Ariba: Taking Spend Visibility in a New Direction (Part 1)

Last week, Ariba announced a number of enhancements to its core spend visibility application. The most recent On-Demand release, 10s1, went live over the weekend. Before writing about the release, I wanted to wait until I had the chance to check out the new features for myself. On Friday, Ariba was kind enough to respond to my rapid request -- just prior to launch when you know the product managers were going to have a long night -- for a demonstration, pulling back the kimono on the product. In this post and another one later this week, I'll describe the new enhancements that Ariba has made to the product, and more important, what they mean for how companies should think about spend visibility going forward as the definition of what such systems do expands. Consider this series of posts as one of the core anchors of spend visibility week on Spend Matters.

As mentioned above, Ariba's latest release was made available to all existing On-Demand customers over the weekend. This includes capabilities that, in Ariba's words, "help companies capitalize on market dynamics, prioritize sourcing plans and maximize savings". Among other areas, these new features let users include market indices in their analyses, letting companies "compare from a market perspective" their data with market trends to optimize sourcing-friendly conditions. Ariba Spend Visibility also now includes a new "Category Knowledge Database" that leverages proprietary Ariba supply markets information to show companies on an up-to-the moment basis "which markets are ripe for sourcing savings and which" they "should avoid" while also allowing the ability to "accurately forecast savings" from such initiatives.

Ariba rounded out the new capabilities of the solution with what they describe as "Peer Spend Profiles," essentially a benchmarking program that allows companies to benchmark their spend against other Ariba customers. All of these capabilities are included as part of the Ariba Spend Visibility offering (without an additional charge), although companies have the ability to opt-in/opt-out of the benchmarking program.

Other new enhancements that went live over the weekend include a number of new supply risk features, including the ability to assess supplier risk on a periodic basis within the context of the Ariba Spend Visibility application itself (more on this later). In addition, Ariba has also invested in enhancing some of the core capabilities of the spend visibility application itself, extending the ability to look at part-level reporting and part-level forecasting, automating classification feedback and enhancing the search capabilities of the application. These categories of enhancements help Ariba maintain parity with some of its competitors in the space, but unlike the major new enhancements (e.g., price index incorporation, benchmarking, Ariba category analysis) do not necessarily provide a true differentiated advantage.

I'll conclude this post today by describing, on a high-level, how Ariba is incorporating price indices information into the spend visibility toolset. As of today, Ariba allows companies to use some of the high-level indices data it has begun to track (e.g., PPI, CPI data from the Bureau of Labor Statistics) or localized pricing indices a customer may track themselves (e.g., LME, Metal Miner IndX). In the case of the former, Ariba is bundling this information in automatically. For the latter, companies can either send Ariba a flat file on a periodic basis or can manually update the information themselves, uploading it into the application. In Ariba's words, this data is most useful today within the application by helping companies identify "what to source" based on market trends.

This capability is not yet fully integrated with Ariba P2P, contract management or third-party systems to enable companies, for example, to automatically pay suppliers a dynamic amount based not just on invoice value but on the escalation/de-escalation clauses in an underlying contract based on underlying index data that Ariba Spend Visibility is now tracking (without question, this is where Ariba is headed next). However, companies can specify today, without customizing the software, what percentage of an underlying commodity, category or even line / part item is made up of value-add versus index-based components (i.e., commodities) in the case of direct materials and they can track and report on this information on a highly granular cost breakdown level.

For indirect materials, companies can look at their own pricing data in a similar way or alongside government or other index-based information to see how they are performing and to identify opportunities based on market trends. In other words, Ariba is providing -- yet not helping companies fully capitalize on -- a new level of "live" cost breakdowns for everything they procure. This concept -- and what it could let you do down the road -- is very exciting to say the least. And it brings the notion of spend visibility to an entirely new level, expanding it to a place that will ultimately provide true visibility into cost (and non-engineering specific should-cost elements) at a level not before seen.

Stay tuned for Part 2 of this post when we examine some of the other capabilities of Ariba's new Spend Visibility release as well as offer some perspective on how this new offering stacks up relative to the competition. All in all, from a new capabilities perspective, Ariba's latest release is perhaps the most exciting solution news in the spend visibility market in some time. Kudos to Ariba for finally cranking out an innovative product that capitalizes on their best assets and knowledge of how companies should manage and gain visibility into their spend. It's about time.

Jason Busch

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