Supplier Network Fee Modeler: A Q-and-A With the Inventor (Part 2)

Please click here for the first part of this interview.

Spend Matters:  Ariba's fees look inexpensive compared with p-cards. What's the difference for suppliers?

Purchasing Insight: This is a good point. Anyone who wants to criticize Ariba should look at merchant fees. But it is fair to say that merchant fees are based on a percentage of the value of a sale where there’s a margin that is also proportionate to value of the sale. This logic doesn’t apply with invoicing.

Spend Matters:  How do supplier network fees compare to the process improvements savings companies realize through A/P automation and e-invoicing? What is the effective "ROI" assuming that suppliers will find ways of billing back fees?

Purchasing Insight: Now you’re getting to the crux of it. I was pretty blunt with my answer to an earlier question claiming that suppliers will always recoup costs. It’s not always obvious how they do it, and it is almost always in direct ways but in an active market place the right price that covers costs and delivers some profit will always be found – just as excessive prices will be eroded by good procurement practices.

The cost to suppliers needs to be factored into the business case, albeit implicitly. It is a cost of doing business and it will land back, in one form or another on the balance sheet of the buyer.

Spend Matters:  What is next for Ariba and SAP regarding volume-based supplier fees? They appear to be the only provider holding the line on volume-based fees.

Purchasing Insight: When SAP bought Ariba, they got themselves a great business certainly from [the] point of view of the size and maturity of the network. They also got themselves a suite of some of the best buy-side applications there is. But their charging model is a thorn amongst the roses that will become an embarrassment if it doesn’t evolve.

Spend Matters:  Do you foresee greater roaming agreements between networks to avoid having suppliers double-charged?

Purchasing Insight: You’ll never get an honest answer from the vendors if you ask them their view on this. They all have their own vested interests regardless of which side of the fence they sit. But it has to be inevitable, doesn’t it? As e-enabled transactions become embedded, excessive and unnecessary charges will be seen as an obstruction business. And in a world where we all have the same agenda – to see economic growth – if the vendor community don’t sort themselves out, governments will intervene.

Spend Matters:  What jumps out to you as the most important takeaways from your modeler? What should those who use it take with them?

Purchasing Insight: First and foremost, take it as a guide only. It is only a model and should be used as a first step, perhaps before a detailed analysis in discussion with vendors. But do use it. It may confirm that your supplier profile lends itself well to this model, or it could help shape an e-invoicing strategy that uses more than one approach for different categories of spend.

Spend Matters:  Are supplier fees negotiable with SAP/Ariba?

Purchasing Insight: I couldn’t possible say. Really, that’s for SAP/Ariba to explain.

Spend Matters:  Are there any plans to make this available as an Excel download?

Purchasing Insight: No.

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