SAP's acquisition of Ariba extends SCM cloud, but roadmap not yet clear

Jawad Akhtar

Essential Guide

SAP’s acquisition of Ariba, a business-to-business ,cloud-based procurement system, has created significant ripples as well as opportunities in the supply chain management (SCM) cloud industry.

SAP has been making inroads into cloud computing, first with the purchase of SuccessFactors and now Ariba. SAP’s strategy is to not only offer optimum procurement applications to a large and established customer base, but also significantly make quick penetration with businesses that are thinking about implementing cloud-based procurement applications.

With more than $10 trillion worth of annual business-to-suppliers transactions taking place, Ariba process less than 5% of it. Simultaneously, more than 50% of all major global business transactions touch SAP in one form or the other, thus making a strong case for SAP to offer Ariba to businesses of all sizes.

Benefits of SCM cloud to small businesses

SAP Business ByDesign is a cloud-based technology for small businesses. If SAP integrates Ariba with Business ByDesign, the company can benefit by offering customers a complete cloud system that includes a solid procurement application to drive down costs.

Benefits of SCM cloud to midsize businesses

Although SAP Business One is an on-premises technology, cloud-based Ariba can integrate with SAP Business One to offer medium-sized businesses a consistent procurement optimization to business process owners while improving efficiency. SAP Business One has more than 90,000 customers globally and offers a significant market for Ariba offerings.

Benefits of SCM cloud to large businesses

SAP All-in-One offers a comprehensive and integrated system in the procurement applications domain through materials management (MM) in ERP and through Supplier Relationship Management (SRM) in the Business Suite. However, MM lacks the required depth to extensively cater to procurement processes. For example, imports procurement is not thoroughly addressed, especially with regards to financial documents such as letter of credit and bill of entry.

Ariba’s integration with MM provides an efficiency boost to procurement processes by directly liaising with vendors for procurement needs while performing the remaining business functions in SAP Enterprise Core Component (ECC). Global consumer giant Unilever is already benefiting from such integration. Integrating Ariba with MM opens up a vast platform for further process improvements in vendors’ invoice recording and payments.

Although Ariba is focused on procurement applications, companies that have implemented (or are planning to implement) SAP Advanced Planning and Optimization (APO) can integrate it with Ariba to boost overall process optimization in supply network collaboration (SNC), transport planning, warehouse management, demand planning, and production planning and detailed scheduling, all of which are part of SAP APO. With Ariba, the supplier-related procurement information -- such as lead time in deliveries -- is vastly increased and visible. When this information is integrated with APO, better overall planning is possible, which means shorter lead time, lower inventory carrying costs, better production planning and better transport planning to customers.

As far as SAP SRM is concerned, SAP most likely will replace some of the SAP SRM features in favor of Ariba’s strong procurement functionalities. For example, catalog management functionality -- in which suppliers can enter extensive details of their products offerings -- is far more detailed and intuitive in Ariba than in SAP SRM. As SAP aggressively targets cloud-based applications, it makes sense to promote cloud-based Ariba instead of on-premises SRM.

Benefits of SCM cloud to non-SAP businesses

Businesses that have chosen to implement other ERP systems -- such as Oracle, JD Edwards or Baan -- can still implement Ariba for their procurement processes. Even companies that have implemented or are intending to implement Software as a Service ERP can integrate cloud-based Ariba for procurement. As a result of the acquisition, non-SAP companies may get competitive licenses fees for Ariba as SAP pushes to sell Ariba to different ERP vendors’ customers. This entry into a new customer base could allow SAP to expand its other applications since Ariba customers may consider additional SAP applications in the future.

Challenges, opportunities of the acquisition

It is too early to predict the roadmap SAP will follow to support, integrate and promote Ariba in the overall SAP offerings. It is equally unpredictable to assess how businesses intend to use this acquisition to their advantage.

The challenges to integrate cloud-based Ariba with diverse software and hardware platforms, noted below, make future plans intriguing:

  • Will Ariba integrate with SAP ECC?
  • Will Ariba integrate with other SAP Business Suite offerings such as APO, Product Lifecycle Management and SRM? Integration with Customer Relationship Management could result in a customer’s special order triggering a procurement process with Ariba.
  • Will Ariba integrate with SAP HANA?
  • What is the plan for Ariba integration with non-SAP systems such as Oracle and JD Edwards?
  • How will SAP address Ariba integration with other cloud-based and on-premises applications?

Businesses need to watch how SAP is going to price Ariba. While the current licensing costs for on-premises applications are based on the number of user licenses, it is unknown how SAP will handle the cloud-based Ariba. Companies will need to observe this carefully to avoid any hidden or surprising cost escalation during SAP license audit and compliance evaluations.

Businesses should conduct an extensive assessment of current in-house and cloud-based infrastructure, evaluate the benefits of cloud-based Ariba to their procurement and supply chain optimization, and estimate the associated direct and indirect costs -- as well as the training and change management initiatives involved.

ABOUT THE AUTHOR

Jawad Akhtar is an assistant vice president and SAP project manager for AbacusConsulting with a focus on SAP SCM.

View the next item in this Essential Guide: When is the right time to upgrade to SAP SCM 7.0? or view the full guide: A guide to SAP SCM software

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