The next BriefingsDirect digital business innovation interview explores how critical business functions provide unique vantage points from which to derive and act on enterprise intelligence.
These classic functions -- like procurement and supply chain management -- are proven catalysts for new value as businesses seek better ways to make sense of all of their data and to build more intelligent processes.
Here to help us explore how businesses can best operate internally -- and across extended networks -- to extract insights and accelerate decision-making is Barry Padgett, President of SAP Ariba. The interview is conducted by BriefingsDirect's Dana Gardner, Principal Analyst at Interarbor Solutions.
Here are some excerpts:
Gardner: Businesses want to make more sense of the oceans of data they create and encounter, and even to automate more of what will make them increasingly intelligent. Why are traditional core processes -- like procurement, spend management, and supply chain management -- newly advantageous when it comes to allowing businesses to transform?
Padgett: We have had a really great run over the last several years in terms of bringing intelligence and modernization to the front ends of our businesses. We have focused on customer experience, customer engagement, and linking our business activities directly to the customer. This has also created transparency. Now, we’re seeing a sea change in terms of putting the magnifying glass on some of the traditional back-end activities.
In particular, when we think about an intelligent enterprise, better connecting to that front-end customer is super important. But we’re also seeing real demand for connected supply chains. Part of the reason is that when you look at the statistics -- depending on the industry and geography -- about 60 to 70 percent of the value of any company is in their supply chain. It’s in the stuff that they procure, to buy materials, to ultimately produce the goods that they sell. Or it’s in procuring the services and the people to deliver the end-customer services they provide.
There is an opportunity now to link that 60 to 70 percent of the value of the company back into the intelligent enterprise. That begins to drive lots of efficiency, lots of modernization, and to gain some huge business benefits.
Gardner: As we appreciate the potential for such end-to-end visibility, it offers the opportunity to act in new ways. And it seems like becoming such an intelligent enterprise – of gaining that holistic view -- must become a core competency for companies.
How does SAP Ariba specifically help companies gain this capability?
Padgett: When we think about connected supply chains and collaboration across our different business units at the companies that we all represent, it’s super important that we think about scale. One of the things that SAP Ariba has focused on over the last couple of decades is really building scale as relates to supply chain and the supplier networks.
To give you a sense of the size, we currently have about 3.5 million suppliers transacting on the Ariba Network, and the volume that they put across that network every year is about $2.1 trillion. To put that into context, if you add up all of the global volume going through Alibaba, eBay, and Amazon combined -- it’s a little over $800 billion. And so the Ariba Network generates almost three times the business of those other three platforms combined.
When we think about the sheer volume of the events, transactions, and insights available to us now on such a network of that size, we can then combine that with cloud-based applications -- combining it also with SAP’s capabilities and their new S/4HANA core -- and you can unlock some real value.
Delivering this intelligence around context and processes -- as it relates to everything from sourcing, to managing your vendors and their contracts, and to managing risk – ultimately drives a ton of cost savings, efficiency, and transparency through to all those buyers and suppliers.
Gardner: It's a new set of attributes that companies can't refuse to take advantage of. If their competitors do it better than they do, they could lose out on the new efficiency and innovation.
Let’s step back and take a look at some of the trends that are making this a unique time for the concept of an intelligent enterprise. What makes this the opportune time for companies to place the emphasis on being more intelligent?
The third wave
Padgett: We are in the third wave of intelligence, insomuch as I think the first wave was when everyone recognized the analogies that were used, like data is the new currency, data is the new oil, and big data. We had this unbelievable excitement around being able to unlock and gain visibility into the massive repositories of data that sit around our businesses, and around the applications that we use in our businesses.
Then we had the second wave, which was the realization that this huge amount of data -- this vast set of attributes that we had to go and gain intelligence from -- was maybe a little bit more challenging than first met the eye in terms of how we get access to it. Some of it was structured, some of it was unstructured, some of it was in one database, another was in a different database, and so we began creating data lakes and data warehouses.
Now we are in a third wave, which is that -- even recognizing that we finally have the data together in some sort of consumable format -- we really need outcomes. And so we are looking to our vendors that we use and the application suites that we use at our companies to help us to drive new outcomes.
It’s less about, Show me all the data! And it’s less about, Help me, I can’t get my arms around the data! It’s now more around, How can we use some of these latest technologies that we keep hearing about -- artificial intelligence (AI), neural networks, machine learning (ML), blockchain -- to start to actually drive business outcomes?
How can we use some of these latest technologies that we keep hearing about -- AI, neural networks, ML, blockchain -- to start to actually drive business outcomes?
We are getting fatigued around the actual words themselves: big data, AI, ML. And now we are driving more toward the actual business outcomes.
I liken it to any kind of new technology that comes along. We get very excited about it, but then, ultimately, we begin talking about what impact it can have for our businesses. And so, whether that was the initial wave of moving to the cloud by taking advantage of things like HTML or .NET in the early days, we talked a lot about the technology. And now that cloud transformation is fairly mature and robust, we really don’t talk about the technology beneath it anymore. Now we talk about the advantages that cloud offers our business in terms of actionable insights, real-time data, and the cost benefits.
We are now seeing that same kind of maturation cycle now as relates to the intelligent enterprise, and certainly the data that powers it.
Gardner: Allowing more people to take advantage of this intelligence in their work processes, that seems to be where SAP Ariba is headed for the procurement professionals, and for those evaluating supply chains. It brings that intelligence right into their applications, into their workflow.
What is required for enterprises to better bring group intelligence into their business processes?
Padgett: You hit the nail on the head. It’s now less about integration, and more about collaboration. Where we see our customers collaborating across their businesses. It drives real benefits across their organizations. That’s certainly system-to-system, so both with other SAP assets as well as non-SAP assets, in a heterogeneous environment.
But it also means engaging the various business units and organizations. We are seeing a lot of companies move procurement and the chief procurement officer (CPO) to become much more of the hub of broad collaboration.
We like to say that our CPOs are now becoming our chief collaboration officers, because with the transformation we see across supply chains and procurement, we gain the opportunity to bring every component of our business together and begin to have a dialogue around where we can drive new value.
Whether that’s in the marketing team, or the sales team, or the operations team, or whatever it happens to be -- we end up procuring a lot of goods and services and adhering whatever it is that we’re procuring to the outcomes we are looking to drive. That can be customer adoption and retention, or innovation, or whatever core mission that we have at our company. It could be around purpose and ethical supply chains and business practices. It really all comes back to this central hub of how we are spending our money, who are we spending it with, and how can we leverage it better to do even more with it.
Gardner: In order to empower that CPO to become more the collaboration officer, an avalanche of data isn’t going to do it. Out-of-context intelligence isn’t going to do it.
What is it that SAP Ariba uniquely brings that allows for a contextual injection, if you will, of the right intelligence at the right time that empowers these people, but does not overwhelm them?
Padgett: First and foremost, its transparency. There is a very good chance that a lot of our prospects -- and certainly a lot of your listeners -- won’t be able to put their finger on exactly what they spend, who they spend it with, and whether it's aligned to what outcomes they are trying to drive at.
Some of that is a first-line defense of, Let's actually look at our suppliers. Are we completely and fully automated with those suppliers so that we can transact with them electronically and cut out a lot of the manual process and some of the errors and redundancy that exists at our organizations? There are some cost savings there. For sure, there is some risk management.
And then, when we go a step deeper, it’s, How do we make sure that the suppliers that we are doing business with are who they say they are? Do they support the kinds of attributes and characteristics that we want within our suppliers?
Then we can go deeper, looking at the suppliers of those suppliers. As we go two, three, four, five rungs deep into the supply chain, we can make sure that we are marrying, if you like, the money that we are spending with the outcomes we are trying to drive at for our companies.
For the buy side and the supply side, SAP Ariba makes sure they get transparency into everything. Then they can take risk out of their businesses and link spend to core mission and purpose.
That’s what the Ariba does, not only on the supply side -- to make it easy for suppliers to do business with their customers -- but also for our buy-side customers, the procurement customers, to make sure that they are getting transparency into everything. And that extends from their contracts, to making sure that they are administering and managing those contracts effectively, to also ensuring that they performance-manage those suppliers. They are then able to take risk out of their businesses, and ultimately link the dollars or the Euros they spend as a company with the core mission and purpose that they have.
Those missions can be ensuring that they have the right kinds of environmental sustainability and impact or looking to drive forced labor and slave labor out of their supply chains. Or they simply could be trying to ensure a diverse supplier base, including empowering minority and female-owned businesses or LGBT businesses. There's really an opportunity there, but it all comes back to that very first point I made around first creating the transparency. Then you can go unleash the opportunities and innovation that you seek, once you have the transparency.
Gardner: Let's go to some examples or use cases as we define the outcomes that are possible when you combine these cultural changes, attributes, the powerful tools and insights from an organization like SAP Ariba.
I recently saw some information about a digital manufacturing capability, using both the Ariba Network as well as SAP services. Is this a good example of bringing more intelligence and showing collaboration across an entire manufacturing ecosystem?
Share creativity, innovation
Padgett: One of the best manufacturing networks out there is the SAP Manufacturing Network. It’s connected to the Ariba Network. There are about 30,000 discrete suppliers connected to that network, specifically focused on manufacturing. And again, when you open up this kind of collaborative community on a network, we can start to do really neat things.
Let’s say you’re trying to create a new product, or you want a new part manufactured. With this kind of collaborative network, you can throw up a 3-D drawing, collaborate in real-time with whatever subset of those 30,000 discrete suppliers you want, and start to drive innovations that you wouldn’t have been able to do on your own.
It’s about how to harness the creative genius that exists outside of the four walls of your business when you are embarking on new projects. It means having a network available to you that operates in real-time to change the paradigm and the way you think about innovation at your company.
You can find vendors very quickly. You get to manage those vendors in completely new ways. You can collaborate in real-time, which allows you to do more in less time. It provides an edge in terms of when you think about competitive differentiation. This is no longer, How do we make our back-end more efficient? It’s more about how to drive competitive differentiation across an industry, to be agile, and to do things -- particularly in the manufacturing network -- that you haven’t been able to do before. That means such things as linking the operations centers on a factory floor to the supply chain in real-time, as well as to your warehouses, across the globe.
There are a lot of really great examples in all industries, but manufacturing has some particular opportunities given that we are making such a quantum leap from how we used to do things. It’s a new paradigm, an intelligent enterprise.
Gardner: Manufacturing capabilities and efficiencies also shine light on why having a mission-critical network is important. Because you are dealing with intellectual property -- such as designs of new products and sharing of secrets -- if you don’t do that in a secure way, with compliance built-in, then you could certainly run into trouble.
Why is having this in the right network – one built for compliance and security -- so important?
Padgett: Yes, you mentioned the idea of mission critical. A lot of what we think of traditionally as back-of-the-house process around procurement may have been looked at as business critical.
But we need it to think about them, too, as mission critical. We need to think differently because of things like manufacturing networks, using the intelligence available to us via the Internet of things (IoT) on our factory floors, and when there is an urgent requirement for parts when there is a failure. We need to be ready when it happens or about to happen.
We need to link immediately in real-time to our supply chains, our suppliers, and our warehouses around the world. We can now keep those machines up and running much more efficiently without downtime, which drives competitive differentiation and top-line revenue growth for the company. This is a really good example of the difference between business critical and mission critical.
Gardner: How does the intelligent enterprise help engender a richer ecosystem of partners and alliances? How do third-parties now become an accelerant or a force-multiplier to how businesses react in their markets?
Padgett: The whole paradigm around a network fundamentally has a requirement that all the parties are participating. There has to be value for all parties, otherwise it falls apart and it doesn’t work. If it’s too heavily buy-side focused, you don’t have suppliers there. If it’s too heavily supply-side then you don’t attract the buyers. So it’s like a flywheel -- and all aspects have to be in balance, meaning that everybody is winning.
You are a better supplier by being able to work with your buyers and get fundamentally more visibility and transparency into their planning and buy cycles. Ultimately you can anticipate the demand your customers will have.
When you look at the intelligent enterprise, it has to extend to both sellers as well as buyers. The cool thing is that in these networks, sellers can use the same technologies. They get to analyze data from millions of sources, they get a 360-degree-view of buyers, and of their health. They get to get embedded into their demand chains, and not just the supply chain.
You are a far better supplier by being able to work with your buyers and get fundamentally more visibility and transparency into their planning and buy cycles, and ultimately be able to anticipate in real-time the kinds of demand your customer is having or will have.
This allows you to plan and ensure that you can meet their requirements, and hopefully exceed them. And that’s new. That’s not the kind of collaboration that existed in the past. This is an evenly weighted, balanced scorecard in terms of making sure buyers and sellers all see value and a reason to participate.
Other examples would be a seller quickly and easily getting simple information like a change-in-payment status, updates on a decline in sales, changes in leadership, pricing fluctuations around commodities or supply, and being able to look at those in real-time and cross-reference them. They can analyze that, not only with things they’ve done in the past, but also what’s happening in the marketplace overall.
There is a lot of value here. Being able to tap into these opportunities is super important. So, suppliers should also want to participate. Would they see this as a tax, or just something else that we are asking suppliers to do in order to get more business?
The 3.5 million suppliers active on the Ariba Network see the opportunity for new business and for discovery. They join these networks because it’s not only an opportunity to service their existing customers in a better and more modern way, but because there’s an opportunity to attract new customers.
It speaks to collaboration and it speaks to the discovery process available to buyers so they source a really diverse and rich set of suppliers for their community.
Gardner: As procurement professionals elevate themselves to a more strategic level and add value via collaboration and intelligence, they are clearly less of a cost center. Are we at a pivot point where the notion of procurement as a cost center needs to be reevaluated?
Profitable procurement goals
Padgett: That’s certainly the ambition, the goal, and the aspiration. The best business case an organization has for driving savings within their organization is through the procurement business case.
We’re finding that a ton of the digital transformation projects happening right now around the world are led via a procurement project. You start with modernizing and creating intelligence in your supply chain and in your procurement processes. The savings that come out of those projects, which are materially in the 4 to 8 percent of what a company spends in total, forms the driving force that then helps fund the rest of the digital transformation.
Certainly there is an opportunity for the CPO between being a cost and value center. But the thing that gets this off the ground and funded is the fact that there are a ton of efficiency and process opportunities in cost savings that exist within procurement. That’s kind of table stakes, and the blocking and tackling of getting started.
But once you get started, your observation is right on. Once we’ve saved a huge amount money and optimized the process and transparency in our businesses, we can extend that and create more value and differentiation for our organizations on the basis that we now have a ton of new tools and transparency available to us.
Gardner: There is still more to come, of course, in terms of what new technologies can provide. What should people be thinking about in terms of products that will soon enable this intelligence to become more practical?
Insightful intelligence evaluates risk
Padgett: We recently launched products like the Ariba Supplier Risk capability, which allows our customers to go in and evaluate their supply chain and look for areas where they have risk or exposure. That can use our data, the customer’s data, or third parties connected to the Ariba Network, such as Verisk Maplecroft or EcoVadis.
They basically deliver insights into environmental and sustainability risk factors. Another third-party connected to the network is Made in a Free World, and they score and detect forced labor in your supply chains. There are really interesting opportunities in terms of managing risk.
Then there are more meat-and-potatoes kinds of opportunities. We’re partnering with IBM and utilizing their Watson capabilities as well as the SAP Leonardo intelligence suite to do things like drive smarter contracts and build out more powerful intelligence capabilities within the ecosystem.
We're partnering with IBM and using Watson as well as SAP Leonardo to do things like drive smarter contracts and build more powerful intelligence into the ecosystem.
That could be simple things like making sure we don’t have duplicate payments across our businesses or looking at the hundreds or potentially thousands of contracts that we manage in our organizations and ensure that we apply intelligence so we’re being notified proactively if there are risk factors. Maybe there is an exchange-rate clause, for example, in some of the contracts that we manage; whether some action that’s required or a threshold that activates a different clause in our contract.
We can’t expect across the thousands of contracts that we manage for a contract manager to remember all of those. And since they’re all usually in different formats and archived in different locations, we can use intelligence to drive efficiency, manage risk, and ultimately contribute to the bottom-line, which helps us to then reinvest those bottom-line savings into some top-line initiatives.