Here at Spend Matters, we believe that it's time for buying organizations to tackle the network fee question head on. Yet few organizations we talk to have the market intelligence necessary to create strategies to minimize and negotiate supplier network fees as they would more traditional software licenses or SaaS/cloud agreements. Why? First, in looking at the network fee question, it's important to realize that charges – regardless of whether buyers or suppliers pay them, or both – can come in multiple formats.
There are models based on an EDI-like per document model (potentially with minimum commitments which become increasingly cheaper the more volume you sign up for). There are all-you-can-eat as well as free and "freemium" models (you may or may not get what you pay for, mind you). And of course there are models, such as Ariba/SAP, which are based in large part on transaction dollar volume (e.g., a single large invoice could trigger a three, four or even five figure network charge).
The diverse landscape of charging models has created confusion in a market that is just beginning to explore network options for supplier eProcurement enablement and e-invoicing connectivity. Fortunately, Spend Matters is taking up the charge in providing recommendations for minimizing the impact of supplier fees on overall P2P ROI. Over on Spend Matter PRO this week, we began to publish a two-part series that describes ten different tactics for reducing and negotiating supplier network fees that procurement and finance organizations can leverage.
As we observe on PRO, supplier network fees don't need to become an unbudgeted expense for procurement organizations when implementing eProcurement and electronic invoicing solutions (when suppliers find ways of passing on costs to their customers). In fact, there are a number of negotiating tactics and approaches that one can leverage when working with such network providers as Ariba/SAP, Basware, OB10, Hubwoo, IBX, TradeShift and numerous others to reduce the overall cost of network fees.
This series describes ten ways that procurement and finance organizations can gain an upper hand when approaching these fees with providers. Spend Matters PRO readers should note that some providers (including Ariba/SAP) claim that network fees are not negotiable. While we encourage procurement organizations and those advising them to attempt to challenge these assertions through some of the tactics and approaches listed in our series, we also suggest that the focus should be on designing P2P programs (including system selection) that do not create "lock-in" to a given provider in the first place. For example, companies that sign up for Ariba P2P in a SaaS/cloud model are locked into using the Ariba network option and having suppliers pay network fees relative to other competitors that may provide greater flexibility.
Gaining the upper hand in negotiating supplier network fees requires that companies not only do their homework upfront, but that they're aware of the somewhat misleading tactics that vendors may engage in to assure procurement and AP organizations that suppliers do not mind being charged fees. Moreover, it also requires an informed approach to sourcing. For example, one of the ten tactics we provide on Spend Matters PRO suggests that where basic connectivity/transactional supplier fees are involved, procurement organizations should request proposals that include the costs to assume supplier fees themselves under different scenarios at minimum including:
- Supplier fees paid up-front based on anticipated/forecasted value volume levels for a given time period
- Supplier fees paid up-front based on anticipated/forecasted value volume levels for the entire contract lifecycle
- Supplier fees paid as incurred (monthly or quarterly). Ask network providers for this information in multiple ways to understand cost breaks (and to serve as the basis of further negotiation).
Using these approaches, we suggest in our PRO research that procurement and finance organizations are likely to find that they will be able to negotiate substantial (double-digit) fee savings by taking this approach. Moreover, given that basic economics dictate that suppliers will find a way of charging suppliers back for connectivity (in future higher prices or through other means – e.g., discounts taken against volume rebate payments, etc.), investigating the cost to assume these fees is an exercise every buying organization should take, again ideally during initial platform and network alternative selection.
Spend Matters readers interested in this level of insight into supplier networks, P2P solution capability and related areas can check out the benefits of Spend Matters PRO themselves on a trial basis. Contact Sheena Moore (smoore (at) spendmatters (dot) com) for a free seven-day trial of our PRO service.