Supplier networks and the Purchasing Insight fee calculator

Continuing our supplier networks theme this week, Pete Loughlin at Purchasing Insight (who is always worth reading and incredibly knowledgeable on P2P and e-invoicing stuff) has had the brilliant idea of creating a network fee calculator. This allows you to consider the likely cost to your supply base of using the Ariba supplier network, almost certainly the biggest in the world (on some measures at least).

This idea has also resonated with my colleague Jason Busch from Spend Matters US, and he has been covering it this week. He’s also got an interview with Loughlin – I’ve failed there, given Loughlin lives approximately 5940 miles closer to me than to Jason!  Why didn’t I think of that...

I’ve played with the calculator and whilst I can’t speak for its absolute accuracy, it is interesting to see how fees add up – if you spend £1 billion year through the Ariba network, your suppliers are likely to be spending between one and two million pounds in network fees (depending on the number of suppliers and spend profile). Not a fortune, you might say, but not exactly peanuts either.

Now Ariba aren’t the only firm who charge suppliers. OB10 and Basware, major competitors in the e-invoicing area, do so, as do many others.  But models are different and according to Loughlin there are some particular issues with the Ariba charging mechanism which relates to the invoice value. As he says, “the cost of issuing an invoice has nothing whatever to do with the numbers on it. It costs the same for a $1 invoice as it does for a $million invoice. There’s no logic to charging a percentage of the value”.

Back to the invoice calculator. Why should we as buyers worry too much about how much suppliers are paying for the great privilege of doing business with us? This is what Loughlin has to say on the matter in his interview with Jason Busch. And I’m in total agreement with him on this.

“It’s everyone’s problem. Supplier fees add to the cost of doing business the same way that high interest rates, unfavorable exchange rates and taxes do... Suppliers hate fees especially. It’s a tax for simply doing business and they will recoup them. Always”.

If you think that charges you impose on suppliers don’t have any come-back on you as the buyer, particularly those that they don’t perceive provide any real value to them, you’re kidding yourself. One way or another, the supplier will get you back.

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