re printing to a fax, and we can give you a technology that allows you to print to Tranzsoft, why don’t you just do that? Then you’ve got both benefits.” Young agrees that suppliers need to be offered options.

“A major factor in getting penetration is supplier engagement and suppliers – especially small suppliers who are quite happy to receive fax orders and send their invoices by mail – they are the ones that are going to object, especially when you tell them they have to pay something, or get an IT person in to look at whether their system can do this and do that. They don’t even want to go there,” she says.

“But if you can say to them: if you’ve got access to the internet you can receive your orders and key back in your invoices, they’re much happier and you’re going to get them to buy into it. It’s about providing solutions that are the right fit for the trading partner, and not trying to do something they don’t want to do and don’t feel they can afford to do.”

This approach works better than just mandating that suppliers must switch to EDI, or some form of electronic messaging, if they want to keep doing business with you. Hubs and suppliers have to work together and look at their business benefits.

For a hubbing solution provider like ECN, a supplier education and sign-up service is another function they can offer their VAN customers.

“If you take a retailer hub, for example, their core business is not EDI, it’s retailing, and to roll out the benefits and do all the work around bringing suppliers onboard – whether they be EDI users or small suppliers – we offer a telesales type service to our customers, campaigns where we call their supplier,” says Young.

“This works well because we have the experience to easily distinguish which are the EDI prospects and which we should offer the web-based form option to. It means our hub customers are not having to use their resources to sell a concept of something that’s new to suppliers. Instead they’re using our expertise to do that.”

Growing through ‘interconnects’
“Interconnect” arrangements – where data is shared between different VANs – are seen as key to growing the wider e-procurement pie.

Young says while interconnects have been happening for a long time, until now the development of applications specific to individual VANs has been a factor in limiting data interchange.

“One thing that has inhibited progress over the years is VANs, or solution providers, providing an application that has to be used to connect to their environment. That prevents those customers from being able to connect to anybody else,” she says.

“But I think that’s changing a bit now. We have customers who connect directly to us, because we can take their file out of their backend system and do the work, but they’re also using, say, an application to connect to another VAN where the application is matched with a piece of software within their own environment.

“A supplier with a tool to connect to their service, they have to support it and configure it, and it only allows that supplier to connect to that one VAN. We ry to avoid these limitations.”

Hall sees an expanding number of global interconnects as the key to the industry’s future growth.

“We will see more connects on an international front, no question about that,” he says.

“With globalisation continuing at pace, and as times get tough, you’ll see even more mergers of big companies. That will have an impact.”

He says for New Zealand suppliers, there will be an increasing need to be connected to customers based out of Australia or further afield, for example the US.

“We’ll connect with those interconnects there where it makes sense for customers of ours, and you’ll see a lot more of that globalisation of VANs and hubs.”

He says the message VANs need to be able to tell their suppliers is: “Connect to us we can take you to other VANs that are willing to transport the data”.

“The more hubs we get on the easier it is to get supplier engagement because you can sell them the concept that ‘if you do it with this one, you realise you can do it with these others as well’,” she says.

For more information visit the Supply Chain e-commerce Research Pavilion for exhibits, case studies, white papers and downloads from a range of New Zealand’s leading Supply Chain e-commerce Solutions vendors.

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By Simon Hendery