Far from being a cost center, the supply chain and procurement market are fast becoming a strategic differentiator for high-tech electronics OEMs. At the same time, software vendors are creating solutions that help organizations capture value through automation and visibility into purchasing and managing goods and services.
Far from being a nice to have, procurement software, especially cloud-based solutions. has become a must have for organizations of all sizes. The market is growing fast, with global sales of procurement software accounting for $9 billion annually by 2023, growing at a compound annual growth rate (CAGR) of 10%, according to a recent report from Market Research Future.
We sat down with Barry Padgett, president of SAP Ariba to find out a little more about his company and ask about the most exciting trends in the procurement software market. Padgett has been tasked with driving the strategy, operations, product and innovation, and go-to-market functions for the company, which is a subsidiary of SAP. The company has significant market share and reports that it has at least 1,500 customers using at least one of its strategic sourcing suite modules, according to Gartner.
EBN: What is SAP Ariba’s key differentiator in this crowded market?
Padgett: There are some really obvious ones including decades in the market, as well as size, scope and breadth of the company. Our competitors are doing good work and there is plenty of space for players I this industry. We are operating at a different size and scale, though, growing at 35% a year with over a billion dollars in subscription revenues. Certainly, there is a lot of advantage for operating at scale whether you are looking at stacking various capabilities. No one delivers that full stack except Ariba and that reality speaks to the opportunity. Horizontally, no one is covering all aspects of spend (direct, indirect, MRO, etc.) in the procurement umbrella. We see a lot of opportunity to extend our market leading position in future.
The real value is not in applications but in the marketplace. Ariba’s network has two trillion in commerce going across it. Other companies talk about total volume since inception. Ours is 20 trillion since inception. In March, we reported 1.6 trillion for the previous 12 months and now we are at 2.1 trillion for the past year.
Everyone is trying to simplify business commerce globally by allowing organizations to connect and digitally operate and transact over the network. Coupa is doing some interesting and smart acquisitions. We’ve made them too. I tend to hear from customers who are looking for solutions that are fully comprehensive, best of breed, end to end solutions. About 40% of our business is non-SAP and there’s lots of growth outside of our SAP channels. They want to seamlessly collaborate with other parts of their business. With SAP customers, there are some inherent advantages.
EBN: How would you recommend that OEMs make decisions around what technologies and services in which to invest?
Padgett: There are two fundamental components to that questions. First, it’s important to keep the main thing the main thing. Look at your business and see what you are trying to achieve. There’s a ton of money to be saved, lots of manual processes, and lots of inefficiency. It’s the wild west. There’s lots of opportunity to drive cost savings. Procurement initiatives fund a lot of digital transformation for SAP customers. Upgrading enterprise resource management (ERP) is a challenging business case but when you append a procumbent transformation. you are leveraging those savings to fund the upgrade. In a regulated industry, it might not be cost savings. It might be risk and compliance or digital signatures and provenance.
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The second thing I would say is that you need to make sure you do business with a company with a platform mindset. Certain product companies, like Google, Amazon or Facebook, have become platform companies. Those were one trick ponies that created massive changes. Make sure you invest in a company that recognizes that they can’t deliver all the innovation you need so they are developing a rich ecosystem that sits around core offering that allows you to build the heterogenous set of partners you want to deliver on that thing that you want. You don’t want to be stuck in the on-premise days. It doesn’t work. Business today demands massive collaboration.
EBN: How has information technology evolved as a critical strategy in the global electronics supply chain?
Padgett: In many ways, the idea of the intelligent enterprise comes back to the idea of an intelligent supply chain. There’s a lot of value in allowing procurement to become a first-class citizen. There’s no better industry than high tech to take advantage of connected supply chain to react to a variety of problems, including demand shortages, geopolitical unrest, atmospheric challenges and more. The speed at which electronic industry moves requires a supply chain that is more than just what consumer wants to purchase.