In order to understand the evolution of supplier networks you need to have a rudimentary understanding of the Network economy. It is the basic principle that in today’s global business environment value is added across an entire supply chain in which information sharing and information technology plays a major role.
The nature of how information is being passed along the supply chain has however gone through some radical changes. Similarly to our private lives, where previously there were many one to one connections (i.e. through email, or messages), businesses have increasingly looked at networks to connect with their suppliers.
After all, the centrally led advantages of having all your friends in one place, can also be applied to having all your suppliers easily available just one click away. With each new supplier connected the Network effect and total worth of the relationships becomes a bit more valuable. With each new family member joining Facebook, that relationship becomes more valuable in our daily lives. Or so we thought…
But in the time of fake profiles, data abuse, and Cambridge Analytica scandals people are reviewing how they are using social media in their personal lives. They are moving away from time spent on social media platforms and are increasingly turning to messaging solutions like Whatsapp. Some of the reasons we have become more skeptical towards social networks also apply to the business world.
Source: Business Insider
Source: Business Insider
So without further ado, here are 5 reasons why companies should rethink business networks
Number 1: Your supplier relationship is yours alone
Oftentimes the perceived advantages of having your suppliers on an existing network come with a hidden cost as you become dependent upon the good-will and capabilities of the company running it. Who is in control of the information flow? Who sets the terms and conditions for your suppliers? When Facebook started charging businesses to get views from their followers there was little they could do but go along and pay. The same applies when network vendors change fees or terms, or set limits on activity. What information is being shared with your suppliers? And how much of your supplier information is shared with competitors? Sometimes it’s better to own the direct communication with your suppliers.
Number 2: Size actually doesn’t matter
A key reason given for adopting existing supplier networks is that, the often large number of suppliers already on some networks, should drive faster supplier adoption. If suppliers are already on the network, it must be faster to onboard them. The argument seems logical. Unfortunately, it has proven to be false. The real factor driving adoption is whether suppliers will be resistant to joining, which comes down to how easy it is to connect to a customer and whether suppliers must accept any network provider terms or be subject to any potential fees. When there are easy and no conditions to run by legal, or fees to raise eyebrows, suppliers connect in droves. The most successful supplier adoption projects in the world are actually Ivalua customers such as CACI (99.8% of suppliers by count onboarded – over 40,000), Fannie Mae (70,000 suppliers onboarded) and Credit Agricole (100% paperless procurement with nearly 60,000 suppliers onboarded). Maxim Healthcare realized this when they were able to onboard more suppliers in 2 months using Ivalua’s private network than they had with their previous business network solution in 7 years.
Number 3: Your suppliers will thank you
Your suppliers want to be taken seriously. They want a direct relationship with you, their customer, and don’t want to be just another number. How else can they collaborate with you on innovations? As companies become increasingly dependent on suppliers and procurement’s objectives continue to expand beyond cost savings, that direct relationship is key to you establishing yourself as a customer of choice and maximizing value from your supply chain, and for suppliers differentiating beyond price.
Number 4: Data security is important
Cambridge Analytics is just one example of many where the perceived advantages of having all your data in one place is also a potential risk. Companies that were deemed highly secure and reliable have faced major security breaches. Whether it is Yahoo, Sony Playstation, eBay, or Equifax there have been many data breaches in recent history. There is a reason that companies are increasingly looking at decentralized technologies, like Block chain, as centralized networks are an immensely attractive target to hackers. It’s one thing when Playstation Network is down due to a DDoS attack, but what if you can’t communicate with your suppliers on deliveries, payments etc? A hidden secret of many-many supplier networks is that all activity on those networks generally flows through the base country for that vendor. They may have local data centers to host applications, but network activity does not stay local and is hence exposed to different regulations, potential government action or hacking.
Number 5: The economy is changing, stay flexible
Just as consumer trends are shifting away from major social media platforms like Facebook and Twitter businesses also need to remain nimble. Owning your own supplier relationships gives you the flexibility to move on as this new networked economy we are living in is constantly evolving. As a company you probably do not want to get locked into the next Myspace.