Are Supplier Network Fees a False Economy?
On the surface, the concept of supplier networks and eMarketplaces seems great for buyers – a large number of suppliers already set up and accessible through a single “hub”. And in some cases, there are in fact advantages with this approach to dealing with suppliers.
But supplier networks and eMarketplaces are not the “silver bullet” their operators position them as being. Unless a buyer is willing to limit their potential supplier base to only those on a particular network, pay the general market price (set in part to cover the cost of participating in the network), and receive the generally available level of service, these hubs do not actually do nearly as much for the buyer as it would seem at first glance.
Consider the common misconception and myth of supplier networks and eMarketplaces: “it doesn’t matter to buyers if suppliers have to pay to participate in a network.”
The reality: It’s very simple – all of a supplier’s costs are factored into the price they charge customers – always. If they must pay handling charges to transact, then that cost will ultimately be passed on to you as a buyer in some way, shape or form. In some cases suppliers will simply refuse to participate in networks that represent a substantial cost to them.
This sentiment was echoed in a recent LinkedIn discussion when the question was raised: “Does anyone have any information regarding supplier network fees within e-Procurement? I'm trying to gauge what the industry standard is, all information appreciated.”
A flood of comments and replies returned!
“Larger suppliers/larger levels of activity, the cost is in excess of $15,000 per year” commented, an eProcurement and Systems Director of a large Public Sector Organisation. “Similarly there are other networks where there is a flat fee of c$800 per year per organisation. And another model had a flat fee of c$1 per transaction/document transfer whether that was a Purchase Order, a Change Order or an Invoice” he continued.
The myth that charging suppliers to participate in a network is “good” is just one of many inaccurate concepts that buyers might pick up from reading all the claims that are out there today.
The question should not be "what is the industry standard for supplier network fees?"; rather "is charging suppliers to participate in a network good practice?".
To this end, most “best value” buyer-supplier relationships are based on well-negotiated agreements that may be different in a number of ways from any other relationship a given supplier has with any other buyer. This type of relationship always requires direct buyer-supplier interaction that goes beyond what can be found in a public supplier network or eMarketplace.