MOST NETWORKS CANNOT HANDLE GLOBAL TRADE

Why Most Networks Aren’t Capable of Handling Global Trade

David Gustin

- August 17, 2016 1:01 AM |

Categories: Trade Credit Commentary | Tags: digital trade, GT Nexus, network of networks, Tradecard

For most vendors that provide supplier networks to enable einvoicing, document handling and exchange, supplier portals, most solutions covers indirect spend well. Whether you are a hospital, an electronics company, retailer, or a food manufacturer, you buy plenty of indirect stuff, such as furniture, IT equipment, office supplies, real estate services, etc.  From an accounting perspective, indirect spend is typically treated as a Sales, General, or Administration expense.  Direct spend is treated as a cost of goods sold and includes raw materials, ingredients, semi-finished product, etc.
A lot of attention is now paid to indirect purchase to pay technology and providing all kinds of add-on services to suppliers, including early pay finance.
I am not going to get into the complexity of buying marketing or consulting services compared to buying transportation services (all considered indirect by the way) compared to buying resins, commodities, or manufactured parts (all treated as direct). I will leave that for my Spend Matter cousins to discuss.
But when buying direct material goods, especially from overseas, many vendors that would like to create a true network across all spend categories, or some type of super Network of Networks, fail to understand how  fundamentally different this space of connected commerce is under the Purchase to Pay heading.
We have vendors that are strong in VAT tax compliance, AP automation, supplier portals, etc. (think Tungsten or Basware) but their services differ vastly compared to other vendors that have some solution around direct spend for connected commerce. We know EDI and EDI integrators have been doing it for decades –companies like GXS/OpenText, Sterling, etc. GT Nexus (or Infor) is another vendor that has capabilities here, especially from the old TradeCard business.  Direct spend enablement requires deep knowledge and skills to set up and orchestrate a global supply network comprised of various partners who collaborate in complex high-stakes processes.
The challenge when creating a solution around direct material spend, especially one to handle global trade, include

• Depending on industry, a fair amount of direct materials are globally sourced and are covered by trade treaties and legislative laws like Dodd-Frank.  It's one thing to be VAT compliant.  Its another to compliant with tax law, treaty law, and regulations.
• Specs can be quite complicated with direct materials and can include inspection requirements at factory source.
• Typically, payment is tied to shipment, unlike domestic trade of goods and services, where payment and logistics are not typically tied.
• Lead times can be much longer, especially with ocean shipment.
• There are many parties involved in a shipment, included but not limited to inspection agents, buying agents like Li & Fung, forwarders, custom brokers, insurers, lenders, 3PLs, etc. The data requirements by these various parties to satisfy their requirements need to be understood.

So as some vendors look to enhance their narrative around being a “Network of Networks” to connect the funding and payment world and manage various outcomes of a commercial transaction, there are various things that need to be understood before one can proceed with pulling partners into the discussion.

• First, what problem are you solving, bearing in mind that companies have solutions in place today that may not be as efficient or effective as your PowerPoint slides, but works.
• Second, understand the different type of vendor propositions and what they do and differences, and where they are going. Do they understand direct materials, and are they moving in this direction? Take a look at specific einvoicing, eProcurement, and other network providers to see how they handle the complexities of both direct spend and integrating document handling between various partners.
• While any transaction between businesses has the same overall processes, global trade has additional complexities that need to be understood, especially around logistics, compliance, and payment.

The Spend Matters team put together a very good whitepaper on this subject - Direct Procurement Execution: What’s Changing?
As more vendors look to create a vision for digital trade that includes not just indirect spend but direct, creating the narrative and story is one thing, but the practicalities of a solution that will generate revenue is no easy trail.