This is the first part of a three-part interview series with Michael Schmitt. Schmitt, who many credit with developing the Spend Management movement, is currently an advisor to Ariba. Formerly, he was CMO of Ariba.
Spend Matters: What’s the History Behind Spend Management and Ariba?
Michael: In 2001, I was recruited by Ariba to become CMO when they wanted to go into supply chain. They had developed a strategy called value chain management that would cover both direct and indirect procurement. But the talent base at Ariba was primarily focused on indirect materials. They called me because the plan -- at least initially -- was to get into direct materials and supply chain planning, logistics, and build out a huge portfolio to make value chain management alive.
But then things started to turn south as we had gotten away from our customers and focused too much on following market activity. The first thing that went wrong was the sales reps’ performance. They were confused about our new value chain management message. Customers were confused as well. Sales proved challenging as we had planned to hit $180 million in that quarter, but we ended hitting $90 million.
At that point, Ariba had planned to buy Agile. But our stock took such a drop, the two companies agreed to stop the transaction. After 6 months, the value chain management piece was in question. It was too confusing and we had strayed from our customers.
Spend Matters: How Did Spend Management Begin?
Michael: All of a sudden, we were not in a growth situation, but a turnaround one. Given what happened, we needed to go back to basics. We needed to build out from our Buyer application and enable what customers needed. Marketplaces were as good as dead (for the most part), and our marketplace product slowed considerably.
Buyer was buyer. It built the company. But at the time it was missing contract management, integrated sourcing, invoicing and settlement. Our category coverage was just catalog. To find out what our customers needed most, we decided to consult with them. What we discovered is that they wanted to take a closed loop approach to procurement.
What was most surprising in our customer interviews was that we found that very few companies had visibility into their purchasing data. All were flying blind. But even if they had data, they would know what to do with it. That’s where strategic sourcing came in. The key was to apply a process and methodology upfront, and gather requirements to make suppliers more competitive, and ultimately tie the event results into a platform for execution across a range of categories. Spend Management was beginning to emerge ...