Carl: Welcome to The Connected Enterprise Podcast, where our guests share how they stay connected. I'm your host, Carl Lewis from Vision33, and today my guest is Mike Banwart from SPS Commerce. Mike, you and I have known each other for years now, but tell the audience about yourself, SPS Commerce, and your role there.
Michael: Thank you, Carl, it’s great to be chatting with you today. I'm Mike Banwart, and I've been working in the enterprise software and consulting space for nearly 20 years now, and I’ve been in many sales and business development roles. Most of my experience is in the ERP software industry, including over ten years in the SAP Business One partner ecosystem.
Michael: During my career, I've worked primarily with small and medium-sized manufacturers and distributors. In 2012, I joined SPS Commerce to help them bring a fully automated EDI solution to the SAP Business One community. SPS Commerce is a leader in cloud-based supply chain management solutions, and the core of our business is providing full-service EDI solutions. We operate the largest cloud-based retail network, leveraged by over 75,000 companies globally. We have approximately 28,000 subscribing suppliers using our network to connect with retailers and other large buying organizations. I work in a sales leadership position where I co-lead our supplier sales mid-market organization. Our primary focus is driving adoption of the SPS commerce retail network through our full-service EDI solution, and we're working with suppliers primarily selling into retailers and other large buying organizations.
Carl: The distributors or manufacturers that are automating their purchasing processes from their suppliers is much of what we’ve experienced together. You mentioned something I want to clarify – you said SPS is a full-service provider. What do you mean by full service as opposed to something else?
Michael: We're cloud-based; I would consider us the salesforce.com of cloud EDI, pioneers delivering a full multi-tenant cloud-based solution. To distinguish full service: on the surface, cloud EDI solutions sound similar, but there are vast differences between providers. In cloud EDI, solutions fall into two categories: managed services and full services. A managed EDI service is a cloud-based solution in which the provider develops and maintains the core technology while the customer’s internal staff is responsible for the daily customization, optimization, and maintenance of the technology. A full-service solution is a cloud-based solution that has an associated staffing resource responsible for customizing, optimizing, and operating the technology. In the full-service model, the provider is carrying out the complete business function on behalf of the customer. We ask a supplier early in our dialogue, “Do you view EDI as a core competency? Do you have the resources and staff to manage the technology?” If they say “No, we don't consider EDI a core competency,” then a full-service offering looks very good, but most customers we deal with don't view it as a core competency, so it's something they want to outsource to a full-service provider like SPS.
Michael: Our model is very similar to a payroll provider – they don't have to understand the detailed business functions and processes of that organization, they only need to understand payroll requirements – so I see payroll providers as being full service.
Carl: Thanks for that, Mike, because I'm sure somebody had that question. We're talking to many people in the industry, and we want them to share their unique perspectives about automation and what they hear others talking about or doing that's important and setting trends. Is there something you think people are doing that’s leading the way?
Michael: From a macro level, now more than ever, consumers and businesses want an easy-to-buy, easy-to-engage experience. That's what I feel and see from a customer-facing view. Many organizations are putting automation projects through the lens of, “Is this going to make it easier for our customers to do business with us?” Consumers and businesses both expect a seamless engagement experience after years of working with networks and platforms like Facebook, Netflix, and Amazon, and now, at many leading organizations, any automation project or technology project is viewed as “How will this make it easy for my customer from an overall engagement experience?”
Michael: That's from a macro view. In my SPS Commerce world, driving automation from a business-to-business perspective is a big part of what we do for our customers. EDI is a common industry term that describes the electronic exchange of business documents like orders, shipments, inventory updates, and invoices in a standard format. In our network, we have about 28,000 customers subscribing to SPS's services to meet EDI compliance requirements with their trading partners and to try the efficiencies in the order fulfillment process. Our fulfillment solution has automation features that dramatically save time by reducing keystrokes and data entry errors.
Michael: With business integration, we focus on removing complexity when leveraging our automation features, which starts by having expertise in the business processes and rules of our customers’ trading partners. I think taking away complexity is the key, which takes us back to the macro trend: keep it simple and dive deeper. If we intimately understand what a trading partner requires from an order fulfillment standpoint, the challenge of EDI is that it’s a standard – but each trading partner has different requirements, so when we have an intimate understanding, we can optimize our fulfillment solution to meet those needs, which will increase time to value and reduce complexity. This is the value of a business network – it creates a lot of efficiencies because the retailers’ business processes and rules are prebuilt and shared across the subscribing suppliers in our network. That's the automation from an SPS view and how we approach it, trying to keep it simple, which starts with knowing those retailer requirements.
Carl: EDI isn’t new technology, although I'm sure there's been new technology along the way, like the cloud, affecting older technology, but it seems like it’s still growing. What do you think is causing the growth of more small businesses taking on technology and automation projects that are as significant as an EDI project? Why are they doing it?
Michael: I think a lot are doing it because that's what the retailers are doing and EDI has been around for a long time. SPS Commerce is a publicly held company traded on the Nasdaq, and our core business is delivering full-service EDI solutions to the cloud. We just had our seventy-second consecutive quarter of revenue growth; I think the analysts that follow us on the streets are bullish on us, so I don't see EDI going away, based on how we're performing in the market.
Michael: I think it’s driven primarily by the retailers and it’s grown primarily due to how dynamic the retail industry has been over the last eight years. Amazon has been a catalyst of that – they redefined consumer expectations. When I go to any website, I expect to find the product I want, and when I find it, I expect to have it at my door in no longer than two days. That's the benchmark, the standard Amazon set years ago, and it’s disrupted the retail industry in terms of introducing new fulfillment models, so now retailers have been trying to expand their product assortments and their needing to identify suppliers that are drop-ship capable. They have to ask, “Can that supplier give me the products my customers want to put on my website, and can I trust them to get that product to the consumer in a day or two?” EDI manages that process well, so that's been a key driver – the expansion of fulfillment models aka the omnichannel experience.
Carl: You mentioned Amazon, and I would love to know what percentage of their orders come from a desktop and how many from a mobile device. My impression is that the business being done on mobile devices is growing rapidly, and that’s basically the beginning of business – somebody gets on their mobile device, contacts Amazon, says give me one of these, and I want it the day after tomorrow, and they pay $90 for the prime service because they want it fast. As soon as that order is placed from a mobile device, everybody at the business goes into action behind the scenes to make that fulfillment happen … Are there other technologies like that, other ways of communicating the kind of fire-up business SPS Commerce sees affecting business?
Michael: From a fulfillment perspective, one thing we see is a rise in sales channels. There are so many ways suppliers can get their products to market, and there are other technologies and platforms to support that, a whole industry segment of order management systems. Skubana and ChannelAdvisor are examples, and these technologies facilitate that fulfillment process when orders come from multiple sales channels. A good example of that would be leveraging marketplaces like Amazon marketplace.
Michael: One big dynamic when you look at retail over the last several years is that the lines have blurred between retailers and suppliers. Suppliers now have so many options to expand their selling channels, and there's technology emerging to facilitate that, but that brings a lot of opportunity for companies like ours and Vision33 because many times these suppliers fall squarely in the small to medium space. Often, they're taking that best-of-breed approach where their OMS systems will be different than their core ERP systems, which will be different than their shipping solution or WMS and then we’re looking at that automation challenge, so it circles back.
Carl: They're looking for automation to pull those guys into one cohesive unit, almost like they're putting back in the old school disparate systems we used to talk about. So I see that challenge happening, too. EDI is fascinating because one of my earliest experiences was with a small company that used to produce home weather stations. J.C. Penney wanted to do business with them but said they wouldn't unless they put in an EDI system. It took six months to get the system up and operational, and they were selling maybe 20 sales orders a day. Well, their first EDI order from J.C. Penney was for 200,000 units, so they had a lot of destination points and such. It transformed the business almost overnight; they were acquired by a larger company, which was what the founders envisioned, but you think about that company in the first hundred days, that overwhelming amount of communication that comes from ‘We have to do all this and fulfill all this and send it over.
Carl: We generally live in a world where we get more and more of that, where when we experience growth, and it’s compounded, not incremental, especially for companies doing automation that will transform a business. How do you see customers deal with that early impact of putting in a new automation system and learning how to adjust – how do they manage that load?
Michael: I think what they do is find business partners who can help them, and they're looking for that easy-to-buy process. We deal with customers new to EDI every day. They don't know what EDI is; all they know is they've innovated a product they can sell in Target, Walmart, Amazon, etc., and they come to us looking for a guide to get them through that process. All they know is, “We need to be compliant.” They don’t know how best to do it or what’s required, so they need help. Those are the customers we welcome because it goes back to the question we'll always ask: “Is EDI a core competency?”
Michael: For them, it's absolutely not, so we can provide a lot of value, But it’s transforming because usually customers, when they get that first retailer, know they've got something going there, which leads to other customers coming on board. They’ll typically have EDI requirements, too, so now you're talking multiple trading partners, which creates complexity, and it's not too long to when they start outsourcing the fulfillment process. Then they'll add a 3PL, and suddenly their supply chain becomes more complex, but it doesn’t change their, “We want to innovate and design products, so we're going to leave it to the SPS Commerces of the world or the Vision33s or the SAPs to help us through that process.”
Carl: So to try to summarize, you’re saying customers are dealing with this growth that suddenly occurs and all the information they now have to manage. They look for full-service organizations that can take some of the burden, and whether that's an EDI partner like SPS or an ERP partner like Vision33, or even a third-party logistics company, they want a partner to take care of warehousing and shipping. That's how they deal with some of this sort of impact of automation that occurs, is that right?
Michael: Yes, and I think it goes back to the front end, again from a macro level, I see consumers but also businesses looking for business partners with deep expertise that can be prescriptive to them, to that whole process.
Carl: Do you find that strategy is working well for the companies that deploy it, regarding how they're going to grow their business?
Michael: Any time you align yourself with technology partners with the right expertise will enable you to focus on growth and more strategic things.
Carl: SPS is a full-service agency, and you provide a lot of services to your customers as an ongoing thing. I'm sure that in anything as complicated as EDI, you have challenges, errors, problems. How do you approach tracking, measuring, and constantly improving? I know that’s not your expertise, but from a high level, what's the attitude at SPS about making promises to your customers and fulfilling them – how do you measure yourselves?
Michael: We're based in Minneapolis, so the next time you're here I'll give you a tour. If you go on our fourth floor, you'll see HD screens throughout the entire floor – they have all our data and they’re wall to wall, showing how our network is performing in real time. The uptime stats are something we proactively publish so our customers can see how we're performing. In a future podcast, I'm sure our CTO would welcome the opportunity to talk to you; our technology operation team is world-class. It's always exciting when we come out of Black Friday because there's such a significant volume of orders that go through our network, and every year that team crushes it in terms of uptime and process and skill, and that's a huge focus for us, and we invest a lot in our technology, operations, and organizations.
Carl: For anyone not familiar with the term Black Friday, it’s the Friday after Thanksgiving and it is a big retail day. Well, Mike, I appreciate you being with us today and sharing about your industry and what’s going on out there. It’s quite interesting, and I know others will appreciate what you shared today. It's easy to make podcasts too long and hard to consume for some folks, so we try to keep it short – so, until next time, everyone stay connected.