Calculating the Cost of the Ariba Network Price Changes for Suppliers

How will the Ariba network price hike in September impact the cost to a typical supplier? If you're curious to see an analysis of the fee changes in detail, you can read a recent article and analysis on the subject or download a free, in-depth Spend Matters briefing here. In this post, we'll further highlight some of our research, looking at an illustrative customer example that shows only a small number of high dollar volume suppliers will be impacted (but the impact has the potential to be significant, especially for suppliers in lower margin or pass-through situations). For our example, we examined a hypothetical example of an organization with $500,000,000 in annual spend volume (and material indirect spend fragmentation) and observed that the number of suppliers impacted by the new model in this case would increase to 2,700 (from 1,575). We also vetted these numbers with Ariba customers to make sure they weren't coming from supplier management left field.

Our analysis shows that for the great majority of suppliers, the Ariba fee increase will be negligible. Yes, many suppliers that did not pay before will pay something now, but the volume-based amounts will be small. Moreover, 70% of suppliers will continue to transact for free, according to Ariba. However, high dollar volume transaction suppliers will face a significant increase under the new pricing model. A high-dollar volume supplier transacting $12,903,225 (the amount we calculate a supplier will have to achieve to hit the per-relationship fee cap), will pay $20,000 in transactional fees to Ariba, up from $10,000 before the change. A more typical high-volume supplier (e.g., transactions of $1.5 million) will see its per-relationship Ariba fees jump from $1,500 to $2,325.

What do these numbers suggest? We believe that larger, financially healthy suppliers (with a low cost of capital) -- and with multiple trading relationships and revenue going through the Ariba network -- submitting fewer documents per annum are those that stand to disproportionately assume the costs of the network fee increases. It could be argued that the new Ariba network fees place a greater burden on large suppliers to subsidize smaller ones -- those most likely to leverage Ariba as a primary sales channel to win new business. For an op-ed column on the subject, see this post: Friday Rant: Ariba's Business Strategy Amounts to Supplier Wealth Redistribution For Large Vendors, and stay tuned for further analysis of the price hikes.

Jason Busch

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