Procurement and supplier management observations from SAP Ariba Live 2017

Some aspects of procurement and supplier management don’t change. Businesses are still trying to get rogue spending under control. Validating a new supplier’s bona fides is still a challenge. Everyone wants the lowest price. You get the drift.

Interestingly, the space is starting to morph due to the influx of new competitors, a new sense of social responsibility, digital transformation challenges and powerful new technologies.

Here are some of the macro changes afoot that I noticed at the recent SAP Ariba Live event:

• Major consolidators are here and changing the business procurement landscape. It was interesting to see that others (besides my own firm) are now buying business supplies via Amazon Business. Possessing a large buyer/supplier network used to be a big thing. Now, major business-to-consumer networks are extending their solutions, adding consumer grade mobile buying experiences and more to get into businesses. Why shouldn’t a worker be able to ask Alexa for more binder clips and have them delivered to their cubicle in 48 hours or less? The consolidators are creating/extending infrastructure to provide a great buyer/supplier experience from the outset. They’ll quickly create their network next – a network whose constituents are already familiar due to their non-work consumer purchases.

In the past, software companies would build their network while simultaneously trying to build out functionality. That method takes a long time and delivers a slowly evolving customer experience. The consolidator approach radically changes that game.

• Everyone realizes that procurement must be socially responsible. To SAP Ariba’s credit, they gave up part of the keynote time to allow the CEOs of several partner firms (e.g., OutsideIQ) to quickly explain how their solutions can enable more sourcing from:
  • firms that do not exploit children and others
  • women and/or minority-owned businesses (e.g., ConnXus)
  • firms with good safety records
  • firms not on sanction lists
  • firms with a greener environmental record/approach
  • businesses that have a positive employment impact in depressed economic zones

Businesses realize that the incremental (if any) cost of sourcing from some of these firms is far less than the reputational damage firms suffer when regulators/press/etc. publicize their bad or lazy due diligence practices. On an even more positive note, several of the speakers seemed genuinely interested in helping their firm become a better steward of the world, its environment and its population. This wasn’t some insincere press posturing but the real deal. I was very encouraged by this.

• Big data, analytics and algorithms got lots of discussion but details were scarce. Sure, there were Ariba executives, partner firm executives and others spit-balling all kinds of potential uses for these capabilities but actual applications seem to be a ways off. It feels like it’s time for a major re-invention of procurement and supply management. SAP Ariba should make this a top priority to define and communicate. Well-funded competitors have already emerged with new technologies that take procurement and supplier management into a world that’s both digital and transformational.
• On-premises is getting put out to pasture – Yes, SAP Ariba is making the on-premises version of its solution history in 2020. The end-of-life will impact 75 or so customers. Let’s hope SAP throws a big party to mark this milestone. And, as an aside: to that SAP competitor that still maintains that “Customers want on-premises as a choice (and never ending upgrades to the on-premises product)”, software buyers ARE moving to the cloud. It’s time to get on with the 21st century.
• AWS cloud price reduction philosophy just doesn’t resonate with application software vendors – When vendors drop support for all of the myriad versions of on-premises software and the technical environments they run in, do the vendors pass the savings on to customers? NO! When cloud application vendors get the benefits of continued price reductions (deflation) for disk storage, data compression, memory, etc., do they pass these savings on to customers? NO! If Amazon AWS can deliver almost continuous price reductions year after year, why can’t application software vendors? Application vendors do not have a cost reduction mindset (quite the opposite) and that they don’t know how they’d explain this to Wall Street. There’s a massive market opportunity for the application vendor that wants to share innovation and price reductions with customers. G-d only knows how fatigued businesses are from software audits, price increases, etc.
• Banks – Banks are getting a pass in this world as many procurement vendors and customers see banks as the responsibility of Finance or Treasury. That’s a mistake. Banks are hugely expensive to businesses and Controllers/CFOs welcome more options in bypassing commercial banks or reducing the fees banks charge for processing payments. If you haven’t looked at firms like nVoicePay or MineralTree, you need to NOW!
• Blockchain – The 2017 conference season will be the year Alexa meets blockchain. They’re the HOT couple everyone’s whispering about at the office and at software firms. Blockchain usage examples were abundant at this show. Companies could use blockchain to check the provenance of conflict area gems, to audit transactions in real-time, to remove unnecessary capital float, to check the status of items in transit, and much more. Unfortunately, while imaginations were running wild, the hard reality is that none of this is real yet. Ariba partner EverLedger was there to promote their new relationship and they might have something tangible in the market very soon. If you’re going to ride this hypecycle, better wear a tin foil helmet and seatbelt. Vendors, let’s see more proofs of concept and less slideware.
• Will any vendor stop the counterfeiters? – The New York Times recently described the crippling effect this activity was having on mid-to-small businesses that can’t afford to monitor and protect their intellectual property, brands, products, etc. from cheap, overseas knockoffs. Here’s an incredible opportunity for Ariba to use big data to scan the product images of its suppliers to see if other firms are using the same images, designs, etc. – Helping legitimate Ariba suppliers stop these products, which could be dangerous and expose the buyer to needless risk, would be a benefit to everyone in the ecosystem. This only takes some pattern recognition and AI technology to work.
• Boundaries (Part 1) – There were lots of partners and partner announcements at this show. With each one, I wondered how the partner and SAP Ariba will keep expanding their respective functional footprints without stepping all over each other. All alliances eventually end up in either the divorce court or wedding chapel. If you’re going to use these partner solutions with Ariba, make sure you have some bulletproof material change of control provisions in these contracts.
• Boundaries (Part 2) – SAP has its Enterprise Suite, Concur, Hana, Fieldglass, SuccessFactors and Ariba. Exactly where Ariba ends (technically or in theory) and SAP Enterprise Suite begins is something Ariba executives think is crystal clear. It isn’t to me. I don’t know whether certain R&D/Innovation initiatives belong in the Ariba or Enterprise Suite. Worse, the technology under Ariba still isn’t quite the same as that of the SAP mainstay product. For example, the Oracle RDBMS is still being used by Ariba and the new Ariba UX work is being done with something other than Fiori. The boundaries are muddy to me.
• Change management is still a big deal in this space – Customer speakers described how important it was to get new solutions/functions in production fast but that only happened when people got with the change. Yes, the change process goes smoother when solutions are easy to use and easy to learn. But these solutions need alignment with buyer metrics, corporate objectives, etc.
• Finally, all expense categories are feeling the love – Ariba waded into the direct materials space at this show. While its forte has been the indirect spend space, this is a welcome addition. Is it all there? I’m not sure but I like the development direction.