Electronic Networks 101: What They Are and How to Leverage Them

The need to understand third-party electronic networks and effectively leverage them for your business has never been more crucial. As these networks become increasingly sophisticated and powerful, the cost savings and value they deliver increases as well—which means more buying organizations are turning to them as a way to cut costs, drive greater business efficiency, and better manage their spend.

Third-party electronic networks provide a centralized online resource that allows buyers and suppliers to automate all activities in the business process lifecycle—from marketing and promotion to ordering, invoicing, payment, and everything in between. And while you may initially join an electronic network at a customer’s request, moving beyond simple procurement to master other network capabilities can give you a major competitive advantage.

This first article of a two-part series explains why network integration should play a key role in your eCommerce strategy—and how you can best tap into this rapidly growing market.

What Benefits Will I Gain from Investing in Electronic Networks?
Devoting the time and effort to integrate with electronic networks offers benefits in a wide range of areas, enabling you to:

• Capitalize on an important market trend. Third-party electronic networks are clearly the wave of the future, as buying organizations increasingly invest in network-based spend management applications. Research shows that these companies are eager to find eCommerce-enabled suppliers to help their spend management initiatives succeed—for example, 72 percent of buyers in an Aberdeen Group survey* describe supplier eCommerce enablement as a very important or critical priority, and 28 percent intend to shift business to electronically enabled suppliers. As this trend continues, "business as usual" will no longer be an option. Gaining network expertise now helps differentiate your company from suppliers who drag their feet, enabling you to jump ahead in this valuable new sales channel.
• Edge out your competition. Buying organizations use network-based spend management initiatives to help them compete in a challenging environment. Improving your network capabilities increases your credibility as a proactive, eCommerce-savvy supplier who can effectively support customers' efforts, helping you gain preferred supplier status and win business from non-enabled competitors.
• Enhance market exposure without spending a dime. Electronic networks provide an excellent way to scale your marketing efforts by making your business visible to hundreds or thousands of potential customers beyond the one you joined for. Online sourcing, discovery, and search capabilities help potential new customers find you based on profile information you provide, exponentially expanding your business opportunities.
• Get paid faster and reduce day sales outstanding (DSO). By eliminating cumbersome paper-based processes, minimizing errors and billing disputes, and expediting invoice acceptance, your use of automated network processes such as eInvoicing and electronic payment accelerates the order-to-cash cycle and cuts DSO almost in half.
• Boost contract compliance. Customers transacting on electronic networks can incorporate specific controls to ensure that users only purchase through preferred suppliers with agreed-on contracts. This will drive higher sales for your business.
• Retain customers longer. As a supplier already enabled on multiple network capabilities such as online catalog management, eProcurement, and eInvoicing, you become a "low total cost" partner who can help customers achieve faster spend management ROI. This in turn helps make relationships stickier and can significantly increase business retention.
• Improve efficiency and lower costs. Networks help eliminate the high costs and error rates of paper-driven processes such as emailing, faxing, sending, and filing purchase orders and invoices, helping you and your customers improve efficiency and save money. For example, an Aberdeen Group report* notes that manual order-to-cash/procure-to-pay processes cost 30 percent more than electronic ones, while a Hackett Group study** shows that using B2B channels reduces billing errors by 63 percent. Automated processes help you spot and correct order failures, incomplete orders, and other problems right away, alleviating the need for expensive last-minute fixes. And reduced error rates mitigate the need for customer service involvement to resolve disputes, lowering your costs even more.

How Do I Get Started?

The process for utilizing electronic networks typically evolves in four stages:

1. Reactive
2. Responsive
3. Proactive
4. Collaborative

Even if you join a network at the request of a specific customer, the infrastructure and abilities you begin to develop through that initial relationship equip you to better respond to other potential customers interested in transacting with you. Putting more processes and resources in place to proactively increase your network capabilities gradually helps you capture more business. This takes you to the most integrated level, where you collaboratively partner with customers to leverage the B2B channel as a mutually beneficial strategic initiative while helping to shape the network's future direction.

The faster you adopt a proactive approach, the more benefits you'll experience. For example, CIF catalogs may seem sufficient when you’re just starting out, but only by understanding and implementing XML-based applications like PunchOut catalogs and eInvoicing can you eliminate manual processes and realize the dramatic efficiency gains, cost savings, customer satisfaction, and sales growth that are the true promise of network integration.

Stay Tuned...
Don't miss part II of this series in the next issue of Supply Lines, where you’ll find detailed information on how to select electronic networks that offer the most benefit to your business.

*Aberdeen Group 2007 Supplier Enablement, © 2008 The Aberdeen Group.
**Hackett 2007 Customer-to-Cash Select Key Performance Metrics, © 2007 The Hackett Group.