Healthy Growth and Innovations Highlighted at Ariba Live
on Jun 6, 2017
SAP Ariba is getting serious about managing direct materials spend, as well as innovating in areas such as machine learning, blockchain, integrating with other networks, and more. We explore these and other highlights from this year's Ariba Live conference.
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Alex Atzberger, SAP Ariba’s President, opened up this year’s Ariba Live conference with a slew of impressive metrics: since last year’s conference, Ariba Network added 3 million new users (30% growth) and $300B in commerce transacted, reaching about $1.25 trillion total transactions over Ariba Network last year. They had 496 go-lives and added 10 new Global Fortune 100 clients over the past 12 months. There were 3,200 attendees at this year’s Ariba Live, up from 2,500 last year. It appears that SAP Ariba is doing well from a growth perspective. They are also investing in innovation and further growth.
Going All Cloud and Expanding Globally
SAP Ariba has been on the cloud (true multi-tenant SaaS) for nearly a decade. They have steadily been weaning customers off their on-premises version, while continuing to support them. At Live, they announced the end-of-life for on-premises in 2020. There are only 75 customers left on the on-premises version and they will try to move most of them onto SAP Ariba’s cloud. This move will help focus SAP Ariba’s resources on innovating on their cloud version, which delivers a continuous stream of innovations to their cloud-based customers. SAP Ariba also continues to expand globally. They opened an office in mainland China and will hire about 60 people there this year. This supports SAP Ariba’s initiative to build out increased direct materials functionality and adoption, since many of the world’s suppliers and manufacturing is in China. SAP Ariba’s biggest growth region last year was in Germany, where they quadrupled the number of customers, in part because many existing SAP SRM customers are migrating onto SAP Ariba.
Guided Buying for Procurement Professionals
Last year, SAP Ariba launched Guided Buying, a tool to help the end user more easily find and request the products and services they were looking for. Customers kept asking Ariba ‘can you give us a UI like this for the procurement professional?’ This year, SAP Ariba announced a Guided Buying UI for procurement professionals called “Procurement Desk.” They said it is part of their broader persona-based user experiences strategy. The idea is that, whether it is the end user or the functional buyer, a user’s procurement persona will extend across all modules, from sourcing to contract management, buying, receiving/accepting goods, payment, risk management, and so forth. Each persona has a different role to play in each of these processes, as well as different frequency of use of the application, differing expertise, and different functional requirements. Thereby each persona has a different UX that spans across all the various Ariba modules they use, to create a more cohesive end-to-end experience, and thereby a different persona-based user experience. We’ll see exactly how this concept plays out over time, but it certainly makes sense as an approach. The general availability release for “Procurement Desk” is likely 2018.
Guided Buying will have a ‘supplier landing page’ which shows the buyer the supplier’s information, logo, description, contacts, all their products, qualifications, certifications, and preferences. This gives suppliers more of an incentive to input the information and keep their profile up-to-date. The ‘guidance’ part of Guided Buying is enforced by a ‘Policy Engine.’ Category managers and other managers (with the proper authority) set these policies, such as thresholds for purchases—below $X doesn’t require a PO, below $Y you can use any supplier, above $Z must be approved by a Manager or Director, and so forth.
Innovations: Adding Blockchain Functionality to Ariba Network
Everledger, Tracking Provenance of Diamonds, Artwork, and More
SAP Ariba announced their intent to add blockchain technology to Ariba Network, and their first blockchain partnership with Everledger, a blockchain-based service for tracking provenance of items from their source in a supply chain. Everledger is starting by focusing on diamonds. ‘Blood diamonds’ are illegally mined diamonds used to finance insurgencies and warlords’ criminal activities. There are laws banning the import and sale of these tainted diamonds. The UN developed the Kimberly Process Certification Scheme (with over 80 member countries onboard currently) which is used to track and certify diamonds. However, that process is paper-based and prone to fraud and document tampering. Everledger uses dozens of sensorial data points—including spectrography, light refraction, RFID, and other measurements—to create a unique, practically unforgeable identity for each diamond. They use a Hyperledger-based blockchain to immutably record each transaction and chain-of-custody handoff from the initial extraction at the source mine all the way to the final sale. They are currently tracking over 1.25 million diamonds on their blockchain. This greatly reduces risk for banks and insurance companies. Everledger referred to this as ‘KYO’ (i.e. ‘know your object’) which can help verifying the provenance and authenticity of objects when insuring expensive items like diamonds, original artwork, and rare wines.
SAP Ariba said they are investing in new technologies, such as AI/machine learning and blockchain. SAP Ariba SVP, Joe Fox, talked about the blockchain functionality (i.e. Distributed Ledger Technology) they plan to add to Ariba Network. No timeframe was given, so they are still in the early stages. However, they already have a partnership with Everledger (see sidebar). Once a blockchain capability is in place, in addition to transacting over Ariba Network, the parties will be able store transactions on a shared, secure, distributed, immutable1 ledger. These transactions will be able to include embedded smart contracts as needed, for example creating PO s and Invoices that automatically execute specific mutually agreed actions (such as transfer of title and/or funds), based on agreed triggers, conditions, and events (such as verified, validated receipt of goods in good order). SAP Ariba said that whatever they build will be based on Hyperledger,2 the open source, cross-industry blockchain initiative hosted by the Linux Foundation.
Joe also talked about identity management. He said that buyers and sellers on the chain can then have a third-party verified identity, potentially including a risk assessment of them as well. He described this as using the blockchain to build a KYS (Know Your Supplier) repository, including KYSS (Know Your Supplier’s Supplier). On this last point, he pointed out that a tier 2 or tier 3 supplier may not be on Ariba Network, but they can still harm your brand. He contends that using blockchain, you may be able to get alerted to those risks ahead of time. As of now, it is very early days for SAP Ariba on this front. Joe said that he couldn’t give a date for when any of this will be ready, but added that SAP Ariba is committed to adding blockchain functionality and applications to Ariba Network.
Machine Learning Holds Promise for Automated Classification
SAP Ariba expects machine learning to play an increasingly important role in their portfolio going forward. They are working on a classifier that uses neural network technology to classify products and services into the UNSPSC hierarchy in real time. Accurate classification is critical for spend visibility and analytics to work well. But traditional approaches to classification have historically been labor intensive and slow. Efforts to automate it have not achieved a satisfactory level of accuracy and thereby human classifiers are needed to bridge the remaining gap. Can SAP Ariba’s machine learning be trained to bridge that gap?
SAP Ariba said that their machine learning system continually monitors how human beings classify each new entry and learns from it, becoming better each time. The scale of Ariba’s network and variety of commodities and services posted provides their neural networks with a very rich data set to learn from. They said that classifying a new customer’s data may take a few weeks, but with machine learning, the refreshes go much faster and they are achieving an accuracy of almost 99%, which is extremely high for automated classification. With 700 customers in the cloud using spend visibility, SAP Ariba has already classified millions of items across about 14,000 categories of spend.
Johnson & Johnson’s Very Fast Implementation … and Noble Aspirations for Procurement
Johnson & Johnson is the world’s largest healthcare company, with about 127,000 employees. At Ariba Live, we heard from their Chief Procurement Officer, Len DeCandia. In 2014, they were looking to transform their requisition-to-pay processes, making it much faster and simpler for end users. As a highly decentralized organization, they recognized that moving to a standardized approach would be a significant and profound change. In 2015, as they worked through defining their new processes, it became clear that they needed a significant enabling technology. They made the decision in 2016 to go with SAP Ariba. Len said that they went live in four months and within six months had 50% of their spend going through the platform. He said that within a year they will have 90% of their spend going through it. So far, 110,000 requisitions, representing over $7.5B in spend with 14,000 suppliers has been processed through the Ariba platform. Getting that amount and portion of spend and that many suppliers onto the system in such a short period of time is quite an accomplishment by just about any measure.
They now have further goals for 2020 and 2025. They have rolled out a unified, company-wide requisition-to-pay process that provides a foundation for demand management, benchmarking, and ‘virtual/democratized centers of excellence.’ Len ended by talking about the importance of imbibing a sense of purpose for procurement professionals; helping them understand that they can create ethical, socially responsible supply chains, and help to eliminate slavery.
Offset Market Exchange (OMX)
OMX (‘Offset Market Exchange’) is a network platform that tracks a company’s economic and social impacts within a region. Government RFPs and contracts often contain complex offset agreements which require companies bidding on those contracts to meet certain socio-economic targets in their sourcing . Governments use these contracts to drive policy goals. For example, bidders may be required to source and build a certain portion of the product within the country, or source minimum amounts from women-owned, minority-owned, and/or aboriginal-owned companies. Companies typically need to provide reporting and evidence of these socio-economic impacts in the country. Offset calculations can be quite complex, with different ‘multipliers’ given to different types of impacts.
OMX provides a platform for connecting with suppliers, managing and tracking these impacts. They aggregate data from D&B, Google maps, profile data on suppliers, and many other sources. Each government RFP is unique with different requirements such as regional impacts, small business subcontracting, cleantech or environmental requirements, cybersecurity, and so forth. Requirements are project specific, so OMX is flexible to accommodate all these myriad variations.
OMX sells to energy, aerospace and defense, and infrastructure sectors. Their customers include major contractors/manufacturers and the government agencies that are the buyers. The contractors use OMX for bidding, sourcing, tracking, and reporting compliance. Government customers use OMX to manage data to evaluate what capabilities exist in an industry before requiring certain percentages for the various requirements. As well, they use it to track progress against the commitments in the contract. They also use it for mapping out the industrial base and reporting on the overall economic impact of their contractors.
OMX is striving to get more midsized manufacturers on the platform, as well as expanding to new geographies. Very large government contract customers want a single source for this type of information, rather than dealing with each supplier one at a time. The same is true of their suppliers, who prefer to not have to deal with multiple different methods for supplying the information to their myriad large contractor customers. So, this is a case where a many-to-many network makes a lot of sense. The day I talked to OMX’s CEO, Nicole Verkindt, at Ariba Live, they just found out that they had won the NATO innovation challenge for the defense sector. Given the complex nature of the problem they are solving, the innovative way they are solving it, and the value they provide, it seems well deserved to me.
Connecting with Other Networks and Exchanges:
Ariba Network is also connecting with other networks and exchanges. One example they discussed was OMX (see sidebar), based in Canada. OMX has its own B2B functionality with over 60,000 companies and government agencies transacting on it. To support the many companies that are on both Ariba Network and OMX, the two networks have been integrated at a transaction and RFP level. When a transaction is posted on OMX, the same transaction is automatically posted on SAP Ariba.3 RFPs from SAP Ariba can also be auto-posted into OMX, using filters to receive only the relevant ones.
Light Enablement and Light Account—
Growing Ariba Network by Removing Friction
In our analyst session, SAP Ariba executives said the goal was, by 2020, to grow Ariba Network from the current two million connected trading partners to five million companies, and from the current $1.25 trillion in transactions flowing through the network to $5 trillion. That’s a very high bar of growth4 to achieve in just three years. They said to get that many new suppliers and buyers connected and ramping up usage in such a short time, SAP Ariba had to make onboarding and use of the network as frictionless as possible. To this end, last year they introduced the Light Enablement methodology, which lets low-volume suppliers transact on Ariba Network for free—for things like receiving POs, sending confirmations and invoices—all using just email and a web-browser. SAP Ariba released version 1 of Light Enablement in March last year. By Ariba Live this year (about 12 months after release), 41,000+ suppliers are using the Light Enablement methodology, with about $12B of spend flowing through that mechanism. This not only helps buyer to achieve their ROI sooner and to reach the long tail of spend, it also gives supplier choice to use Ariba Network according to their needs.
A new enhanced version was released called ‘Light Account’, which provides additional capabilities, using a very simple registration process, while maintaining free transaction exchanges. To register, the supplier receives an interactive email which takes them to a signup page prefilled with their company address. All they must do is enter their email address and a password and they are done—registered and ready to transact. In the demo I saw, the supplier’s registration took less than 30 seconds. With the new Light Account capability, suppliers can use most common documents types and the Ariba mobile app, e.g. to confirm an order, on the go, from the app.
Figure 1 — Light versus Full Enablement —> Supplier segmentation
At the request of some of their largest buyers, SAP Ariba is now letting most suppliers start with Light Enablement and eventually upgrade to a full-use account to use advance features. The idea is to compress the timeline to get suppliers initially onboard, regardless of which Pareto5 category they are in: ‘A’ suppliers may be onboarded initially via either Full Enablement or Light Enablement. ‘B’ and ‘C’ suppliers would typically be onboarded with Light Enablement, as shown in Figure 1 above.
‘A’ suppliers more often need Full Enablement out of the gate. They are the strategic suppliers, with high transaction volumes, legacy EDI integration, targeted for catalogs, Ariba Network matched, or strategic for other reasons. Typically, only ~2-5% of active suppliers are ‘A’ suppliers, but they may represent 80% or more of the transaction volume. ‘B’ and ‘C’ (all other) suppliers, typically accounting for 95% of all suppliers, can and should be enabled on the fly, using Light Enablement. Suppliers may start as ‘B’ or ‘C’ supplier using Light Enablement, then as they trend to higher volumes, they can upgrade to full-use accounts benefitting from the advanced feature set. Here’s a summary of key advantages of supplier Light Enablement and Light Accounts:
Maximizes adoption rates with small and low-volume suppliers through elimination of fees
Removes the barrier of change management by offering an email- and Web browser-based approach
Covers most document types with no limits on transactions
Lets suppliers choose when they want to upgrade, removing barriers to adoption
Ariba Network and SAP’s Ambitious Goals: Getting to $5T and 100% Spend Under Management
SAP Ariba executives also said that simply increasing the indirect spend on the network would not be enough to get to $5 trillion by 2020. They will have to have much more direct materials spend flowing through the network as well. This dovetails with the ambitious goal that SAP be able to manage 100% of their customers spend. Right now, SAP has strong tools for indirect spend (SAP Ariba), T&E (Concur), and services spend (SAP Fieldglass). There are some overlaps or ‘boundary categories’ that span more than one of these platforms, so the three groups are working together to clarify which category of spend gets managed where and how they fit together.
In the past, the big missing piece for SAP Ariba in their ‘100% spend under management’ goal has been direct materials, which requires some very different tools than indirect spend. SAP Ariba has invested and made significant developments in direct- materials capabilities recently, though there is still a lot of room for growth.
Direct- Materials Procurement
When Ariba was founded two decades ago, their focus was on indirect, requisition-driven procurement. More recently, Ariba has started building capabilities to manage direct-materials spend as well. While these were pretty modest capabilities at first, we have seen substantial strides in the past couple of years. Components of their strategy include:
Sourcing during design—An advanced practice is to get sourcing folks involved during the design phase of products. SAP Ariba supports this in a couple of ways: They make a centralized approved supplier list (ASL) available, via API, to integrate to any CAD system. They will integrate with SAP’s PLM to start costing out different options during the design phase, making more accurate preliminary cost estimates. Eventually, they would like to get to ‘should cost’ analysis to predict what the supplier will charge.
BOM-to-RFQ automation—The ability to import a BOM, automate the creation of an RFQ, and aggregate up the cost of each component to the cost of the whole product.
Contract-to-ERP, line item export—After the bid evaluation and selection, the contract can be exported into SAP ECC or SAP S4/HANA,
becoming not just a legal document, but operational line items driving the execution system. It allows things like splits, so a specific item can be sourced from multiple suppliers.
Plan-driven rolling forecasts, with collaboration—Plans can be generated via MRP in ECC or S4, or advanced planning and scheduling (APS) systems such as SAP’s IBP (Integrated Business Planning) or by non-SAP ERP or APS systems. The rolling forecasts generated by these planning engines can be processed online by suppliers, or downloaded by suppliers, or integrated directly into the supplier's own ERP/APS system. The supplier evaluates the forecast and sends back their commits. Any resulting changes to plan are highlighted and planners are notified if actions need to be taken. The planner can accept or reject the committed amounts and dates. If they are not satisfied with what the supplier has committed to, they can open up an online chat with the supplier, right there in the tool, to resolve it.
Multi-tier collaboration/and outsourced manufacturing processes—In addition to the sub-contract PO collaboration processes, contract manufacturers are given visibility into POs from the OEM to the component manufacturer, without exposing the price.
SMI/VMI—Support for Supplier/Vendor- Managed Inventory by sharing of min/max levels, forecasts, and agreed replenishment policies.
Quality, Audit—Mechanisms for reporting and tracking quality issues between an OEM, contract manufacturer, and component/material suppliers. And a way for the customer/OEM to specify required quality inspections and specific measurements to be taken during quality checks. Provides an audit trail of quality issues, root cause analysis, and resolution.
Track and Trace—SAP already has ATTP (Advanced Track and Trace for Pharma), which enables pharma manufacturers to request item-level serial numbers and keeps track of the hierarchy of containers (itemàcartonàcaseàpalletàcontainer), tracks the chain-of-custody handoffs, and records that information into an EPCIS6 shared database. SAP Ariba is working with the ATTP team to provide a single face to pharma CMOs (Contract Manufacturing Organizations) that are using both Ariba Network and SAP’s Pharma Network. In the future, they will be able to add the item serial number along with the lot number into the ASN.
Network Monitoring—The ability to monitor exceptions—such as quality exceptions, forecast commit exceptions, and so forth—right there within the network, in near real-time, as soon as the data is submitted, rather than waiting until the backend system gets the data.
Microsoft’s Hardware Division’s Leading Implementation of SAP Ariba Direct Materials
SAP Ariba’s lighthouse customer for direct materials spend is Microsoft, who went live as a co-innovation partner last year. Most people think of Microsoft as a software company (their name is Microsoft, after all) and may not realize that last year Microsoft had $11B of revenue from selling hardware units that they manufactured. This was comprised of 190M units of everything from Xboxes to Surface tablet PCs, HoloLens smart glasses, mice, keyboards, phone systems, videoconferencing and more.
Two years ago, Microsoft’s hardware division launched their 1DSC (One Digitized Supply Chain) program with core principles of being able to rapidly connect and disconnect customers and suppliers, and a data driven supply chain with complete visibility and advanced analytics and machine learning. 18 months ago, their as-is supplier collaboration process was downloading data from SAP, putting it into a spreadsheet, and emailing it to suppliers. Changes would come back via email. When things changed a lot, it made things difficult and there was very little transparency. They want to become more demand-driven and give suppliers better visibility into upcoming demand and orders. They also want more automation and transparency in the supplier collaboration process for confirming and/or adjusting delivery dates.
Microsoft went live last year on SAP Ariba Supply Chain Collaboration and have onboarded just over 40 suppliers and plan to onboard 50 more in the next 12 months. This quarter they are implementing forecast collaboration & multi-tier visibility across their devices supply chain, as part of their demand-driven supply chain initiative, by using Supply Chain Network Intelligence to get real-time visibility into their demand and supply. In the second half of this year, they will implement additional processes to ensure visibility of manufacturing data from their CMs (contract manufacturers), leverage track and trace data, and gain more visibility into logistics.
Courtney Everson, Microsoft’s Director Sourcing Ops, said “We finally have the tool set that we deserve. Most of our sourcing managers are engineers by training, spending a lot of time with suppliers in the design phase. For them, the manual, non-value-add grunt work is frustrating. Now we are much more efficient and productive. We just went live with product sourcing this week and our organization is hungry for what’s still to come.“ That sounds like a solid endorsement to me.
What It Takes to Remain a Leader
As the largest sourcing and procurement solution provider, SAP Ariba (along with their counterparts at Concur and SAP Fieldglass) have set very ambitious goals for continued growth and dominance. Five trillion dollars is, after all, a non-trivial portion of the entire world’s economy. They have many of the required pieces—the network, and the breadth and depth of functionality in indirect, T&E, services, and increasingly direct materials spend management. However, they will need to continue to make big investments, staying in front of nimble competitors, and picking the right emerging technologies to invest in. I wouldn’t bet against them continuing to dominate.
1Immutability means once the record is written, it can never be altered. If a mistake is made, it can only be corrected by writing another record to undo/reverse or back out of the faulty record, and then add the correct record. This provides a tamper-proof audit trail of activities. -- Return to article text above
6EPCIS (Electronic Product Code Information Services) is a GS1 standard for sharing information across enterprises about the disposition of ‘objects’ such as products, containers, vehicles, and documents. -- Return to article text above
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