Link issue#7 may -june2005 - SCLG

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14 Supply Chain Electronic Vendor Enablement Making e-Business Viable for the SMB INTRODUCTION Vendor enablement, or the process by which buying organisations work with their Vendors to exchange business documents electronically, is a proven e- business initiative and is one of the first steps towards collaborative commerce. Well-structured Vendor enablement programmes yield dramatic reductions in transaction costs, fewer errors per transaction, and shorter cycle times for document processing within the extended supply chain. Vendor enablement is an initiative driven by the buying organisation, and from the buyer’s perspective, the issues center on the general application of the 80/20 rule. For most buyers, around 80 percent of the value attributable to received goods and services will typically derive from 20 percent of the Vendor base. That 20 percent of the Vendor base is often considered strategic to the buying organisation, and therefore, the buying organisation works to ensure that these Vendors are capable of electronically transacting business documents. The remaining 80 percent of Vendors account for only 20 percent of imputed value. As such, the cost of managing these accounts is in inverse ratio to the value they provide. Given that the cost of processing two Purchase Orders with the same number of line items is similar, regardless of the Purchase Order value, processing costs for the buying company are disproportionately higher for its smaller purchases. In other words, while buyers will readily integrate the 80 percent of transactions by value, it is frequently the remaining 80 percent by number that are not only the most costly to process, but are also the most challenging to integrate. Thus, successfully electronically enabling this large group of Vendors delivers the buying organisation extraordinary value that meets current boardroom requirements to leverage IT investments as part of broader initiatives aimed at reducing the cost of doing business across the whole supply chain. Petroleum Development Oman has an ongoing Vendor Enablement programme which started with the connection via the OTN/EOS digital document exchange (DDE) of some 2500 vendors (trading locally, regionally and internationally). With this connectivity PDO have driven down the internal cost of processing its documents, are driving the external cost of exchanging documents and are starting to derive value from doing business electronically. The value in the business comes from having the visibility across the whole supply chain and is the first steps towards a collaborative commerce environment. BENEFITS TODAY Running the business in a cost efficient manner is always a boardroom priority. To date, most cost reduction projects have focused on the direct cost of doing business – acquiring goods and services at the lowest price commensurate with meeting quality objectives. But this only addresses part of the cost of doing business. Large organisations (such as PDO) have long understood that the indirect cost of doing business and in particular, processing paperwork, handling inquiries and dealing with errors, is a significant cost. Electronic Vendor enablement programmes offer companies the chance to Supply Chain & Logistics Group | www.sclgme.org
Supply Chain 15 significantly impact the bottom line by addressing the indirect cost issue. This can be achieved with a modest financial investment, producing the following major benefits: • Elimination of parallel processes • Maximizing value • Reduced cycle times • Improved Vendor relationships VENDOR ENABLEMENT CHALLENGES The Buying Organisation’s Perspective Despite recognising the advantages of electronic trade, companies do not often achieve complete success in their attempts to reduce costs through Electronic Vendor enablement. The following represent common causes of failure: • Too many Vendors to enable • Fear of imposing too great a cost on vendors • Lack of knowledge about the Vendor community • Lack of internal commitment and communication • No time, money or expertise to initiate and manage programme • Lack of external commitment and communication The Vendor’s Perspective From the Vendors’ perspective, different issues emerge. Companies launching Electronic Vendor enablement initiatives most often hear these protests from their smaller trading partners. • Overwhelming complexity • Lack of money and technical resources • No visibility of return SUMMARY Although enabling a Vendor community does not come without its share of challenges, buying organisations have many practical methods of facilitating the process. Advances in technology, lessons learned through internal history, and outside vendors seasoned with experience can all help to ease what was once a burdensome, if not overwhelming, task. Finally, given the current economic environment, there has not been a better time to elevate Electronic Vendor enablement into a top e-commerce initiative than now! About Author: Dr. Graham R Smith. FIAP. MBCS. MCIPS. Supply Chain SAP Asset Manager. Petroleum Development Oman. Graham has spent the last thirty three years in Supply Chain Management environment primarily in the Oil and Gas exploration and Production industry. He has worked for many of the Oil & Gas majors in his career; this includes Mobil, ESSO, ARCO, QP and Aramco and is currently with Shell International in Petroleum evelopment Oman in Muscat, Oman.
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