In today’s market environment High Tech companies typically faces the following challenges.
Whether it’s getting innovative products into market faster than the competition, ensuring on-shelf availability,
broadening their channels to the customer, managing commodity volatility, closely managing costs, or all of these –
it puts their Procurement, A/P and Finance departments in a challenging situation. These resources are being asked to do more and more for the company, but typically without any additional headcount or budget.
They have spent billions of dollars in personnel, reengineering, and systems over the past two decades to improve
their internal processes and information flows. Within the four walls of the enterprise, businesses have made great strides in sharing information and collaborating between departments and employees. Unfortunately, these islands of efficiency that are disconnected from the outside world and fall down where it matters most – when buying, selling, or exchanging cash with other businesses. In fact, despite all this investment and all these advances, more than 80% of POs, Invoices, and other transactions still take place offline…involving lots of paper…lots of people…and lots of inefficiency. By some estimates, all this inefficiency costs business $650 billions per year in missed sales opportunities, higher operating and supply chain costs, and slower cash flow cycles. High Tech companies got tens or hundreds of thousands of suppliers and other important trading partners, and they need to work with them faster and smarter than their competition in order to stay ahead.
So, high tech companies are looking for ways to make all of these processes more efficient while attaining all the corporate goals.
The opportunity here for them is quite large – tens or even hundreds of millions of cost reduction have been achieved by those leveraging a Business Network approach. This impact is accomplished through the power of The Ariba Business Network:
• Helping organizations discover and negotiate with the best suppliers across a high % of their spend to drastically reduce Unit Price Cost (and thus total cost)….in some categories of spend as high as 15% - 20% cost savings.
• The network helps companies to take their negotiated savings and turn those into realized savings. The way this is achieved is with actual compliance execution, by making sure employees are buying the right items from the right suppliers at the right prices, and then savings leakage is eliminated. Typically, savings leakage without these processes in place can range from 1% of spend to as high as 8% in more complex service categories. Since this is such a large issue with many large corporates, the Business Network approach has shown to tighten compliance across these categories over 60% recovering this large leakage experienced today.
• End to End ‘clean and error free’ electronic processing with suppliers helps organizations lower internal processing costs significantly – with some companies this has been as high as 70% in their procurement and AP functions. This also mitigates much of the risk in operation - with some customers helping them increase top line revenue and decrease their days sales outstanding in servicing their customers or clients.
• Finally, and in some cases one of the more compelling opportunities, is the ability to increase working capital returns. Through the End to End controls, efficiency and speed, payables can be looked at now as a profit center. With the Business Network, organizations can look at payables more strategically – balance and optimize payment terms, deploy upwards of 20% of payables cash to returns as high as 36% APR (or averaging 18-22%) and extend terms to increase working capital and extend DPO.
All of these benefits areas culminate into tens or hundreds of millions a year in savings opportunity…..which of course has a big impact on operating income, margins and EPS.
However there are additional benefits like discovering new sources of supply which can greatly reduce sourcing cycle times and help high tech companies to reduce supply chain risk.
With these solutions high tech companies can also gain visibility into their spending and supplier relationships, to identify opportunities for sourcing, demand management, or improved supplier performance.
The supplier value proposition is quite clear as well – and suppliers really do LIKE being a part of this network! On a 1:1 basis they have improved communications with their customers, and visibility into order status and payment timing, as well as lower customer service costs and higher customer satisfaction related to that.
But in the context of the larger network, they also have increased opportunities to market themselves to the community of buyers which helps increase sales and help them grow.
Getting deeper into the offerings, the Ariba Network it is no matter what systems you might run for your financials, supply chain, or even source-to-pay, the Ariba Network works seamlessly to support the collaborative elements of the process. With over 1 million trading partners and over $450B in annual spending flowing through the network, Ariba support more than 60% of the Global 2000 for inter-enterprise collaboration.
There are two main packages that are offered to customers who want to leverage the Network: Collaborative Commerce, and Collaborative Finance. Collaborative Commerce includes collaboration on business documents related to orders – purchase orders, confirmations, ASN’s, receipts, etc. The Collaborative Finance package covers the monetary portions of the process such as Invoice Mgmt and dynamic discounting.
For all customers who invest in a network package, Ariba provides a single point of collaboration for all suppliers, on all spend-related doc types, with flexible enablement options for suppliers so that none are left behind, not even the smallest shop that wants to receive faxes or emails. Ariba has time-tested approaches and service offerings to get your suppliers fully and rapidly enabled to collaborate on the Network.
So you can see how this is a win-win situation for buyers and suppliers in the high tech industry.
Find out more
For further information please contact mirjam.wittmann@sap.com
