To compete in today’s agile, lean business environment, companies must be able to effectively and flexibly leverage their resources. Those resources are increasingly found beyond the four walls of an organization, however, often expanding to include trading partners such as financing parties, suppliers, and contractors. With companies connecting to vendors around the world and processing transactions at a higher rate than ever, there is much to gain by better leveraging those relationships and interactions.
In addition, an unprecedented level of information is now available in online communities, but organizations struggle to properly access, collect, and leverage this data. Insight into new product innovations, customer preferences in new markets, and the reliability of suppliers, for instance, can drive a range of benefits for the networked organization. To truly thrive, companies must focus on tapping into this information to conduct business in new and better ways, rather than simply streamlining existing processes.
Business networks are a key enabler, providing a single platform for connecting and extending existing systems, enabling enterprise agility, facilitating access to insight, and ultimately simplifying enterprise resource management. So where do you start with a business network strategy, and what does it look like to actually use business networks to take advantage of your company’s resources? This article answers these questions to help shed light on how business networks can improve processes in your own organization.
The Strategic Role of the CIO
The emergence of cloud technology has led to a larger role for functional leaders in technology decisions, and savvy IT professionals are now aligning with the business to drive increasingly strategic investments. Business networks are a natural fit for this alignment. They enable a resource management approach that extends the return on investment (ROI) and flexibility of past system investments, allowing trading partners and online communities to access financial, purchasing, and other systems. With these capabilities, the company gains more value without the pain of change management or new implementations.
While the influence of functional leaders over technology decisions has grown, and the business-related benefits of networks are clear, it is the CIO who is best positioned to provide the strategic guidance needed to select the optimal business network for the organization and direct the implementation approach. Individual functional leaders often evaluate networks based on their own limited requirements. For example, procurement leaders will likely be inclined to focus on whether a network connects to the bulk of the company’s supply base, and whether it can effectively support catalogs and routing of purchase orders across managed spend categories. They may overlook or underweight criteria that is important to other functions, such as e-invoicing and financing capabilities, which are critical to finance, and lead generation, which is important to sales and marketing.
With today’s business networks addressing an ever-expanding range of business challenges, a broader perspective is needed. Without a holistic view of the overall organizational requirements and systems, siloed, suboptimal network decisions become more likely. The CIO can — and should — provide this overarching view, advising business leaders and guiding the network strategy based on the overall organization’s needs and existing IT infrastructure.
Business Networks in Action Across the Enterprise
Once the network strategy is set, functional units across the enterprise can use the selected business network to manage organizational resources optimally and make efficient enterprise resource management a reality. Let’s take a look at some examples of how key functional units — purchasing, sales and marketing, finance, supply chain, and human resources — in an organization can leverage various resources through networks to conduct business in new and better ways.
Purchasing organizations have much to gain from business networks, which can connect a wide range of resources and functionality, and provide access to extensive market knowledge, all on a single platform. By leveraging third-party and community insights, for instance, the purchasing organization can improve supplier qualification, thereby mitigating risk.
Business networks can also enable electronic purchasing of all categories of spend, allowing greater control and flexibility. By making it much easier to onboard suppliers, with many already registered on the largest networks, more spend can be transacted through the system. And portfolio offerings that include a wide range of category expertise — such as SAP’s business network portfolio, which includes Ariba, Concur, and Fieldglass — can help simplify processes even further, enabling all spend types to be purchased via network, without the need to work with multiple providers.
In addition, business networks can help bring unmanaged spend under control by enabling spot buys and quotes for uncontracted items. With the right network, purchasing leaders can select categories of spend for spot buying through public catalogs or third-party sites integrated into the network; the network can then identify and present to users the lowest price options available from qualified vendors. For complex items not appropriate for catalogs, spot quote functionality enables communication with qualified vendors to define the correct requirements and then complete the purchase in the e-procurement system. In this way, spot buys and quotes enabled by a network ensure that purchases are kept in the company’s existing procurement systems, and that organizations stay informed on competitive prices.
Business networks can also help purchasing marshal resources to meet non-cost objectives, such as driving innovation to increase revenues, or meeting corporate social responsibility, diversity, and regulatory requirements. For example, if a company needs a new heating, ventilation, and air conditioning (HVAC) system, the traditional approach is to provide the precise unit specifications, invite select vendors, and run an auction to find the lowest cost option. A business network enables purchasing to crowdsource the business requirements, providing climate, building, and other information, and allowing a much broader set of vendors on the network to bid creative solutions, including non-traditional approaches involving insulation or solar panels, for instance.
Portfolio offerings that include a wide range of category expertise — such as SAP’s business network portfolio, which includes Ariba, Concur, and Fieldglass — can help simplify processes, enabling all spend types to be purchased via network, without the need to work with multiple providers.
Sales and Marketing
The main goal for sales and marketing is to drive revenue, and business networks can help sales and marketing organizations leverage company resources to accomplish this in a few ways. First, business networks can serve as valuable lead generation tools, notifying suppliers when a buyer is looking for a vendor to provide a particular product or service, and enabling an introduction to that buyer over the network.
Business networks also help increase wallet share with existing customers. By electronically routing orders to contracted suppliers and providing visibility into the status along the entire order process, business networks help drive compliance with contracts, so suppliers receive the full, contracted volume. The visibility provided to both parties through the order-to-pay process, and the reduction in errors due to automation, helps increase customer satisfaction, improving the odds of a long-term relationship.
Sales and marketing can also use business networks to enhance visibility into and control over cash flow via online payment status and financing options, which provides benefits across the company, especially for finance.
As with sales and marketing, business networks can help finance use a wide range of resources to increase visibility into and control over cash flow, and also to perform dynamic discounting. For instance, with interest rates at historically low levels, many companies are struggling to find risk-free investment options. Business networks make it possible to see exactly which invoices are eligible for early payment discounts, and give companies the flexibility to pay at the optimal point, either preserving cash by paying at the full-term date or by paying early. A typical discount of 1.5% for a 30-day-early payment translates into a nearly 20% APR, far above traditional investment options. And this return is risk-free, since vendors must be paid at some point.
Finance organizations can also improve payment security and visibility by connecting to a network that offers electronic settlement. Such networks automatically pull rich remittance details from purchase orders, invoices, and contracts, and provide both parties with continuous visibility into the payment status, making reconciliation a transparent and automated process.1
In addition, by enabling all spend for electronic purchasing, finance can reduce costs and improve compliance. Business networks can validate vendor prices, ensuring compliance against contracts, and automated workflow reduces paper and time spent dealing with errors, ultimately driving significant process savings.
Business networks are a significant asset to the supply chain group. They not only connect buyers and suppliers throughout the supply chain, they enable the use of functionality that improves performance across the supply chain, including greater efficiency, reduced costs, and increased customer satisfaction.
For instance, the supply chain group can optimize inventory and reduce risk through “perfect orders” that are submitted and tracked over a business network. A perfect order is one that ensures delivery of the right product in the right quantity to the right place at the right time, with the right documentation and packaging. It sounds easy enough, and is anything but in the real world. The complexities involved in an order’s journey through the supply chain leave innumerable opportunities for errors and delays, and as a result, companies often maintain excess inventory that consumes space and capital.
By using networked resources to automate the entire order-to-cash process and eliminate manual errors, and to provide detailed, real-time visibility into order status, business networks minimize the need to hold excess inventory. Organizations are able to better manage capital and reduce stock-out risk.
HR can also benefit from using business networks, which can help access and leverage various insights from networked online communities to enable a full picture of an organization’s current and potential staff and skill set.
By leveraging business networks, HR can manage the entire enterprise workforce — not only temporary and full-time employees, but also beyond. For example, companies often have large talent pools of retired workers, alumni, and known contractors. Business networks can track and provide access to such talent pools during the procurement process, providing a baseline view of your organization’s known resources and their associated skills and experiences.
Business networks can extend resource management beyond the walls of an organization, allowing for better monitoring of and interaction with customers. For more information on how business networks can support your organization, and to learn more about SAP’s business network portfolio, visit http://ari.ba/businessnetworks.
1 For more on electronic payment processing between vendors and suppliers, see the article “Modernize Your B2B Payment Processing” by Drew Hofler in this issue of SAPinsider. [back]