E-procurement was the fastest-growing electronic sales channel in 2018, based on data contained in the newly published 2019 B2B Ecommerce Market Report. E-procurement sales also accounted for 20% of all B2B electronic sales last year, per the 2019 B2B Ecommerce Market Report.
E-procurement, which runs on spend management applications and services, also is becoming increasing integrated with B2B ecommerce sites. In this question-and-answer session with B2BecNews, Robert Bonavito, CEO of spend management software and services provider Jaggaer and a 30-year veteran of the supply chain technology market, looks at the emerging intersection of spend management applications, e-procurement and B2B ecommerce and explains what this intersection means now and going forward for manufacturers and other B2B buyers and sellers undergoing a digital tools upgrade or complete do-over.
Q: Why should manufacturers care about integrating spend management software with their B2B ecommerce program and what is the benefit?
RB: Spend management software brings business efficiency, data access, management and analysis to any B2B ecommerce program. Supplier management, contract management and e-procurement also form a strong backbone on which an entire analytical framework is built. On a macro level, total business profitability can’t really be measured unless all expenses are available and analyzed. Spend management applications and services provide granular, actionable data on all levels of spend, which not only enables accurate profit assessment, but also helps with forecasting.
Supplier analytics provides critical insights on delivery times and trends, risk assessment, supplier key performance indicators (KPIs) and supplier events, all critical elements in determining the best suppliers, selecting multiple suppliers and determining all the actual costs associated with suppliers.
In terms of forecasting, imagine a scenario where a company could determine suppliers based on price against speed, reliable delivery and quality, considering the backdrop of potential supply chain interruptions based on factors ranging from geopolitical risk to the environment.
Spend management tools and services also help with issues of sustainability and local economic impact—think of foreign car makers building units in the U.S.—thereby creating jobs and supporting the economy. Other factors benefitting an ecommerce program include audit, regulatory compliance, workload management, document management and the visibility that comes with a digital transformation.
Q: Where did spend management software come from and why is it important to manufacturers today?
RB: Most manufacturers are probably all too familiar with the spreadsheet era of business management, dating back to the Lotus and Excel days, the granddaddies of all inventory management, supplier bid management, invoice management and contract compliance management programs.
These programs came into widespread use around the same time as early materials requirement planning (MRP) systems; they were later combined to form enterprise resource planning (ERP) systems.
Today’s spend management applications address these same business processes with far more powerful tools, on the integrated application level. Manufacturers need to control critical processes like sourcing with cost breakdowns to execute a category strategy, contract management to enable authoring, oversight and access; a supplier network, to effectively manage the approval status, negotiate prices and then manage logistics and inventory; and savings-tracking to identify savings opportunities.
Additionally, massive volumes of data demand new access methodologies to drive performance optimization. A digital spend management application provides a flexible, organizational framework to leverage analytics technologies like predictive order management or digital assistants, that inform decisions through advanced data management.
Q: What do these integrated suites look like?
RB: The suites are divided into functional sets that align with the workflow of business, from Source to Pay, S2P and Procure to Pay (P2P) for both direct and indirect materials. Procure to pay tools and services streamline the workflow of purchasing to accounts payable and source to pay expands this flow to embrace sourcing.
The workflows are designated as upstream and downstream. Upstream systems are designed for negotiating terms, understanding spend and managing suppliers; they also encompass category management, sourcing, contract lifecycle management and supplier development.
Downstream processes facilitate purchases of goods and services with various supply chain methodologies like scheduling agreements, sending advanced shipping notifications and offering vendor-managed inventory. This also involves payments and includes e-procurement, accounts payable and savings management. A fully integrated platform shares data from each discreet module across the suite and with the existing ERP system.
Many companies have moved away from purchasing individual modules because of the limitations of data flow, visibility and reporting, plus the lack of scalability and difficulty integrating other solutions into the mix.
Q: Manufacturing is heavily reliant on direct materials procurement. How does spend management software integrated with a B2B ecommerce platform address these unique needs?
RB: Spend management software integrated with a B2B ecommerce platform is specially designed for the unique spend management activities within manufacturing companies, with individual extensions and special configurations for the automotive industry, mechanical engineering and construction, medical device technology and food industry.
This integrated approach addresses for each industry category such essential supplier KPIs as supplier performance, parts-per-million ratio, on-time delivery, availability and financial risks. Spend management software integrated with a B2B ecommerce platform supports the needs of buyers and supply chain professionals working with direct material suppliers to ensure efficient manufacturing operations and to keep control of all continuous supplier development activities.
Q: Many manufacturers have an ERP system. Why would they need a spend management system integrated with a B2B ecommerce platform?
RB: ERP systems brought disparate, internal processes together; spend management systems integrated with e-commerce bring disparate purchasing processes together across buyers and suppliers for operating synergies and efficiencies.
ERP systems cannot, however, handle product category strategies, including supplier segmentation and approval status based on production site and sub-supplier activity. In addition, ERP systems they don’t deliver a single access point for suppliers to interact in all processes electronically, from research and development to new product introduction, start of production, and up to the end of production.
Most manufacturing companies can’t rely on savings solely through classical cost reductions. They are increasingly leveraging intensive supplier management and supplier development activities. Deep insights in all supplier development activities and cost structures at the supplier’s level are key for future savings activities.
Q: Does the supplier experience change when integrating with one of these systems?
RB: Typically for the better. Suppliers appreciate insights on their performance to understand opportunities that better fit customer needs.
Q: What should a manufacturer consider when selecting a program? Why invest and what’s the payback?
RB: Spend management services should deliver a complete view of organization-wide spend from all data sources. These include ERP, travel-and-entertainment, peer-to-peer systems and work orders, as well as reliable cost savings, improved compliance, critical visibility and insights into suppliers.
Manufacturers should look for a system that easily integrates with their existing ERP systems, is user-friendly and intuitive for users in all levels of the organization, and can manage such needs such as direct materials procurement with supply chain management and quality management capabilities.
For manufacturing companies with a digitalization roadmap, it’s even more important to migrate all the different processes into a single database, eliminating multiple data silos. One central data layer will provide these companies with seamless analytics to drive decisions and recommendations through a virtual assistant, to make better decisions based on all existing data.
The return on investment for these applications is calculated many ways and across various scenarios. For example, when a customer with a fragmented information solution adopts an integrated suite, they’ll find new visibility into supplier relationships, price points, logistic and acquisition trends.
Savings can be found in better pricing, more efficient shipping, reduced internal redundancies and faster access to shared information.
Q: What’s involved with integrating these applications into an existing ERP?
RB: This is a very important step in the value equation of selecting a system. With a services-oriented-architecture (SOA), this will allow an integration partner to leverage established system connectors, web services or APIs with the fewest number of resources on both ends.
There are dozens of predesigned templates to make the process tailored to a company’s needs as well as any custom-developed application, sometimes cutting integration times down to a half or third of what it would normally require.
Q: What types of innovations is Jaggaer developing to address the needs of the market and manufacturing?
RB: Innovations currently in development include:
- Artificial intelligence, based on clearly defined business cases, to enable supply chain digital transformation with new insights and predictive capabilities.
- Machine Learning, which brings linguistic classification, the language of the industry, to data classification and rationalization.
- A smart assistant, leveraging natural language processing and machine learning to answer questions related to customer data, and make recommendations, suggest next steps and provide explanations.
- We recently prototyped predictive order management technology based on a deep learning algorithm. This represents an AI algorithm for predicting the probability of on-time delivery of goods and materials in direct procurement. This predictor will provide immediate information about the likelihood of delays to deliveries from suppliers, enabling supply chain managers to mitigate risks of disruptions to production flows and reduce the costs that these can cause. These recommendations are changing the way the end-user is interacting with the software. Where strategic buyers in the past were developing category strategies on PowerPoint, they can now render their individual category strategy as an algorithm in the software to place the whole organization on a much higher level of understanding.
Q: How do spend management systems integrated with ecommerce help manufacturers deal with increasing supply chain vulnerabilities?
RB: Managing the supplier relationship and supplier development and having visibility into potential risks are two technology-enabled methods for avoiding costly disruptions.
A supplier management tool aligned with a risk management tool will provide a single access point with complete visibility into supplier performance on regional, site, category and material level. This will inform the selection of a roster of high quality, reliable vendors that have the qualifications and resources to meet manufacturer expectations through dynamic qualification and risk compliance. This automates risk, quality and supply chain management, which enhances the entire continual quality improvement process.
Q: What three innovations can manufacturers look forward to within the supply chain/spend management space as it applies to ecommerce?
RB: Innovations on the horizon for manufacturing are digital twins, blockchain and advanced analytics.
- Digital twins are a digital representation of the supply chain, able to track the real-time operation and life cycles of physical assets, people, places, systems and devices. A digital twin enables the complete testing of a system without having to invest in the full development; think of it as the Matrix, without the bad guys.
- Blockchains are blocks of transactions chained together, creating a shared record of all transactions. This establishes trust among unfamiliar or unknown partners. The information of all transactions will be stored on the internet for everyone to see. Transactions will be in an open ledger so each party can see the transaction and its validity; additionally, this ledger can be distributed for financial and auditing records of participants. These transactions can be fed directly into a spend management system
- Advanced analytics, based on interacting with data using a combination of natural language and text, will fully integrate data analytics and process flows. This will enable the user to identify areas that require action and launch that action directly. In addition, users will be able to conduct such activities as creating a supplier development plan or developing an online auction to consolidate product spend and eliminate price variance.
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