How Procurement Organizations Should Look at Supplier Fees: Be True to Thyself

supplier fee

Just when you thought a topic was, well, a non-issue, it comes roaring back again. Such is the case with supplier fees in a variety of procurement areas, including e-procurement, e-invoicing, network connectivity, trade financing, and supplier and contractor onboarding.

I must have had several dozen different conversations with people in the past month or so about fees where they brought them up. Ariba/SAP still factor into many of these discussions, and the fee question in new purchase-to-pay (P2P) deals is playing a role in some decisions, more so, it seems, than in the past. Still, Ariba is beginning to show some flexibility as well in offering buyer-funded models in new sales opportunities, which we applaud.

Beyond Ariba, the notion of having suppliers pay in part or in full for what is essentially a benefit of the buying organization is as much a philosophical as pragmatic one. It’s actually an outstanding debate to have within an organization, as the discussion can bring to the surface a range of topics that can help procurement to better shape its budgeting, governance and even its charter.

Let’s be realistic, true and transparent around the issues:

  • Markets are, generally, efficient. There is always a cost to fees borne by participants, indirectly or directly.
  • Different categories, such as staffing/contingent labor in a managed services provider or vendor management system context, have a long history of supplier-paid models.
  • Fees in themselves are not inherently bad or good.
  • Fees can be a clever way to offset internal procurement costs where a budget may not have even existed in first place, such as in managing a contingent workforce program.
  • If fees are a cost of doing business with a company, then procurement needs to just be upfront about it.
  • Not all supplier fees are the same or even “fees.” For example, taking an early payment discount to get paid within a few days of submitting an invoice is not the same as paying merchant fees for taking a card or a network fee 60 days after an invoice was originally sent.
  • For providers, fee models can be very hard to backtrack from once established. Vendors can set their business model largely in stone once they go down a certain path. For example, if Ariba/SAP were to go back on its supplier fee models at this point, it would destroy the financial business case for the acquisition, without making up for it somewhere else. (And even for SAP, it would be a truly material amount to make up now.)

Engaging in a procurement-wide debate on supplier fees is far more constructive than simply bemoaning them. In fact, their existence in the first place highlights something that we should never take for granted – namely that it is as much a privilege to do business with a strong set of suppliers than it is for the same suppliers to work with us.

Procurement is a partnership. And if we decide to take a compulsory approach to mandating a cost of doing business with our organization – whether indirect or direct – we need to own up to it and be honest about it with ourselves and with our partners.

Said another way regarding the Ariba example: It is not Ariba/SAP adding fees to suppliers for transactions and annual membership. It is the procurement organization that engages Ariba/SAP as its P2P vendor – in which the vendor has suppliers offset part of its system costs – that is making a choice to have suppliers pay fees.

And there is not necessarily anything wrong with that – as long as we are completely transparent about it and there is no hidden benefit to us, in procurement, from having suppliers take on additional cost.

First Voice

  1. Christian Lanng:

    What is the benefit for the procurement organization in having supplier fees that are completely artificial and not significantly lowering the cost of the procurement product?

    I agree with you if supplier fees were offsetting buyer fees, but they very rarely are – which in that case only becomes an obstacle for a successful on.boarding business-case. Is there one example where supplier fees on the Ariba network were great news for anybody but Ariba?

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