Suppliers and Ariba: Prisoners or Not?
Last Friday, we shared a competitor’s perspective that “Ariba doesn’t have customers, it has prisoners” – at least in the case of its suppliers. But to gauge whether or not these are willing prisoners, wanting to stay within the protected walls of a network, perhaps it makes sense to walk through a few hypothetical examples.
First, let’s consider the case of an “occasional” supplier of something made-to-order like business cards, stamps, or the like. A supplier like this, which does a good job of finding new customers through Ariba for a typical order size, say between $150-$250, will pay less than a buck per transaction for each PO it receives and/or invoice it sends through the Ariba network. Not a bad deal. We see a vendor like this as a willing prisoner at worst – and a member of the general supplier population wanting to scale a wall to get in on the free meals, heat, shower and exercise facilities inside the Ariba version of Club Med at best.
Next, let’s consider the case of an MRO supplier serving eight customers (most of whom they’ve worked with for decades) through the Ariba network. Let’s assume each customer has fifteen facilities, each which spends roughly $10,000 per year with it, billed in various drips and drabs (some potentially large invoices, some small). If you do the math, this supplier is billing roughly $1.2 million through the Ariba network each year, which would result in transactional supplier fees of $1,380.
If this supplier was previously billing offline, it likely would have accrued significant expense in producing manual invoices. Yet if it wasn’t compelled to transact over the Ariba network, it could still bill via the same cXML standard using Tradeshift, OB10 or an alternative and pay from nothing to a buck or so per transaction. A prisoner? Well, perhaps. But it’s not necessarily one who will be too upset, especially if they take advantage of early payment opportunities through the network.
Finally, let’s turn to our third example, a marketing agency that previously billed its customer by sending invoices manually via email or snail mail (or directly from its accounting package via a virtual printer). Let’s assume this agency is now compelled to use the Ariba network with three of its middle market clients (even if all the complexity of the “buy” happens offline or is measured via specialty analytical tools).
If the average monthly agency bill were $150,000 including all activities, then it would spend roughly $6,210 with Ariba over 12 months in transactional fees just for pushing a few dozen invoices back and forth. And if this agency is billing its suppliers for pass-through expenses and costs (e.g., media buying), it will have to pay fees on this dollar amount as well. If a supplier could be a prisoner, this demographic case would come closest, given how it could easily hit the $20,000 transaction cap with Ariba if ancillary or pass-through fees are also billed through the Ariba supplier network – especially given it would have no choice in the matter if the customer insisted on using its Ariba tools.
Based on these examples, perhaps it’s not fair to label each and every supplier on the Ariba network a prisoner. But there’s no way for them to escape the fees, rather than bill them back to customers in the form of higher costs in the long run. So in the end, perhaps it’s the procurement and accounts payable organizations who are the ultimate prisoners of network fees – by choice!