B2B Integration Provides Transparency in Purchasing

A first principle of a (good) purchaser is to buy “his” or “her” items at excellent quality at the right time and at a good price. But how? This can be done via catalogs or on online marketplaces. According to PwC (PricewaterhouseCoopers), a catalog should contain all relevant product information for purchasers and suppliers, such as product category, supplier/manufacturer, product short code, ordering intervals and price scales, product numbers, units of measurement or images (PDF, videos, or Internet links). The task of the catalog system is to organize different types of complex contents, such as product descriptions, hierarchically arranged parts lists, and directories of services.

Not without my catalog

According to the e-business innovation center at the Fraunhofer IAO, there is a clear trend towards the use of internal online product catalogs and ordering systems in midsize and large companies. According to Frost & Sullivan, catalog management is even afforded a “key role” in e-procurement. Online catalogs are the “hub where information about the available products or services is managed,” is how the PwC study “Wegweiser Katalogmanagement” (Guide to Catalog Management) describes their core function. The following three main catalog types exist to meet the requirements that underlie this form of electronically based procurement.

  • Internal catalogs: An internal catalog aims to provide the greatest possible control over the purchasing process and to monitor the terms and conditions in place with suppliers. The catalog is usually located on the servers of the purchasing organization which also – usefully – manages the catalog data. Data transferred from the supplier or the company’s own material master data is integrated. This data includes both prices and layout (images and graphic design) of the catalog. Products can also be assigned company-specific descriptions and material numbers and they can be managed in the catalog. Advantage: the purchasing organization does not need to remodel the entire purchasing process to identify products. Instead, it can simply take existing item data from other systems (such as a mySAP ERP system).
  • External catalogs: Suppliers create their own electronic catalogs and make them available to their customers. In comparison to the internal catalog, it is easier to set up the data, which is always up to date, and real-time access occurs using a web browser via the Internet or extranet. The benefits for a purchasing company are mainly on the cost side as the supplier handles the catalog management. Similarly, the company does not need to provide hardware or software of its own.
  • Neutral catalogs: These are catalogs on marketplaces that combine and summarize the portfolios of several suppliers. In this way, standardized (in terms of layout and images) and comparable product data are available in transparent form on a standardized interface. This creates a competitive situation between the suppliers involved as it is easier for buyers to compare product features or prices. Such marketplaces often also supply additional (e.g. industry-specific) information or organize online auctions.

Global presence on virtual marketplaces

Buyers and sellers exchange just about any kind of goods and services on this type of virtual marketplace. A characteristic feature of marketplace applications is the fact that multiple suppliers use the marketplace to reach multiple customers (many-to-many). A distinction is made here between horizontal and vertical marketplaces. Vertical marketplaces generally connect companies (buyers and sellers) of a single industry. In many cases, connectivity into the back-end systems of those involved is enabled in order to increase process efficiency. This not only includes procurement, but also, for example in the automotive industry, invitations for tender and joint development projects between various supplier companies and a manufacturer (collaborative engineering). Conversely, horizontal marketplaces are designed to take in various industries and tend to offer a wide product range as opposed to extensive process integration. To date, mainly MRO goods (Maintenance, Repair, Operations) requiring little advice or C items have been traded in this way.
On the whole, additional services (such as forums) integrated into the marketplaces improve customer loyalty, promote community thinking, and also enable trade with A and B items requiring a higher degree of advice. Further, small and midsize companies that participate in electronic marketplaces are also able to access national and international procurement sources and thus achieve greater price transparency. In the view of ECC-Handel (E-Commerce-Center), companies want to speed up purchasing processes, lower process costs, improve the product range, and lower product costs in this way.
For SMBs, whether buyer or supplier, participation in marketplaces is well worth it. This is true firstly from the buyer’s point of view as connecting a marketplace to an existing ERP system (mySAP ERP) or standard business application such as SAP Business One saves costs. It is also true from a supplier’s point of view as sales processes are outsourced to the marketplace. This dispenses with intermediaries and enables goods to be bought at better prices. In the view of Jörn Szegunis from the Fraunhofer Application Center for Logistic-Oriented Business Administration (ALB), SMBs still lag some way behind as they often lack the technical requirements in the form of a business software solution. Additionally, they do not take sufficient advantage of cost-saving opportunities. To this extent, figures by the Bundesverband Materialwirtschaft, Einkauf und Logistik (Federal Association for Materials Management, Purchasing and Logistics, or BME) and the European Business School (ebs), which state that 85 percent of German industrial companies are already using Internet marketplaces to buy C goods, are too optimistic.

Into the future with SRM

Due to the increasing complexity of business processes – and thus purchasing processes – due to the arrival of the Internet, “simple” electronic purchasing will in future be supplanted by “the concept of Supplier Relationship Management (SRM), which combines classic e-procurement with collaborative aspects,” as Professor Ronald Bogaschewsky from the University of Würzburg put it in an interview with the Competence Site. SRM, as the name implies, is the supplier-oriented version of CRM, which aims to link suppliers more closely to the buying organization. Frost & Sullivan analyst Andrew Ball thus describes the tasks of an SRM software solution as follows: “Complex, interwoven business processes must be made transparent in order for companies to identify and eliminate duplicate items, while remaining sufficiently well informed to negotiate with suppliers.”
SRM focuses equally on both commercial and process-oriented aspects. In Andrew Ball’s view, SAP’s mySAP SRM best fulfills these central requirements, such as increased efficiency and cost reduction. This is because SAP provides not only a software solution, but also concepts that enable relationships and processes between buyer and supplier to be refined. This consistently reduces costs, optimizes procurement processes, and provides full transparency across the entire supply process. And that is ultimately the most important thing.

For further information:

Studies: www.frost.com, www.pwcglobal.com
SAP AG: www.sap.com/solutions/business-suite/srm

Dr. Andreas Schaffry
Dr. Andreas Schaffry