Ariba, SAP, and Supplier Diversity (Part 2)

Please click here for Part 1 in this series.

We can evaluate the SAP/Ariba supplier network on three basic elements in terms of smaller businesses: direct cost, reach and value. Our analysis of the direct cost is likely to surprise many of those in procurement organizations who follow Ariba somewhat closely: relative to middle market and larger organizations, we think the Ariba supplier network is a bargain, even given the upward price pressure Ariba has applied over the years to supplier-paid network fees.

In an earlier research brief on the topic, we suggest that Ariba's network fee increases will be negligible for small and medium-sized suppliers on the network (and large suppliers with minimal dollar transaction volume). These suppliers typically use the Ariba network not just to find new customers, but to also push transactional documentation (e.g., invoices, POs, ASNs, etc. back and forth). Further, we suggest, that for suppliers engaged in low-dollar volume and/or high frequency transactions, Ariba's network fee structure can be materially less expensive than fixed fee networks, despite bringing significant value. Contrast this with the economics for larger suppliers where "the economics of the Ariba network may no longer make sense if other options exist (e.g., taking spend offline, using a competitive network, etc.)"

The key on the cost side for suppliers using Ariba is to keep dollar volume low. Suppliers, even small suppliers, transacting over $150,000 per year on the Ariba network (even with minimal invoice and PO activity) are likely to get hit with fees where little value beyond online invoice submission and status checking, is generated for the base fees. Here, Ariba and SAP are clearly most friendly to smaller suppliers.

But the catch is that their typical transaction must be based on a low dollar amount versus high for invoices. For example, a small, boutique marketing agency in NYC sending 12 invoices per year for $25K each to a buying organization using the Ariba network will find itself paying $465 per year in transactional fees (not including annual base level network access costs) alone for the privilege of filing an invoice through Ariba rather than by email or snail mail. But lower that typical invoice level to $1,000 and it's a totally different game - the fees become negligible.

When it comes to Ariba Discovery, Ariba's vehicle that suppliers can pay to reach new customers for RFPs (rather than transactional procurement), the economics may make sense for suppliers with a core competency of responding to requests online – but more on that in Part 3 of this analysis.

So the verdict on cost? It's a mixed bag, depending on a supplier's invoice mix/size and its expertise at selling through online channels.

In Part 3 of this series, we'll consider our two other metrics for gauging SAP's friendliness to diverse suppliers: reach and value.

- Jason Busch

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