Most larger businesses do a respectable amount of electronic data interchange (EDI) and probably feel pretty smug about the efficiency gains they get from swapping screeds of digital information with their EDI-enabled partners.

But corporate procurement systems can fail to deliver on their full potential in one crucial area: the way they deal with – or rather, don’t deal with – the army of small suppliers that regularly interact with the business.

The familiar 80-20 rule typically applies to supply chain interactions: an organisation will do 80 per cent of its business with 20 per cent of its suppliers. If it is large enough, those dealings with the top fifth of all suppliers will be carried out via an EDI system, but chances are the vast majority will be handled using with less streamlined processes.

Businesses that have two systems to handle two classes of suppliers are missing out on efficiencies that can be achieved by engaging the entire supply chain, says Rod Hall, managing director of e-business development and integration company Tranzsoft Group.

“The more that you’re trying to manage exceptions at that level, in some ways you’re actually adding costs, not taking them out. So our view is you’ve got to go electronic all the way,” Hall says.

“Our view was, right from the start, that we needed to have a data exchange gateway that all the supply chain could participate in. So whether you’re a family business selling product out of your car through to large corporates, you need to be able to connect the small and the large to the customer.”

Tranzsoft’s approach to the market has been  to develop, and continue to enhance, a “transaction gateway” capable of translating between corporate systems running the likes of Oracle or SAP and suppliers using Excel spreadsheets or web forms.

“[Tranzsoft customer] Auckland District Health Board for instance when they’re using Oracle and outputting a purchase order, they expect to reach whomever is the supplier at the other end. Now if the most that supplier can do is log onto the internet then we can send them an email or even an SMS message to say ‘you have an order – log on here and you can view your order’.”

Once the order has been supplied an invoice can be sent back using the same web system, back through the gateway where it is uploaded into Oracle.

“So our customer – no matter what the technical competency of their suppliers – can  expect to engage the total supply chain.” Chris Joel, product manager at EDI supplier ECN Group, says ECN developed its off-theshelf PINS (Plug IN Suppliers) solution to meet a growing demand from clients for systems thatunified interactions with all their suppliers.

“Clients want to deal with one method – they don’t want to have some people on paper and some people on EDI,” says Joel.

“Customers realise they want everyone on the same system, otherwise it undermines the savings that you make and also the supply chain efficiencies,” he says.

“The point about it is that the suppliers that are using this won’t know that it’s an EDI solution. They think it’s a website. The largest supplier doesn’t think of it as a website, they think of it as EDI, and the job of ECN is to make that transition by doing the language switching between the two.”

Brent Ellison, business development manager at electronic trading services company Conexa, says businesses wanting to embrace strategic procurement often face the challenge of convincing suppliers to commit to being part of an e-procurement initiative.

“The reality is that in any customer’s range of trading suppliers there will only be a small number that are already connected,” he says. “The challenge is how do you work with customers to increase that level of electronic integration without increasing their costs because the actual connection costs are huge and they’re going up as the technologies at both ends change, as the standards change, as the expectation of what they want to get out of that collaborative process changes.”

With businesses typically having fairly “loose” relationships with many of their suppliers, the challenge of getting that large group engaged and participating in such a scheme is even greater.

For Conexa, one answer to this challenge is to offer suppliers the incentive of access to an ebusiness community.

Conexa has recently sold its electronic procurement managed service to Lincoln University (see sidebar article) and biological science company Crop & Food Research. They join other Conexa customers in the academic and research space including Auckland and Otago Universities, and AgResearch.

“The compelling case for someone at Lincoln to try and convince their supplier to go online is probably quite small because Lincoln doesn’t represent a big part of the suppliers business,” says Ellison.

“But if we could say, well, in the process of connecting to a trading network you could also get at Otago, Crop & Food, AgResearch, and Auckland University, maybe the argument is more compelling. And maybe over time the role of service providers like ourselves is to find these synergies within trading networks,” he says.

“As a trading network operator we’re really looking at taking cost out of the supply chain and delivering some benefit to both the buyer and the supplier whereas procurement is often about saying this is all about giving the buyer the benefit and trying to create a lever to get the supplier to change their business.

“Where we’re saying it’s probably better to provide the benefit and share them between the buyer and the supplier because that’s the only way you’re going to get parties to leap into a more electronic communication.”

But let’s face it – some people are always going to resist advances in technology but it seems Conexa is trying to accommodate that group of confirmed luddites as well.

One useful feature of the solution, says Crop & Food corporate procurement manager Paul Moreton, is that even if a supplier is not “web savvy” they can still trade with the organisation.

“Their profile indicates the preferred method of contact – website, email or fax – and the solution automatically personalises the communication with the supplier to suit their preference,” says Moreton.

Fair enough. As Tranzsoft’s Hall wryly observes, there are still some large organisations out there who will tell you that using a fax gateway qualifies as e-commerce.

It might be time for some of them to start thinking about procuring a new procurement solution.

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