Managing costs throughout the enterprise requires controls, but as with any initiative, these controls become more effective as they become adopted throughout an organization. Enter spend management, the discipline of squeezing the most out of each procurement dollar throughout the enterprise. Once a somewhat mysterious element in a financial department's bag of tricks, spend management has increasingly become integral to other areas in the enterprise, from operations to marketing and product development.
Ariba Inc. (NASDAQ: ARBA) is one of the pioneers of spend management — and over the last 10 years, the Sunnyvale, California, company has tirelessly advocated its use as a key component in nearly any business decision. Sun recently spoke to Christine Crandell, Ariba vice president of marketing, about how spend management can increase competitiveness for companies of all sizes in the global marketplace — and how Sun is helping Ariba develop these offerings.
Q: How does Ariba define spend management?
Crandell: Spend management is how you maximize the return on investment (ROI) from every dollar a company spends. We think of spend management as a journey — and every company is at a different stage in the voyage. Typically, companies start out trying to control their rate of spend — looking for cost savings in procurement or making sure processes are in place for purchasing — and then wind up using spend management as a major contributor to the overall corporate strategy. With the right strategy and solutions in place, companies can do more than just identify savings. They can make sure these savings make their way to the bottom line and improve profits, reduce supply risk, and gain competitive advantage.
Q: What are the milestones in the spend management journey?
Crandell: Initial cost savings are merely the starting point. For example, one of our customers, a supermarket chain on the East Coast, saved $17 million in the first year after implementing Ariba spend management software. That's a starting point that leads to more visibility into how every dollar is spent across the enterprise — both direct and indirect spend.
Another Ariba customer, this one in the new glass business, has approximately 95 percent visibility into its spend. Once savings are recognized and spend is visible across the organization, companies can then use spend management to drive business change. Mergers and acquisitions can be performed more quickly. And other areas that impact competitiveness, such as global resource provisioning and risk management, get done faster, with more consistency and cost-effectiveness.
Q: What are some of the misconceptions about spend management?
Crandell: It's important to understand that spend management is more than supplier management or supply chain management. Sometimes, people mistakenly think that enterprise resource planning (ERP) is spend management; ERP is really focused on nuts and bolts transaction processing. In our software, we have modules for sourcing, contract management, procurement and expense, invoicing and payment, supplier performance management — and, very importantly, modules for visibility into all these activities.
Additionally, Ariba also has over 400 commodity specialists that help customers build world-class sourcing processes, as well as Ariba Supplier Network, the world's largest supplier network. All three — software, expertise and the network — are critical to realizing fast ROI from spend management. They enable companies to see things much more strategically at risk points, which turns procurement into a strategic process.
Q: How do the needs of larger and smaller companies compare?
Crandell: The conversations we have with large and small companies are often quite different. When we talk to a $200 million or $500 million company, the conversation usually revolves around the starting point of the spend management journey, which is saving money in areas like procurement. For these companies, staying competitive in the marketplace often means figuring out how to source products so that the prices of these materials aren't passed down to the end customer. But when we talk to a $20 billion company, the conversation is usually about organizational transformation, strategy, and risk management.
Q: How do on-demand capabilities help customers?
Crandell: On-demand capabilities help smaller companies get started quickly in activities like global sourcing. We're tapping into our 400-plus commodity experts — people with expertise in everything from sourcing resort vacancy space to steel ingots. This way, a $200 million company can tap into numerous best practices just as easily as a $200 billion company that uses our commodity experts. We also look at on-demand solutions a little differently than other software companies. Instead of having two code bases — one for the on-premise version and the other for the on-demand version — we've taken the time to build one common code base for both versions. This helps our customers, particularly when they're doing business globally.
Q: Let's talk about the most recent Ariba survey findings of C-level executives released in November 2006. Ariba asked these respondents about spend management challenges and requirements. Were there any surprises?
Crandell: There were some surprises. After our 2005 survey, I suspected that there would be more movement in the ability to measure ROI in 2006. I also expected to see more people on the same page with internal alignment and the adoption of spend management practices. But we did find that many companies are further along in the spend management journey. We saw emphasis on visibility in areas such as the origins of spend at all levels of operation. And C-level executives also wanted the ability to consistently deliver measurable results in spend, which tells us that we're having a significant impact on the bottom line.
We also discovered continuity with past surveys. For example, different industries still move at varying paces in their spend management journeys. Financial services, for example, tend to be further along in this process than other industries. But these surveys are good windows into what the market is doing, and give us a great tool for letting market requirements influence our product road map.
Q: How has your relationship with Sun helped Ariba?
Crandell: We've done a lot of joint development with Sun over the years. That includes putting Ariba on Sun servers, doing sizing and porting and working on two-way projects as well. It's a mutually beneficial relationship. Without it, we'd be hard-pressed to serve many of our customers in sectors like financial services and high tech. Sun and Ariba have a lot of joint customers.
To serve these customers cost-effectively, we're involved in a project with Sun to port older Ariba spend management software releases to different Solaris platforms. Many of our customers are on different Solaris releases, and we want to make sure that Solaris customers can take advantage of Ariba. Also, we use a lot of Sun technology internally for the same reasons that many of our customers use Sun — reliability, speed, and cost-effectiveness.
Q: How does Sun help Ariba's internal development efforts?
Crandell: Solaris is a core platform for us, and it's part of our long-term IT vision of everything from reducing costs to driving enterprise strategy. These days, we're looking at how we can make Ariba run faster and better on Sun — particularly on UltraSPARC servers. We're also doing a lot of joint development work with the Open Java II platform. Ariba is J2EE-compliant, and working with Sun on Open Java II helps us provide more advanced, flexible and reliable offerings to our customers.
Q: How do those efforts benefit your customers?
Crandell: These are the kinds of projects that make spending decisions more automated and accessible, and that is part of a phenomenal shift in procurement. It is becoming more apparent to many companies that procurement has an extraordinary role to play in shaping business strategy. At Ariba, we've done the relatively easy stuff with spend management, but now we're helping companies shape business strategy. And that is a significant and exciting challenge for us.
About Christine Crandell
Christine Crandell is vice president of marketing for Ariba, Inc., where she is responsible for the design and execution of the company's global marketing programs. Prior to joining Ariba, she served as vice president of worldwide marketing for IPLocks, Inc., a database security and information risk management software vendor.
Managing costs throughout the enterprise requires controls, but as with any initiative, these controls become more effective as they become adopted throughout an organization. Enter spend management, the discipline of squeezing the most out of each procurement dollar throughout the enterprise. Once a somewhat mysterious element in a financial department's bag of tricks, spend management has increasingly become integral to other areas in the enterprise, from operations to marketing and product development.