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.
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.
In the consumer space, say when someone is on the Microsoft web site ordering a game console, games, controllers and the rest, those orders are being relayed in real time to Microsoft’s suppliers to create a customer experience that won’t disappoint. To achieve that, out of stock can’t happen. But what happens if we connect to third-party data sources about weather, mining, shipping and more? That’s where it gets really interesting. Electronic manufacturing in particular moves, adapts, and evolves. It’s a good example of how an intelligent supply chain can drive results.
EBN: What are the biggest pain points electronics OEMs are hoping to address with technology?
Padgett: It all comes back to customer experience, whether that’s for an internal buyer and giving them a consumer like experience and set of robust and delightful mobile experiences or a more traditional sense of customer and connecting the buying experience so it is magical. How do we leverage the supply chain to make a delightful and magical experience for end customers?
At its best, it finally connects the biggest leverage you have (the money you spend) with the things you are trying to drive from a company perspective. It goes all the way from there down to the most basic buying activities, so that you can make sure they are streamlined, efficient, and cost effective in terms of pricing, logistics and the rest. It allows organizations to ask for what they stand for as a company. It lets us look at the why of what we are doing. From there, we can focus on what’s most important to the organization.
EBN: A variety of large software companies are taking aim at the supply chain market. How do you see the competitive marketplace evolving?
It’s kind of like human resources. Every company buys something. It’s a ubiquitous activity. There’s enough space for every player to find something. There’ll be a shakeout if everyone is looking at the same goal of creating a fully-comprehensive, best of breed platform. There’s only room for a couple of them. It’s a common business pattern.
Today, Ariba is the current standard. We have a good solution. Then there are lots of companies playing for the midmarket. One layer deeper, in the small to mid-sized business market, who know what the right answer will be? Those customers have varying degrees of competency and understanding. Most want to understand how they can be part of a larger buying community. There’s lots of opportunity.
EBN: What are the newest capabilities that your customers are looking for?
Padgett: Customers have a little fatigue around the next wave of technology. Customers are less interesting about blockchain, AI, neural networks, etc. They want to understand what business process efficiency they are going to see. They aren’t trying to automate technology but a business process. They know that better insights can let them make better decisions. They don’t care what the underlying technology but rather whether t provides business value. Everyone wants to push the envelope on how collaborative the supply chain can get. If I lose supply chain visibility at the first layer of partners, we have to work to do. They want to know how they can get access to those deeper insights.
— Hailey Lynne McKeefry, Editor in Chief, EBN
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