Supplier Enablement pay day
Continuing the debate about who pays for B2B eCommerce here is an interesting parallel with the world of B2C eCommerce (the consumer world of online shopping).
I was thinking about online shopping and the rise in the number of retailers that chargeback to the buyer (you) the cost of your using a credit card to pay for your purchase. Why is that?
I figure that if your online business is all about price competitiveness, and with the ease that the consumer can now perform price comparisons, it is essential to keep out any costs that are not under your control. So, if you choose to pay by credit card and the supplier picks up a 2% fee (average)then they will look to pass that back to you.
Does it stop you shopping online? No, because you like the experience - quick, convenient (24x7), paperless etc. You also know that the online world is keenly price competitive and you get the opportunity to verify that through price comparison web sites and browsing for yourself.
Suppliers also offer alternative ways to pay, using a debit card for example, for which the supplier has a fixed cost to process and they do not pass that back.
The B2C world is rocking and going from strength to strength so are there any lessons for the B2B world?
There are some differences that we have to acknowledge in the B2B world:
+ the law vis a vis consumer rights versus those that govern business
+ in business we are accountability to others (shareholders, stakeholders) + businesses need to keep records (audit, tax etc.)
there are others but you get the picture.
Can we envisage that B2B eCommerce will have the supplier push back costs on the buyer based on how the buyer prefers to buy?
In B2B speak that is; will the supplier push back any costs on the buyer based on how the buyer prefers to deal with the supplier?
Turn that around. Will the buyer push back any costs on the supplier based on how the supplier prefers to deal with the buyer rather then how the buyer prefers? For example, supplier prefers paper invoices whereas the buyer prefers electronic invoices.
There is the dilemma in the B2B world; if you ask to change something the other party might calculate the cost to agree to your change and pass that cost back to you.
What if the change could be demonstrated to be mutually beneficial? Well perhaps that changes things but does require the mentality to understand and agree what matters and is important to the party affected by the change. Even so, this is a good basis to discuss change without the demarcation of who is going to pay.
Think! How can I help you to help me? I need to make some changes so my business improves and that implicates change for you. The good news is that change comes with some useful benefits to you .....
I am reminded of a saying; It is often not what you say but how you say it!
There is psychology at play just as there is around the negotiating table.
Your B2B pay day will be a product of negotiation - so its business as usual - you get what you negotiate.
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EU stake out electronic public procurement
To quote the eGovernment agenda:
Government revenues account for some 45% of GDP and public authorities purchase 15 to 20% of GDP or €1500 to 2000 billion in Europe every year. Electronic procurement and invoicing could result in savings in total procurement costs of around 5% and reductions in transaction costs of 10% or more, leading to savings of tens of billions of euros annually. Click here to access the full EU communication.
Norway getting on with eProcurement - €5Bn says so!
No need to be a skeptic anymore about the viability of eProcurement as those nice people in Norway share their experience. 4.5M people (population of Norway) can't be wrong about these things!
Headlines are:
Results and benefitsExperiences from Norwegian public sector entities indicate a potential for 20-40 % time reductions on handling of orders, goods receipt and invoices, and between 2-10 % price reductions in operations related procurement expenditures.
At what cost to Norway?This has been achieved with a small centralised budget; the total budget for centralised coordination, facilitation and support activities has been €2.9 millions from 1999.
Note: The ehandel.no business model is based on both public sector entities and the suppliers paying for their active use of the e-procurement system. This is one of the pay models that can be used.
Click here to read more about variations on this pay model.
Click here for the full story.
EDI and XML - parallel lessons?
As I have written before EDI and XML are going to co-exist for a long time albeit it is recognised that EDI will remain the preserve of large business and their national supply chain. For everybody else, that is 95% of businesses, you are going to rely on XML because that is what others will implement to support their B2B eCommerce.
Quick refresh on B2B eCommerce and some differences.
If you are a major retailer with a 24x7 operation with fast moving inventory and much of it perishable you need a system that connects you whole supply chain so that your shelves remain stocked with your customers' favourite products.
Now contrast with a major financial services business that has no inventory per se and is a Monday to Friday business and you have a totally different set of requirements as you will not be totally dependant on any particular suppliers for most of things you need for your business.
In the former case EDI prevails and in the latter XML. Both do the same job in that they support the objectives of the business to manage their transactions with their suppliers in a timely fashion and at the smallest cost to buyer and suppliers.
EDI has been established for a long time and I am always looking to see what parallels exist so that we can learn from those that have been using B2B eCommerce (EDI) longest.
From an interesting article published in Line56.com I extract:
Who can do it better, cheaper and quicker?Companies using SaaS (Software as a Service) for supply chain report they typically can get the system operational in under 3 months and achieve ROI in less than a year -- many times faster than with ordinary "license and install" software or homegrown projects.
Paper transactions prevail over use of EDI and XMLOverall, paper, fax and email still predominate. There is alot to do!
How can vendors help?SaaS vendors that provide supplier enablement assistance and preconnections to suppliers or logistics partners are helping reduce this barrier.
How important is this?Ask your Finance Director as it is all about cash at the end of the day. What you are spending against budgets and what cash you have to keep available to balance receiveables and payables.
Click here for the Line56.com article.
Click here for more information about SaaS, supplier enablement and how to get B2B eCommerce working for your business.
Accounts Payable - profit or cost centre?
According to an article in Line 56.com it is potentially a profit centre that by taking advantage of early payment discounts can
generate annualised risk free returns of 36%. See footnote for explanation.
Interested?
To get these returns you have to be able to capture the early payment discounts and there is the rub because if you are processing paper invoices you probably will not have the reaction time to get a hold of these discounts. Sorry for raising your hopes!
Next question then is what do you need to capture these early payment discounts?Assuming you have suppliers that are willing to offer discounts then their terms will be negotiable according to their appetite for cash but let's say in the range 3 - 10 days are usual for discounts of 2 - 4%.
What would you have to do today to get visibility to those invoices from those suppliers that were prepared to offer discounts?
To cut to the chase; paper invoices are a problem to a process that is dependant on getting visibility to those invoices and reacting to them to take discounts. Replacing paper invoices with electronic invoices with a supporting process gives you control.
Of course then we need our suppliers to present electronic invoices and that is easy, right? Now we are at the heart of the conversation that is taking place today because we have the technology and the business case is now shaping up so what's stopping you?
Quick test of what might be available to you, not as class leader but doing a reasonable job of capturing early payment discounts:
You make supplier payments of £100M p.a
£15M p.a of supplier payments are available with discounts
Let's say that the average discount is 2%, that is £300,000
Let's say you capture 60% of those discounts, that is £180,000 in cash
Let's say your business earns a gross profit margin of 10% on sales. You've just delivered £180,000 to the bottom line risk free and that is equivalent to £1.8M in sales.
Easy to shrug this off as something you'll get round to tomorrow but can you afford to put it off?
Click here for more about how you get started with electronic invoicing.
Click here for the full article published by Line56.com
Footnote: here I show the calculation for an annualised return of 36%.You have an invoice to pay £1000 within 30 days.The supplier has offered a 2% discount if you pay within 10 days. 2%/10 net 30.You decide to take the discount and pay £980 (£1000 - 2%) within 10 days. The £20 saved on the invoice price when expressed as interest earned on £1000 calculates an annualised return of 36%.
Supplier Enablement - fair play
In an earlier blog I spoke about how buying organisations are meeting the cost of their B2B eCommerce initiatives as they implicate their suppliers.
I also mentioned that some buying organisations take the view that the supplier must pay - period.
Is there a half-way house?
What if the buyer were to meet the costs initially because this overcomes the resistance and objections that suppliers put up about 'cost' and then agrees over time for a transferance of cost as the value/benefit materialises for the supplier?
To anticipate the next objection: what if I don't want to meet the cost at some future agreed date? I think the answer is, OK, that is your option. However, bear in mind that we go on with the use of B2B eCommerce and that would put you on the 'outside' of our preferred way to manage transactions with our suppliers. You might want to consider what that might mean to you?
OK, so what are these benefits that materialise over time?Let's say that we review the position after one year during that time we will implement the bi-directional exchange of electronic documents; we will send electronic XML orders to you and you will send electronic XML invoices to us. We can guide you on how you can use the electronic XML order to automate your processing of the order. We expect that the availability of an electronic XML invoice should improve our capability to process invoices providing more control over payments and increasing our options to take early payment discounts.
You should look at what improvements show up in your business and we suggest that one year is ample time to take stock of that.
So let's say that it all works out, what will be my costs when they are transferred to me?
Now we are in a big discussion with multiple choices:
1. Buyer transfers all the cost to the supplier on the basis that they have paid for the buyer to get up to speed with B2B eCommerce and there is benefit to the supplier. The supplier has the option to walk anyway.
2. Buyer transfers half the cost in recognition that their own benefits are derived from the supplier's participation in B2B eCommerce.
3. Buyer transfers none of the costs but makes it mandatory that a supplier trade with them using their preferred B2B eCommerce methods.
4. Buyer agrees a tariff with the supplier. That might be; we send you 400 orders a year and you send us 400 invoices a year, your tariff based on 400 invoices is 400 x ? where ? is the cost of the supplier to send an invoice (50p?) or the incremental cost to a buyer to process a paper invoice versus and electronic invoice (£1.50). The numbers before are made up yet broadly representative of likely costs.
All very interesting and up for debate which is the purpose of this blog to allow other people to contribute ideas.
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Supplier Enablement - choices choices choices...
Here we are in a supplier's shoes looking at their choices when faced with the invitation to commence electronic trading with a customer.
In a previous blog I looked at this from a supplier's point of view in terms of what questions they would have before making a commitment. As I have remarked many times a supplier has the option to say Yes or No.
A Yes requires:
(a) a decision to buy a capability for electronic trading with (maybe) some corresponding financial commitment, and
(b) a commitment to change what they are doing today based on a strong emotional conviction that by participating in electronic trading it will help them be more successful or productive than IF they chose not to participate.
Other options that exist for a supplier include:
A maybe - I'll consider this some other time but I won't commit to when
A No - I intend to do absolutely nothing now or in the foreseeable future
Any buying organisation that has made the commitment to electronic trading will want a supplier to say Yes but for that certain conditions need to exist for the supplier. What are those conditions?
Click here for a refresh.
The point of this blog is that given the choices a supplier may exercise it is imperative that a buying organisation seeking the participation of their suppliers in their electronic trading initiative need to work through a supplier's own evaluation that would lead them to a yes, maybe or no decision.
If you need more information
click here.
Supplier Enablement - new dog old tricks?
There is a ramp on supplier enablement as more and more businesses engage suppliers in electronic trading - aka B2B eCommerce.
That ramp is as a result of buyers looking at their purchase to pay process and moving from paper based transactions to electronic transactions with suppliers. This impacts suppliers and they are also looking for ways to improve their sales operations. As I have written many times this all depends on
c o l l a b o r a t i o n.In B2B eCommerce the growth is with XML not EDI. However, EDI has been established for a long time and is there anything that we have learned from EDI that could benefit XML?
I was reading an article published by Line56.com that talked to EDI and some of the things that have been done by participants (buyers and suppliers) to ensure that:
i) the process is robust (a function of testing) and
ii) that when someone screws up or does not play by the rules then they get fined
In the case of i) someone has to bear the cost of testing and that usually falls to the supplier, that is, the customer does NOT pay even though it is their trading initiative that the supplier is complying with.
In the case of ii) again the supplier pays if their 'bad' transactions impact their customer as the customer looks to both recover their costs of dealing with a 'baddie' (I figure this is notional) and punish the supplier with a fine to say 'fix it'.
In a closed community of a customer and their suppliers the customer can be an enforcer and that is the world of EDI.
In an open commmunity where their are buyers and suppliers and each has numerous relationships then there is no role for an enforcer. I say that because in an open community you
choose to participate rather than in the example above where you are c
ompelled to participate.
Testing will always be important in closed and open communities. Who pays will be an ongoing debate.
The notion of fines is not going to work in an open community.
So, new dog old tricks? You make up your own mind.
Click here to read the Line56.com article
Click here for more on supplier enablement.
IOS – Integration of Suppliers
When you think about your suppliers today do you think of them in terms of being “integrated” into your business?
In some industries it is true that suppliers are integrated into the supply chain otherwise Just In Time replenishment of inventory would not be possible. The integration of suppliers in this case has the impact of reducing inventory that is carried with the benefit of reducing working capital requirements of the business. Big benefit!
But for the majority they might think of integration in other terms, for example:
We have agreed preferred pricing
We have a Service Level Agreement (SLA)
We have preferred suppliers
We have been doing business with them for years and years
How would you allocate a benefit in this case? There is always someone who is prepared to deal on price or negotiate a better SLA to earn your business.
What is the cost of your doing business with a supplier? In an earlier blog we know there are costs and some of those costs are unnecessary as a result of the inefficiencies that exist in the “doing business”.
We accept the world is not perfect but how many examples can you think of where you know well that the methods you use to conduct your business with suppliers is wasteful of time and resources?
With IOS you seek to take out those inefficiencies and the associated cost for you and your suppliers.
Where are these inefficiencies?
Many are looking at their purchase to pay (P2P) cycle.
In your suppliers’ business that is the order to cash (O2C) cycle.
Here you would look for IOS to optimize your P2P cycle where this also had benefits to a supplier's O2C cycle.
It has to be a win – win.
Click here for more information about IOS.
