A Hit with Consumers, Digital Payments Now Catching On Across the Business World Too

Transcript of a discussion on how the popularity of digital payments in the consumer world is now spreading to the B2B payments world as well, and for good reason.

Listen to the podcast. Find it on iTunes. Get the mobile app. Download the transcript.
Dana Gardner: Hi, this is Dana Gardner, Principal Analyst at Interarbor Solutions, and you’re listening to BriefingsDirect.

Gardner

Our next technology innovation thought leadership discussion focuses on how digital payments are catching on for many more companies in the business world following the popularity of services like Apple Pay in the consumer world.

We'll now explore how digital payment solutions are changing the game for small companies like 487 Consulting Services, which is seeing faster and simpler payments using AribaPay. And we will hear more about how AribaPay is expanding around the globe.

With that, please join me in welcoming our guests, Drew Hofler, Senior Director of Marketing at SAP Ariba. Welcome, Drew.

Drew Hofler: Thank you, Dana, great to be here.

Gardner: We're also here with Ken Crouse, Principal Consultant and Owner at 487 Consulting Services in Folsom, California. Welcome, Ken.

Ken Crouse: Thank you very much. Appreciate it.

Gardner: And we are also here with Bill Dulin, Vice President of Commercial Payments at Discover in Chicago. Welcome, Bill.

Bill Dulin: Hey, thank you.

Gardner: Drew, for almost anything that consumers want to buy these days there's a swipe or a card chip, and we are now into wireless connectivity for payments. And yet, with business-to-business (B2B), we're still many times faxing and writing paper checks -- and it's largely still a manual process.

So why such a dichotomy between what people can do as a consumer buying gasoline, for example, and a company buying critical goods and services?

Hofler: It's fundamentally the difference between payments in B2B and the consumer world. For consumers, it's relatively simple.

Everything that you're going to buy is in a single cart at the time of payment, and it all takes place in one spot. The information and the payment itself happen together.

In the B2B world, that is just simply not the case. In the B2B world, you have an invoice that comes in for a good delivered or service rendered, and then payment may happen 30, 45, 60, 90 days later, and that payment may include more than one invoice.

Oftentimes in the B2B context, it includes hundreds of invoices on a single credit of funds into an account. So there's a huge gap between the payment and the information, and that’s what we're trying to solve. That's where the innovation needs to come, bringing that information that’s necessary for all parties to know what's being paid for, when, and why, bringing that together with the settlement of funds in a very secure environment.

Closing the gap

Gardner: But we are closing the gap. Tell us a little bit about AribaPay. How long has it been around and why is it now in a position to begin closing that gap even more rapidly than ever?

Hofler: We launched general availability of AribaPay a little over year ago, and we started here in North America. We've seen rapid growth and we just announced that we're expanding into Canada with our partner, Discover. We are also expanding, later in the year, into Europe and Latin America.

 Hofler

Even though the payment systems are different, the fundamental issue with B2B payments -- the disconnect between information and the settlement of funds -- is the same no matter where you go geographically.

So that's why we're taking it global, and why we're in a position to really change the game and innovate in B2B payments. We sit at the nexus of the digital network age, which is a very different age from where payments began.

You have electronic payments like ACH in the US (or SEPA in Europe) and these types of electronic payment schemes were created back in the '70s, based on a paradigm of that time, which was COBOL-based mainframes behind brick walls, and there was no way to connect a buyer's systems with the supplier's systems.

But now, we live in the digital age, where the Ariba network connects millions of buyers and suppliers together to transact and move terabytes of data in real time between back-end systems.

Instead of doing what B2B payments and electronic payments have done in the past, which is try to take a small subset of that information out and attach it to the payment, (using the ACH or to the SEPA formats, 140 characters in Europe, which is the same as a tweet, or 80 usable characters in the US) we're taking the payment and attaching it to all of this information that’s already on the Ariba Network, the purchase order (PO), the invoice, the reason why the invoice maybe paid a little less than was expected. All of that information is fully available on the network.

We make it visible with the payment, so that both buyers and suppliers know exactly what's being paid, why it's being paid, what this million-dollar deposit is, even if it's a thousand invoices, and why it may be a little different than the supplier was expecting. All of that is fully visible and available on the Ariba Network.

Gardner: Bill, tell us a bit about the role that Discover plays in all this. And how do you feel about the gap closing between what happens in the consumer space and what can now happen in the business space?

Facilitating payments

Dulin: I think I would like to start off with what AribaPay is not, and it's not a card offering. Usually, when people see the Discover logo, they're thinking of a credit-card offering, but this is not that. We're using our infrastructure to facilitate commercial payments.

Dulin

In that case, we’re making sure that we're gathering the bank account information, we're acting as the financial institute of record, we're boarding the suppliers, so all of that information is now in our trusted network. That's how we show up as the financial institution, as the bank. We then move the money and, as Drew talked about a little bit earlier, along with that data as well. That's really where the gap is closing. We're bringing the data and the financial transaction together.

Gardner: Drew, this is not just for large companies. It should be for any company. The long tail, if you will, the larger number of people involved, will be those small-to-medium size businesses (SMBs). Is there something in it that's different or special for them other than your Global 2000 corporations?

Hofler: It’s particularly different for the receivers of payments on that long tail. The large companies have the IT resources they need to manage the complex electronic payments that are available today. That's based on EDI and things like that, and that's great.

The midsize to the smaller suppliers simply don't have the technical resources to consume the information in those formats. They just can't do it. What AribaPay really does is it makes it as simple as possible.

But then the midsize to the smaller suppliers simply don't have the technical resources to consume the information in those formats. They just can't do it. What AribaPay really does is it makes it as simple as possible.

It is as simple as an email with the information about the payment and a link into their account in the Ariba Network that they can visibly see all the information around their payment in a very nice UI. For example, if they were expecting a $1,000 payment and they got $900, the big question is why. There may be 10 invoices on that payment.

They come in, click that link, and come right into their account on the network. They see the payment ID for that $900 that they have, and we show them exactly what was invoiced, the $1,000. You expected $1,000, but you received $900, and here exactly is where the difference is from.

They have hyperlinks to go into the invoice. They can see the comments that may have been made on how maybe something was broken on the pallet, and so they only paid for 9 items instead of 10.

All of that is a very simple online experience.

Gardner: Ken, tell me a bit about 487 Consulting Services, what you do, and then we'll ask about how you like to get paid?

One-man shop

Crouse: 487 Consulting Services is my personal business. It's a one-man shop. I literally get up in the morning, walk over and turn on the coffee pot and walk over to my desk. That's probably the best part of being an independent.

Crouse

The other side of being an independent, though, is that I'm responsible for every single aspect of the business from submitting the financial filings that we did with Discover and getting on board with everybody and actually doing the work for which I'm getting paid. It's all done by me and is controlled by me.

There is no IT department. There is no human resources department. There is no large infrastructure behind me -- it's just me. I came to SAP Ariba via a customer that said they wanted to pay me that way.

Initially, I was a little apprehensive because I was expecting that I'd have to learn a new program. I could just flash back to COBOL in college back in the '80s, and that was petrifying, but the simplicity and the transparency of SAP Ariba was just refreshing.

The first webinar I attended, although scheduled for one hour, only lasted about 30 minutes because of the simplicity and then, within a couple of days, I was able to get all my paperwork together for Discover, and I was live on Ariba within less than a week.

Now, with the Ariba Network, when it comes time to do my invoice and do it about twice a month, I open my Ariba account, identify the purchase order to be billed, click the service that's to be billed and click the submit button.

Two weeks later, I received my first series of payments through Ariba and have been now receiving payments since the first of January 2015. Ariba has processed something north of 300 invoices for me amounting to probably 500 to 600 individual tasks.

Gardner: I think there are going to be more and more folks like you, smaller businesses, independents working to provide discrete services throughout our economy, around the world, many of them working off just the smart phone.

So this is an important part of our growing economy, but also it’s important for an organization like yours to have great visibility to know when the money is coming and when to expect it. Cash flow is pretty important.

So tell me a little bit about that visibility and expectation, and how this system worked better than paper, faxes, and checks?

Previous system

Crouse: It's probably best that I just take a step back from that and review where I was before Ariba, and like you mentioned, it was a paper invoicing system. My customer required that each purchase order be on a separate piece of paper for the purposes of invoicing.

So I might create 15 or 20 invoices, put them all in the same envelope with a nice little transmittal sheet, mail them off. Then, 75 days later, when I'm not getting paid for some invoice, I would then get hold of them, and they would say "Oops, your invoice isn't in our system. And I'd start all over again. That would be a time out from work. I had to stop what I was doing, resubmit the invoice, and then start the clock all over again.

Now, with the Ariba Network, when it comes time to do my invoice and do it about twice a month, I open my Ariba account, identify the purchase order to be billed, click the service that's to be billed and click the submit button. Quite literally, the invoicing is just that simple.

Within a matter of minutes, I receive recognition that the invoice is in the system, as opposed to waiting 75 days for confirmation that it's not there. I receive a positive affirmation within just a matter of minutes.

And then, within 48 to 72 hours, I have a customer who has acknowledged and has approved that invoice for payment. At that point, I know with certainty that that payment is going to come in and on a date certain. I can forecast my cash accordingly and then go on vacation. I don't have to worry about it.

When I get the notifications of the payment being in there, it's broken down line item by line item that corresponds to the exact tasks that I have done for that particular payment. I enjoy the fact that it is all in one payment and broken out that way.

Gardner: Also, Drew mentioned this opportunity for more rich information to be associated with the transaction, remittance information for example. Have you been able to avail yourself of that and is that an important part of what you're doing, being able to see all the information associated with an invoice or a payment process?

Crouse: When I get the notifications of the payment being in there, it's broken down line item by line item that corresponds to the exact tasks that I have done for that particular payment. I enjoy the fact that it is all in one payment and broken out that way.

In the past, a year and a half ago, I might receive individual payments for all of those invoices. I'd get an envelope in the mail that might have a dozen checks in it and then, I'd have to go back and reconcile one check against one invoice. It was just a very time consuming and very clumsy effort.

The other part is that I wouldn’t necessarily get paid for all of my invoices submitted on a given date at the same time. I'd get paid for 10 of the 12 invoices and then would have to start this tail-wagging-the-dog episode of chasing around payments on the other invoices and payments. Although the majority of them might be paid in 60 days, it wasn't uncommon that they would stretch out to 120 or 150 days.

Digitizing processes

Gardner: Bill, any thoughts from the Discover perspective on the ability to not just repave cow paths, but actually do things in business that could not have been done before, given that we are digitizing these processes?

Dulin: A key for us in this, and what we haven’t talked about too much, is the compliance that’s around it. So as we are moving these payments, knowing who the customer is, anti-money laundering, all the regulatory compliance that goes around it. That makes it a more robust payment.

We become more sophisticated as the technology wraps around that payment, to know where it's going, where it should be going. If something has happened that triggers it -- it makes us stop and take a look, to make sure. Sometimes, we talk about purposeful friction. Something triggered an event that made us stop the payment and take a look around and make sure that we have it.

From our perspective in this case, it's not so much of the technology; it’s pulling that sensitive information out of enterprise resource planning (ERP) programs or other places that it shouldn't be and then putting it in a financial institution, again, using that technology around it to help secure that.

Gardner: Now, we heard a lot at the recent Ariba Live 2016 Conference about risk reduction and visibility in the supply chain, that it's really about managing your supply chain. Is there something about using AribaPay, when you have all that data associated that gives people more insight into their supply chain than they may have had, auditability, the ability to further define what it is that they want in terms of best practices, Drew?

More data is better than less data, as long as you can consume it and put it in a usable format, and that's really what we are doing.

Hofler: More data is better than less data, as long as you can consume it and put it in a usable format, and that's really what we are doing.

Knowing exactly who is being paid and removing the opportunities for fraud in the payment process is huge, and AribaPay really removes those opportunities for fraud or a vast majority of them.

We have this whole platform of information and data about the interactions between a buyer and their supplier, from the moment that they source, to when they procure, to the PO, to the invoice, to the payment going through. They can see the on-time performance and they can see how often that supplier requests early payment, if they're using Dynamic Discounting on the Ariba Network, and they can feed that back into the procurement side and start to define payment terms as a result of that at the very beginning.

Gardner: I am afraid we will have to leave it there. You've been listening to a BriefingsDirect thought leadership podcast discussion on how digital payments are catching on for many more companies in the business world. And we've seen how the popularity of digital payments in the consumer world is now spreading to the B2B payments world as well, and for good reason.

So please join me now in thanking our guests, Drew Hofler, the Senior Director of Marketing at SAP Ariba; Ken Crouse, Principal Consultant and Owner at 487 Consulting Services, and Bill Dulin, Vice President of Commercial Payments at Discover.

And a big thank you, too, to our audience for joining this SAP Ariba-sponsored business innovation thought leadership discussion. I’m Dana Gardner, Principal Analyst at Interarbor Solutions, your host and moderator. Thanks again for listening, and do come back next time.

Listen to the podcast. Find it on iTunes. Get the mobile app. Download the transcript. Sponsor: SAP Ariba.

Transcript of a discussion on how the popularity of digital payments in the consumer world is now spreading to the B2B payments world as well, and for good reason. Copyright Interarbor Solutions, LLC, 2005-2016. All rights reserved.

You may also be interested in:

• How new technology trends disrupt the very nature of business
• SAP Ariba Chief Strategy Officer on the Digitization of Business and the Future of Technology
• How New Technology Trends Disrupt the Very Nature of Business
• Procurement in 2016 -- The Supply Chain Goes Global
• Is 2016 the Year that Accounts Payable Becomes Strategic?
• Winning the B2B Commerce Game: What Sales Organizations Should Do Differently
• Can Great Design Really Impact Global Commerce?
• Ariba’s digital handshake helps Caesars up the ante on supply chain diversity
• Detecting and Eradicating Slavery and Other Labor Risks Across Global Supply Chains through Business Networks
• Ariba elevates business user experience with improved mobile apps and interfaces
• Ariba's product roadmap for 2015 leads to improved business cloud services
• Networks: The new model for B2B business, a panel discussion

Modern Supply Chains — How Leading Companies are Engaging Customers in Entirely New Ways

Transcript of a BriefingsDirect podcast on how innovations in supply chain management are enabling companies to improve on indirect materials procurement.

Listen to the podcast. Find it on iTunes. Download the transcript. Sponsor: Ariba, an SAP company.

Dana Gardner: Hello, and welcome to a special BriefingsDirect podcast series coming to you from the recent 2014 Ariba LIVE Conference in Las Vegas. We’re here the week of March 17 to explore the latest in collaborative commerce and to learn how innovative companies are tapping into the networked economy.

Gardner

We’ll see how these companies are improving their real-time business productivity and sales, along with building far-reaching relationships with new business partners and customers.

I’m Dana Gardner, Principal Analyst at Interarbor Solutions, your host throughout this series of Ariba-sponsored BriefingsDirect discussions.

 Our next innovator case study focuses on the new face of customer engagement and procurement modernization. We’ll see how MSC Industrial Supply is improving how they define and relate to their customers in the manufacturing sector.

We will learn how MSC has been using the Ariba Network to bolster customer engagements, and to provide new and innovative solutions to their customers as well.

So join me now in welcoming our guest, Erik Gershwind, President and CEO of MSC Industrial Supply in Melville, New York. Welcome.

Erik Gershwind: Good morning, Dana. Thank you for having me today. Great to be with you.

Gardner: What procurement pressures are your customers facing? Why are they looking to change things? What's wrong with the status quo?

Gershwind: Most of our customers are North American manufacturers. One of the sea changes that we have seen occur, particular since the 2008-2009 global recession, is if you look back for the past two decades, there was a heavy focus by procurement, supply chain, and finance organizations on price, on cost.

Of course, that's still critically important, but since the 2008-2009 recession, businesses around the world, and certainly manufacturers in North America, now have a much greater awareness on the importance of cash flow and speed through the supply chain.

Bigger priority

That's probably the biggest thing that we’ve seen in the past few years. Our customers are telling us that speed of the supply chain, getting to market faster, so they can have more of their products into their customers’ hands faster, is becoming a much bigger priority.

Gardner: So to be swift, agile, and lean in the way you go to market requires that you look at your internal processes, and get lean there. Is that right?

Gershwind: Dana, that’s exactly right. Leaner supply chains turn into shorter lead times. Shorter lead times mean faster speed to market. And all of that requires really tight dependency from every single link in the supply chain.

Gershwind

What we’ve found is that everything that’s happening in our supply chain right now is driven by the end-user, what's happening with the customer, but that customer’s needs are working their way back very quickly.

And collaboration, which is enabled by technology, is making it critically important in order to be effective in leaning things out.

Gardner: I certainly want to learn more about how you’re modernizing procurement and bringing benefits, but first, tell us a little bit about MSC, for those of our listeners and readers who are not familiar with you.

Gershwind: MSC is a distributor of industrial supplies. We sell over a million items, primarily into manufacturing or any maintenance environment. That could be anything from a safety glove, to an abrasive, to the most advanced metal cutting tools that are used in the manufacturing process.

We exist so that we can help businesses focus on their business. We do that by ensuring that supply chains run smoothly. Our small part in that bigger mission is around taking the complexity, the obstacles, and the inefficiencies out of maintenance, repair, and operations (MRO) materials.

We were founded over 70 years ago in a tiny storefront on the lower East Side of Manhattan, and everybody at MSC, including myself, has been part of what's been an amazing growth story.

We focus on anything that's an indirect part of a production process. So not the raw materials, not the direct stuff, but all of the other things that keep plants running. That’s what we specialize in.

Hot topic

Gardner: Another thing that’s going on, in addition to business pressure to be lean and agile, are some technology improvements over the past several years. One of those is a topic of the day, a hot topic, big data and the analytics that you can derive from more and more types of content and gain more and more insight.

How do you get information or acquire insights or analysis that can allow you to then bring better approaches to your customers in helping them be lean and efficient?

Gershwind: Historically, when I look at the core assets of MSC as a distributor, there were three things I would highlight: our people, first and foremost; our inventory; and our distribution centers, our physical assets.

What we’re quickly realizing is that there's a fourth one that’s every bit as important as the other three assets. That's information. You’re absolutely right. With every transaction that occurs, especially because of technology now, there's learning in there.

To answer your question, we’re using technology to help us harvest that data, use it to drive improvements within our own four walls, but more importantly, with our customers and with our suppliers.

There were three things I would highlight: our people, first and foremost; our inventory; and our distribution centers, our physical assets.

I’ll give you two examples of how we’re employing technology. One is Ariba. Ariba is the perfect platform for connecting buyers and sellers. It's a network, but it's a network that leaves footprints. With every transaction, there’s a footprint left behind that’s waiting to be mined for operational improvements.

Another example is our vending initiative. We at MSC will take a little piece of ourselves and put a vending machine on the plant floor of our customers to store tools and let them take responsibility for procurement. Certainly, one advantage is security and inventory optimization, but there is information to be mined in each one of those machines, and we’re using that to help our customers.

Gardner: Tell me about your history of working with Ariba. How long have you been doing it, and what are some of the chief benefits that you see in using Ariba's Network and various cloud-based services to conduct your own procurement and tighten up your own processes?

Gershwind: MSC has been a seller on the Ariba Network for well over a decade. If you’ll bear with me, I’ll share a quick story, a trip down memory lane. One of our very first Ariba interactions was close to 15 years ago. One of our customers at the time, a big manufacturer, asked us if we could get up and running on the Ariba Network in less than a month's time.

The three partners together -- the customer, MSC, and Ariba -- rolled up our sleeves. We had teams working on the same side of the table for a month straight. It was a great example of collaboration.

First transaction

And I still remember us huddled around the computer screen, waiting for that first transaction to go through. I’m proud to say that that customer relationship is one of the best we have still today.

In terms of the benefits that we as a seller see, there are three things I would point to.

Number one is certainly enhanced revenue growth. Number two is cost savings, because transactions are now done electronically. But I would call out the third one as the most important. Ariba is helping us collaborate. It’s bringing business networking to happen faster, more efficiently, and more frequently. And those collaborations are resulting in innovations to our supply chains collectively and are driving improvements.

Gardner: Erik, I’d like to return to this notion of the vending machines that, as you said, was an extension of your business into the actual physical plant of your customers. This reminds me of what happens in technology on the Internet. For big bundles of objects and data, rather than going from the server of the originator down to the individual user, we have what we call content delivery networks (CDNs), where we put those objects out as far toward the last mile as possible.

It seems to me that this is an interesting development for physical goods, and you also, of course, get the data back on how they are used. Explain to me your rationale and how far you’ve taken this into the market, this concept of the extension of your physical distribution capabilities into the very physical plant of your customers.

By bringing inventory closer to where work is getting done, this company is saving time and they are translating that time savings into real dollar savings.

Gershwind: Vending and the idea of extending ourselves into our customers’ supply chains is a critical element of fulfilling our mission of helping supply chains run more effectively.

I’ll share a quick example with you. This is a customer that uses vending machines for us. This customer has about 150 vending machines installed as part of an MSC system across 75 locations in North America, and that system is yielding tremendous benefits for them.

Recently their MRO category manager was in New York and shared with me that at one site in Alabama, one of this company’s locations, their people were doing a mile-long walk there and back just to get to a centralized storeroom and get a supply replacement or part of a tool.

Think about that for a second, a mile walk. If somebody is doing that just once a day, and by the way, many are doing it multiple times a day, they’re walking a marathon by the end of the month. So by bringing inventory closer to where work is getting done, this company is saving time and they are translating that time savings into real dollar savings.

Gardner: I suppose there is also a common thread here with mobility, where people can use their mobile devices or smartphones to conduct businesses, activities, and processes and allow for check-offs, okays, and so forth, reducing that last mile and compressing the distance.

It also reminds me of being able to, in a sense, cross organizational boundaries. They become fuzzy. Your organization is inside another, for example.

Let's take this to a theoretical level. As we look three, four, or five years down the road, is the nature of buyer and seller changing? Are we really combining them into a common supply-chain ecosystem, where there isn’t necessarily an adversarial relationship, but something different, more collaborative?

Collaboration

Gershwind: Dana, you just hit the keyword. It's collaboration. The way we look at it, we’re all part of one supply chain. There's no such thing anymore as "my" supply chain and "your" supply chain. It’s one supply chain, and we are all interdependent parts of the one bigger supply chain. The reality is that we can't be effective without each other, and that's how business is going to be run. The beauty of Ariba, more and more, is that it's making that collaboration happen faster, more efficiently, and more effectively.

Gardner: Now, what about the data, returning to that subject. It’s okay with you to share data with Ariba and Ariba to share data with you. Then, we extrapolate that across industries, verticals, and go global. The amount of information we’re gathering, even anonymized and private, gives us great insights. We can start to be more predictive. That is to say, you know your supply chain, what your customers will demand maybe quite a bit before, or we can identify risks when things go amiss, sooner rather than later.

So do you have any thoughts about the future of analysis and intelligence when we apply it to the supply chain equation?

The biggest change and trend is the idea that information is now being used beyond our own four walls.

Gershwind: It goes back to the idea that, as a distributor, we used to think of ourselves as being in the hard goods business, and of course, we still are, and always will be, but we’re also in the information business.

 At MSC, we always did a fairly decent job of mining our own data for supply chain improvements, forecasting, and understanding what to purchase.

What’s now happening, and it all starts because of our customers’ needs, that’s working its way back through the supply chain, is data and information is now being used to help our customers, and even our suppliers run their businesses better.

So the vending example I gave you is a great one. As I said, each one of those electronic transactions is a footprint. It’s the same thing with our website. E-commerce now represents nearly 50 percent of MSC’s revenues. Every single one of those transactions leaves behind little breadcrumbs that give us insights that we can then use and share with our customers and further back in the supply chain with our suppliers.

Gardner: It seems to me, Erik, that it requires a third party like the Ariba Network to aggregate and bring intelligence to bear on this massive data. I know that they’re leveraging the HANA platform from SAP more and more to do that sort of big-data analysis and intelligence gathering.

How important is it for you to look at that third party and see them in a trusted fashion? Could you do this alone, and are there many other organizations that can fill the role like Ariba Network is?

Bringing business together

Gershwind: I don't think anybody can do it alone anymore. That's really the nature of the supply chain that we just talked about. What Ariba does is bring businesses together.

Think of it as a virtual networking forum. It used to be that, in the old days, you were able to network when you got together maybe once a quarter. Ariba is letting that happen in real time, all the time.

Are there others doing it? Maybe, but none that we trust more than Ariba. As I said, we’ve been doing it for well over a decade with them and we view them as an extension of ourselves into our customers.

Gardner: We’re about out of time, but let’s look to the future. Do you have any ideas about what you’d like to see from your unique position in the supply chain business, in manufacturing, and in indirect goods? What would you like to see for the next revolution?

What we do know is that today, sitting in North American businesses, is $145 billion of MRO inventory alone, let alone broader indirect materials.

Gershwind: The one thing I would point to that we haven't talked about is the opportunity that’s sitting right in front of procurement and supply chain, when it comes to indirect materials. For the last decade or so, procurement has done a wonderful job cleaning up direct materials, getting clear line of sight, optimizing the supply chain, and taking cost out.

Earlier this morning, in the general session, I referred to direct materials as the garage of the house, because everybody goes in, it’s a high profile spot, everybody is in it, it’s core to your operations, and it’s gotten a lot of attention.

Indirect materials is like the attic of your house. If it's anything like my attic, it’s neglected, the light bulb hasn't been replaced. So it’s dark and you can't see what's going on.

What we do know is that today, sitting in North American businesses, is $145 billion of MRO inventory alone, let alone broader indirect materials. We also know that 70 percent of that is likely never to be used.

So sitting in front of procurement is a $100 billion opportunity. It's not just the job of procurement, but all of us as a supply chain. It's sitting there waiting for us.

Gardner: What do you mean? How do we attack this problem, clean up the attic, as it were? Do we need to have better inventory? Do we have just-in-time supply chain, ordering and fulfillment? What is it that we need to bring to indirect that’s missing?

Three things

Gershwind: There are three things that we want to bring to indirect procurement and get at the attic. Number one is looking for time. The natural bias is to focus on cost, but what we’ve come to learn with our customers who are doing it well is that, if you focus on time savings, the cost savings does follow. That's number one.

Number two, we need light. We need light up there and we need to bring a flashlight with us. That flashlight is technology -- technology like Ariba. Use technology as the flashlight.

And the third thing, and we’ve been hitting on it all morning here, is collaboration. Get another set of eyes. It's hard to see things by yourself. You can't be successful on your own. So bring partners in and help you attack that $100 billion.

Gardner: So we are really talking about modernizing indirect procurement in ways that we have already established. We know these things work and we just have to establish the will and then bring it into that part of the business.

You can't be successful on your own. So bring partners in and help you attack that $100 billion.

Gershwind: That’s it. It’s about taking what we have already done in the garage and applying it to the attic. That’s right.

Gardner: Well, very good, I am afraid we’ll have to leave it there. We’ve been talking about how MSC Industrial Supply is improving how they define and relate to their customers by bringing new innovations to the indirect procurement process. And by examining this user’s experiences, we’re learning how MSC has leveraged the Ariba Network to bolster their customer engagements with new insights, technology, and innovation.

So a big thanks to our guest, Erik Gershwind, President and CEO of MSC Industrial Supply. Thank you, Erik.

Gershwind: Thank you, Dana.

Gardner: And thanks to our audience for joining this special podcast coming to you from the 2014 Ariba LIVE Conference in Las Vegas.

I’m Dana Gardner, Principal Analyst at Interarbor Solutions, your host throughout this series of Ariba-sponsored BriefingsDirect discussions. Thanks again for listening, and come back next time.

Listen to the podcast. Find it on iTunes. Download the transcript. Sponsor: Ariba, an SAP company.

Transcript of a BriefingsDirect podcast on how innovations in supply chain management are enabling companies to improve on indirect materials procurement. Copyright Interarbor Solutions, LLC, 2005-2014. All rights reserved.

You may also be interested in:

• Ariba's roadmap points to instant, integrated and data-rich business cloud services 
• Dynamic discounting allows American Electric Power to bring new efficiency to procurement terms
• Case study: How ACP simplifies and speeds its billing and payments using the new AribaPay cloud service
• Business success increasingly hinges on supply chain innovation and procurement advantages
• Workforce of the Future -- and Why Preparing Means Rethinking Human Resources Now
• Ariba announces business network analysis enhancements, first transactions conducted under AribaPay
• Spot buying automated by Ariba gives start-up KooZoo a means to shop more efficiently
• Combining big data and cloud capabilities for ecommerce matches buyers and sellers like never before
• Here's Why Healthcare Businesses Must Efficiently Manage Their Suppliers, Purchases, and Processes
• Ariba LIVE roadmap debrief: Cloud data analytics

American Electric Power Leverages Dynamic Discounting to Bring New Efficiency and Innovation to Buying

Transcript of a BriefingsDirect podcast on how both buyers and sellers can benefit from a cloud solution to discounting.

Listen to the podcast. Find it on iTunes. Download the transcript. Sponsor: Ariba, an SAP company.

Dana Gardner: Hello, and welcome to a special BriefingsDirect podcast series coming to you from the recent 2014 Ariba LIVE Conference in Las Vegas. We’re here the week of March 17 to explore the latest in collaborative commerce and to learn how innovative companies are tapping into the networked economy.

Gardner

We’ll see how these companies are improving their real-time business productivity and sales, along with building far-reaching relationships with new business partners and customers.

I’m Dana Gardner, Principal Analyst at Interarbor Solutions, your host throughout this series of Ariba-sponsored BriefingsDirect discussions.

Our next innovator case study focuses on American Electric Power and how they’ve been improving their financial processes and operations using Ariba Dynamic Discounting. We’ll learn how a real-time business-process approach to billing, ordering and settlement terms between buyers and sellers benefits both American Electric Power and its vendors.

To learn more about agile business services, please join me now in welcoming our guests, Drew Hofler, Manage Cash Solution Marketing Director at Ariba, an SAP company. Welcome, Drew.

Drew Hofler: Thank you, Dana.

Gardner: We’re also here with Rick Gray, Senior Treasury Specialist at American Electric Power in Columbus, Ohio. Welcome, Rick.

Rick Gray: Glad to be here.

Gardner: First to you, Drew. What are the pressures now? We’ve heard a bit about Dynamic Discounting in the last couple of years, but I’m wondering what's the new impetus? What’s changed that makes Dynamic Discounting more relevant than ever?

Hofler: The fundamentals around Dynamic Discounting that drive it are the buyers, their not having a lot of cash on hand. Not getting return on cash hasn't changed a whole lot in the last few years. Companies still have a lot of cash, but the Fed funds rate is still very low.

Hofler

On the supplier side, one thing that has changed for them a little bit is that the actual credit crisis has thawed a little bit, but not completely. The thing that's really changed for suppliers, and it was more of a gradual change, is that they all see longer payment terms now from their buyers. In the old days, before 2008, net 30 was your base term. Now, net 45, net 60 is standard, and many suppliers are facing longer terms than that.

Dynamic Discounting offers the great relief valve for that. It allows buyers to use their cash and earn some great return on that cash, and it allows suppliers to access early payment and lower their days sales outstanding (DSO) when they want to.

Evolutionary growth

The other thing that has really fundamentally changed, and I’d say it's more of an evolutionary growth that makes Dynamic Discounting more relevant than ever, is that what makes Dynamic Discounting possible is e-invoicing and the ability to get invoices approved very rapidly, so there's an opportunity for that early payment.

E-invoicing has really grown in the accounts-payable world, both in the US as well as abroad. E-invoicing has become more standard, More and more people are coming into it. It's not a leading practice anymore. It’s a best practice, but there is a long way to go.

But as those invoices get approved very quickly and suppliers have visibility into them, it becomes very natural for a supplier to raise their hand and say they would really like to get paid early, maybe to reduce DSO, maybe to increase cash flow, whatever their reasons, but the confluence of e-invoicing and that network visibility is really driving Dynamic Discounting.

Gardner: For any of our new listeners and readers, why don’t you quickly define for us what Dynamic Discounting is, and then also tell us what the benefits are and to whom? Now that this has been in play for a while, are there any unintended consequences about who is getting value from it and why that's increasing the uptake?

Dynamic Discounting simply puts the tools in the hands of the paying customer, to use their cash and earn something, and it puts the tools in the supplier hands to accelerate payment.

Hofler: Dynamic Discounting, at its very root, is an early payment on an invoice that is funded by buyer cash. What makes it dynamic is that it allows suppliers, on an automatic or an ad-hoc invoice-by-invoice basis, to essentially raise their hand on a Dynamic Discounting platform by clicking a button and say they would like to get paid early, and in their control, accelerate their payment.

Dynamic Discounting simply puts the tools in the hands of the paying customer, to use their cash and earn something, and it puts the tools in the supplier hands to accelerate payment.

I like to call it the bringing together of opportunity, visibility, and capability, where you have the opportunity created by e-invoicing and where now you have an early approved invoice.

Visibility is through a network that allows the buyer to see where they have an opportunity to pay early and a supplier to see where they have the opportunity to be paid early. Then, there’s the capability on that network to click a button and make it happen, so that they have money in their account a couple of days later.

Gardner: And the other part, what’s been perhaps an unintended or unexpected consequence that’s benefiting the chain here in such a way that more and more people are doing it? What’s fueling the uptake?

The business network

Hofler: I wouldn’t necessarily say that it was unintended, because I think we intended this to happen and we saw it. But I would say that what's really fueling it again is the rise of the business network.

As I said, it’s the opportunity, visibility, and capability, and it’s that visibility element, where now more suppliers are used to seeing their invoices on the network. They’re used to seeing them approved very early, and then they can take advantage of it.

But one of the surprises that I see is in who offers a discount and who takes the discount on the supplier side. Logically, you would think it would be your smaller suppliers, with not much access to cash or not much access to credit, and in general, they do very much take it up.

The beauty of Dynamic Discounting is that you don't have to know what your supplier is going to do or why they’re going to do it.

But you will also often see very large suppliers with very large invoice discounts -- I mean in the six digits sometimes -- that will do it on occasion, because they have the opportunity and the control to do it when they want to. They will do it for other reasons, such as end of quarter to reduce their DSO or as accounting window dressing to get receivables off their books.

And the beauty of Dynamic Discounting is that you don't have to know what your supplier is going to do or why they’re going to do it. You offer them the opportunity, give them visibility and the capability to do it, let them make the choice, and you will often encounter some surprises like that.

Gardner: Let’s to go to Rick at American Electric Power. Tell us a little bit about your organization and how you came to be using Dynamic Discounting?

Gray

Gray: American Electric Power is an electric utility, one of the largest investor-owned electric utilities in the country. We’re in 11 states, and we have five million customers. We have gross revenues that were over $15 billion last year. So, we’re pretty well-sized.

We started to look at our expenditure cycle, the whole purchase-to-pay (P2P) process, and had an independent consultant in to look at that and to give us some strategy on how we can improve. Part of it was to do the e-invoicing, the e-purchase order.

So we were looking at different tools and companies to provide that, and Ariba was the one that came out, and we selected them. Part of the justification for that whole project was the increase in early-payment discounts. That’s what got the ball rolling.

Gardner: And to what degree are you using it?

A lot of use

Gray: Quite a bit. When we started looking into it with Managed Services help, we saw that we had over 150 different payment terms. We looked at our days payable outstanding (DPO), which is the number of days it takes to pay our suppliers.

It was shorter than the industry average, which means we were paying sooner than our peers in the industry, which caused us a little concern in that we obviously weren’t being overly prudent with our cash or gave that appearance.

So part of the effort was to look at our payment terms and standardize them, and we decided to extend them a little bit to get along with the industry average.

Gardner: Rick, what about this notion of a business network, transparency, and having more data at your fingertips in order to benefit other processes, other financial issues in your company? Do you see this as an accelerant to the use of network information and transparency and perhaps building less risk into your overall financial situation?

Gray: Absolutely. And because we were looking at our working capital and our liquidity and extending the payment terms and consolidating them, we wanted to provide our suppliers with a tool for them to be able to then give them that relief valve that Drew was talking about. So if they did need the payment sooner, that’s fine. We could give them that opportunity without losing the benefit to ourselves in the process.

Part of the effort was to look at our payment terms and standardize them, and we decided to extend them a little bit to get along with the industry average.

It became really important to get the buy-in throughout the company. We realize that some suppliers need the money sooner and that’s fine, and here’s the process to do that. The tool then allows the suppliers an easy way of accessing that and getting their money sooner if they need to, without reaching out to our accounts payable department or our procurement department and calling around. This was a more streamlined process for that.

Gardner: One of the things that’s really interesting to me and why I think this takes off so well is that it benefits both sides. There are more information and terms available. Negotiation positions all work to their mutual benefit. Do you have any metrics of how this has benefited your organization? Do we have some opportunity to look at where the rubber hits the road? What do you get for it?

Gray: There are a couple of things. This past year, we extended our days payable outstanding by two days, which doesn't sound great. On the other hand, with $1.2 billion in average daily accounts payable, that’s two days we didn’t have to borrow $1.2 billion. We even had a holiday where we didn’t have to borrow one day, but gradually that turned out. So we reduced our borrowing for that much.

On the other hand, we also saw increased early payment discounts that matched that business case that we talked about later. So in that regard, we’ve done pretty well.

Gardner: Let’s go back to Drew. What’s coming next? What have we gained from the news here at Ariba LIVE? What are you hearing from the attendees, and what should we look for in terms of next steps in making Dynamic Discounting even more powerful?

Continued buildup

Hofler: What comes next is a continued buildup of the transparency and visibility in a network that allows suppliers to see what's going on and allows buyers to tie that in together.

We’re seeing that companies are looking at these things, not as disparate processes anymore, not just the invoicing, not just Dynamic Discounting, not just procurement, but are looking at the realization that each of those is a link in a value chain and they need to be linked together

We’re seeing people going from where they’ve started and expanding onto a platform that allows them to grow and link these things together. You’ve got suppliers, for example, that may have just been PO or may have just been a contract.

We really see the tying together, not only of the desire to be paid early, but then the actual mechanics around the settling of that payment.

Now, they move them into the invoice on that. Or, it may have been invoice and just contract. More and more suppliers are finding more and more reasons to come to the same network. That increases the pool of who is there to discount.

The other thing that’s tied to it, and not discount specific, is the idea that it’s early payment when they raise their hand. We’re now seeing this area of what we announced at LIVE in AribaPay -- not only to allow the supplier to raise their hand to receive their payment early, but to be able to be paid in such a manner when they do that, they have full visibility into everything that went into the final dollar that comes into their account, with every invoice, every line item, every PO, so that they can reconcile it easily and quickly identify discrepancies.

So we really see the tying together, not only of the desire to be paid early, but then the actual mechanics around the settling of that payment

Gardner: And for global companies that are concerned about currencies, jurisdictions, and tax issues, this can be a big deal.

Hofler: Absolutely, it can, and particularly if they have multiple invoices around payment, keeping track of the differences. You get one lump sum and it accounts for 100 invoices that might have 20 line items each. That becomes a big issue to maintain, and the more global you go, the more complex.

Networked economy

Gardner: Of course, a recurring theme at Ariba LIVE was the networked economy -- and also the fact that you are, as part of SAP, using HANA and other analytics capabilities to bring more insight across the activities of the Ariba portfolio.

I was struck when Rick mentioned that he could compare the industry standard for payable terms and therefore adjust accordingly. Are there other metrics, analysis, or even predictive value that, as an aggregator of Dynamic Discounting terms, with all privacy, security, and anonymization brought to bear, more value add when it comes to being smart about how you do this?

Hofler: Absolutely. I couldn’t be more excited about potentially having all of the 15 years now or more of data on the Ariba Network of POs, invoices, and payment terms and early payments. All of this is brought together in such a way that we can do just that. We can take all that big data and turn it into information that’/s actionable.

There is so much there, not only from the aggregate standpoint. As you mentioned, we never, ever share which supplier we discount how much, but on an aggregate basis, what are some of the trends, what are some of the indicators that a supplier would be more willing to discount? Just on the data that I’ve tracked outside of HANA, not nearly as powerful as that, you’ll see certain patterns, end of quarters, end of certain seasonal cycles.

It’s not really that complicated. So that's not too bad. The challenge is getting the suppliers on and getting them engaged.

Having the ability to see that for a buyer or a treasurer to then make maybe more cash available for that particular time and plan for that, they can make more cash available to handle the spike in volume of discounting. There’s just tremendous potential there.

Gardner: Rick, any advice for other organizations that perhaps haven’t done Dynamic Discounting, but are evaluating it? Is there anything that you can offer with 20/20 hindsight that they would benefit from?

Gray: A couple of things. One, it’s not that bad of an integration. There’s not a whole lot of movement there. It’s not really that complicated. So that's not too bad.

The challenge is getting the suppliers on and getting them engaged. We actually purchased the software right when Ariba was rolling out Managed Services, so we were sort of grandfathered in prior to that and didn’t utilize the Managed Services when we implemented. We saw that our adoption rate was well below our target.

Six months or so afterward, we engaged the Managed Services, and within three or four months, we had reached the original target. So that was a big help and something I would strongly encourage. Listen to and use the partners. It’s not that we’re not smart enough or don’t want to work hard enough to do it. It’s just that we just didn’t really have the time and resources.

Gardner: Would you say, Rick, that this has paved the way for a different type of relationship between you and your suppliers? Has it increased collaboration and communication in any way, maybe a stepping stone towards more transparent and even more mutually beneficial business negotiations and relationships?

Next target

Gray: Yes, and we’re working on that, as far as a long-term contract is going into place. That's our next target right now with the smaller suppliers, with immediate need. Now, we’re looking to make sure that that’s the culture within the company. These are the payment terms and this is the tool to utilize going forward. We’re sticking to our guns, saying that there are no exceptions. Everyone goes through this, and that’s been beneficial.

Gardner: Last word to you Drew. How does this integrate into other things? You’ve already mentioned AribaPay. We’ve talked a little bit about analytics and visibility. The whole greater than the sum of the parts is where a lot of business services and those that avail themselves of cloud models can go. Where does this integrate into next? Where is the bundle? How do we make this a value add?

It’s very helpful for folks who are looking to get some technology to help them drive business process reengineering and to improve their business processes.

Hofler: It’s just a natural bundle for anything that has anything to do with P2P,  Ariba Collaborative Commerce, and Ariba Collaborative Finance. If you look at it as a process, classic process, everything ends up with an invoice to be paid.

So we bundle it in when the invoice is a part of any type of business process re-engineering that a customer is doing. We point it out to them as a natural next progression when they are going there.

Rick made the point earlier that it really drives the business case too. It’s very helpful for folks who are looking to get some technology to help them drive business process re-engineering and to improve their business processes.

Sometimes, efficiency isn't enough in terms of savings to get that raised to the top of the project pile. Dynamic Discounting is a great way to add significant return on investment (ROI) to that business case, so that they can get their overall project approved. We’ve seen that happen time and time again. So it’s a great part of the bundle.

Gardner: Very good. I’m afraid we will have to leave it there. We have been talking about how American Electric Power improves their financial processes and billing operations using Ariba Dynamic Discounting.

And by examining a user's experience, in this case at American Electric Power, we’ve learned how a real-time business process approach to billing, ordering and settlement terms benefits both the buyer and the seller.

So a big thanks to our guests, Drew Hofler, Manage Cash Solution Marketing Director at Ariba, an SAP company. Thanks, Drew.

Hofler: Thank you, Dana. It’s my pleasure.

Gardner: And also Rick Gray, Senior Treasury Specialist at American Electric Power. Thank you, sir.

Gray: You’re welcome.

Gardner: And thanks to our audience for joining this special podcast coming to you from the recent 2014 Ariba LIVE Conference in Las Vegas.

I'm Dana Gardner, Principal Analyst at Interarbor Solutions, your host throughout this series of Ariba-sponsored BriefingsDirect discussions. Thanks again for listening, and come back next time.

Listen to the podcast. Find it on iTunes. Download the transcript. Sponsor: Ariba, an SAP company.

Transcript of a BriefingsDirect podcast on how both buyers and sellers can benefit from a cloud solution to discounting. Copyright Interarbor Solutions, LLC, 2005-2014. All rights reserved.

You may also be interested in:

• Ariba's roadmap points to instant, integrated and data-rich business cloud services
• Case study: How ACP simplifies and speeds its billing and payments using the new AribaPay cloud service
• Business success increasingly hinges on supply chain innovation and procurement advantages
• Workforce of the Future -- and Why Preparing Means Rethinking Human Resources Now
• Ariba announces business network analysis enhancements, first transactions conducted under AribaPay
• Spot buying automated by Ariba gives start-up KooZoo a means to shop more efficiently
• Combining big data and cloud capabilities for ecommerce matches buyers and sellers like never before
• Here's Why Healthcare Businesses Must Efficiently Manage Their Suppliers, Purchases, and Processes
• Ariba LIVE roadmap debrief: Cloud data analytics

Arlington Computer Products Simplifies and Speeds its Billing and Payments Using New AribaPay

Transcript of a BriefingsDirect podcast on how AribaPay is changing the face on online billing and payments, benefiting both buyers and sellers.

Listen to the podcast. Find it on iTunes. Download the transcript. Sponsor: Ariba, an SAP company.

Dana Gardner: Hello, and welcome to a special BriefingsDirect podcast series coming to you from the recent 2014 Ariba LIVE Conference in Las Vegas. We’re here the week of March 17 to explore the latest in collaborative commerce and to learn how innovative companies are tapping into the networked economy.

Gardner

I’m Dana Gardner, Principal Analyst at Interarbor Solutions, your host throughout this series of Ariba-sponsored BriefingsDirect discussions.

Our next innovator case study focuses on Arlington Computer Products and how they’ve been improving their financial processes and operations using the new AribaPay cloud-based B2B payment service. We’ll learn how an integrated and on-demand approach to ordering, billing, and settlement processes between buyers and sellers benefited Arlington Computer Products.

To learn more about how agile business services are entering into a new era, please join me in welcoming our guest, Arly Guenther, Chief Executive Officer at Arlington Computer Products in Buffalo Grove, Illinois. Welcome, Arly.

Guenther: Good morning, Dana.

Gardner: We’re also here with Drew Hofler, Manage Cash Solution Marketing Director at Ariba, an SAP company. Welcome, Drew.

Drew Hofler: Thank you, Dana. I’m glad to be here.

Gardner: Why are companies seeking to do things differently when it comes to paying and getting more digital and electronic in how they’re settling out their accounts?

Hofler: Dana, fundamentally, B2B payment is broken, in the sense that it’s very different from consumer payments. With consumer payments, you have the item that is being bought, and the information around the payment happens at the same time, at the point of payment, with the settlement of funds.

Hofler

With a B2B payment, however, the goods that are delivered or the service that is performed is done so 45, 60, or 90 days ahead of when the payment is settled. This disconnect in time between the information around the payment and the actual settlement of the payment causes companies to have a very difficult time reconciling payments that they receive. There’s a lack of remittance information around the payment, particularly when there are multiple invoices involved to settle that payment.

You have organizations that would like to pay with electronic payment because it’s more secure, cheaper, and faster. But the people being paid, suppliers, are struggling with that, because it often doesn't contain the information that they need to settle those funds.

So suppliers would like to get paid faster and electronically, but they need that information along with it. There has never been a payment in the B2B world that tied together net-term payment with all of the information that's necessary to manage and reconcile that payment. That’s where AribaPay comes in to try to solve that problem.

Gardner: Just for our audience, AribaPay was unveiled last year at Ariba LIVE and it’s a partnership with Discover, the financial services organization. Tell us about the general availability rollout. What’s going on here this week at LIVE, and why is this is a big bash, a big coming out for AribaPay?

First live transactions

Hofler: Last year, we announced our partnership with Discover and began our development process and design phase of building out the product. This year, we’re happy to announce that we've had our first live transactions between Discover and Arlington Computer Products.

Guenther

So, the first live payments have gone through the system, and the product is ready to bring out and it will be fully available to the general public in the second quarter of this year.

Gardner: Let’s go to Arly. Tell us a bit about Arlington Computer Products, about what you do, the size of your organization, and why AribaPay was interesting to you.

Guenther: Arlington Computer Products has been in business for 30 years. We’re an IT solution provider, servicing a broad spectrum of large enterprise customers. Last year, we did about $130 million in revenue, and we’re providing best-in-class IT solutions for our customers. So when we see a best-in-class solution like AribaPay, we really want to embrace it and use it ourselves.

We’re always looking at our business trying to get more efficient and drive cost out of our model. Customer satisfaction is our top priority, but at the same time, we need to be price competitive. So we’re always looking for innovative solutions, trying to get more efficient and more productive as an organization.

The space that we've been in historically has been very manual for us, very high touch. With AribaPay, we’ve been able to re-architect our accounting system to use a cloud solution, as opposed to a manual process.

We’re always looking at our business trying to get more efficient and drive cost out of our model.

As far as Discover, we've done business with Discover for more than a decade. They’re an outstanding organization, using best-in-class technology to drive their business. If you combine that with Ariba, which is a top-notch software firm, you’re really combining two great organizations. So we were really comfortable going forward with the pilot.

Gardner: As Drew pointed out, there are numerous benefits that come with  moving to an electronic-settlement process and using an integrated approach across the partnership or ecosystem like Discover and Ariba. For you, Arly, what were the top problems or top issues that you wanted to resolve by going into this new model?

Guenther: It has been really a very manual process for us. We would generate an invoice. We had to put it in an envelope. We had postage expense and envelope expense. We’d mail the invoice out, sit and wait for a payment, a check, to come into a lock box. We’d wait for the check to clear so the funds are available.

If we followed up after 45 to 50 days, we occasionally might find that the customer didn't even receive the invoice. So we’d have to resend an invoice. It was a high-touch, manual process. Now it’s an automated process. So there are some big productivity savings for us.

Ancillary benefits

Gardner: Arly, while expanding this across more of your accounts, do you see any ancillary benefits in terms of process refinement, analysis, or productivity  insights? Is there going to be perhaps an additional payback when you scale this up?

Guenther: Absolutely. We were in the pilot. As I mentioned, we’ve done business with Discover for over a decade. They’re a fabulous customer of ours. We’ve used Ariba with Discover for a number of years, just not AribaPay. Now, we really want to take it and use it across the board in our accounting system for our customer base.

Gardner: Drew, tell us a bit more about AribaPay for those who are intrigued and want to learn more. What does it actually do? What are some of the details, and how would you go about bringing this into your organization?

Hofler: As I said, the fundamental problem with B2B payment is that disconnect between the information and settlement of funds. That’s what AribaPay corrects and bridges that gap. On the Ariba Network, our core strength is everything from sourcing all the way through to the invoice being approved and ready to pay. That’s all of the information that goes along with the payment. The invoice, the line items, the purchase order (PO) behind it, even the contract behind is all there and backing up that payment.

AribaPay then takes it the final step and, in that settlement process, connects a unique payment identifier with that and connects with the Discover network to leverage their core strength, which is secure trusted settlement of funds and the infrastructure to do that.

With AribaPay, the supplier can see where the actual payment is every step along the process

Then, Discover settles the fund in electronic manner, but that settlement of funds is now tied together with the information that came behind that payment. So a supplier receiving a payment through AribaPay can get an automatic feed into their back-end system or they can come on to the Ariba Network and see every line item that in the invoice that came behind that payment.

Hofler: More importantly, it will highlight if there’s a discrepancy between what they invoiced and what they were paid. Say they invoiced $100 and they were paid $90 because the buyer disputed an item or they thought the price should be lower, AribaPay will highlight that with the I-card and tell you exactly where that discrepancy is, so that suppliers no longer have to search through and find where the issue is.

Finally, AribaPay has a very cool feature, we call it track-and-trace for payment. It’s very much like when you order something online and you get a packaged shipped to you. You get a tracking number and you can see where that package is geographically as it comes to your house.

With AribaPay, the supplier can see where the actual payment is every step along the process, from the time the payment is approved, to the time that it gives its execution and the file is sent, to when Discover debits the buyers bank account, to when they credit the supplier’s bank account. All the way along the line, they can see every step.

That’s what it does. It bridges that gap of information, which gives suppliers the ability now to embrace electronic payments, get paid faster, and have visibility into it, because they now have all that information that they need.

Dynamic Discounting

Gardner: We’re really creating these data rich transactions, where the data follows a transaction and it allows for a much greater transparency. How does that line up with other services? I'm thinking perhaps the Dynamic Discounting at Ariba. Is there a synergy of any sort between some of these other services and what you can accomplish with AribaPay?

Hofler: There is a synergy. AribaPay is really that last step in the true P2P process. It is the second "P" in P2P, and it closes that loop and it does so in a way that gives the suppliers a certainty of payment.

With Dynamic Discounting, it's a great next step. Dynamic Discounting simply gives the supplier the ability to choose a different date for payment and offer a discount in order to accelerate that payment.

In a normal discounting platform, that choice of the supplier will be sent to the buyers back-end payment system, which will tell them that the supplier wants to be paid early. That’s the last visibility that the supplier sees and they just trust that the process will work and the buyer will then actually pay them at that time and for the amount that they are expecting.

It adds that extra layer of visibility and certainty to the choice that they have to get paid. That’s very synergistic with Dynamic Discounting.

With AribaPay, the discount choice can be tied directly to the execution of the payment. They can see with certainty that, yes, the buyer has accepted that; yes, the buyer has now executed on that. They can see when it's coming. It adds that extra layer of visibility and certainty to the choice that they have to get paid. That’s very synergistic with Dynamic Discounting.

Gardner: Arly, as you’re hearing Drew describe these services and capabilities, do you think it might alter the way that you relate to your accounts, to your customers? Is there a value-add with having this visibility, tracking, and data with the transactions that might allow you to increase your services? Is this something you can extend back into your market?

Guenther: Absolutely. From a process stand point, it's a game changer for us in terms of driving productivity and improving cash flow. Just like anything else, as you drive down your selling, general, and administrative expenses (SG and A) and your own expenses and you get more efficient, you pass those savings on to the customer. But we’re really a technology company, and so when we get a best-in-class solution like this, we really want to maximize the benefits.

Gardner: I know it's quite early in the game. We've just begun doing transactions but can you see any metrics of success, any measurement of how this would work? We are anticipating, as you mentioned, cost savings, but have we put any numbers to that yet, Arly, or is it too soon?

Guenther: We’re anticipating a six-figure savings just between handling expenses, postal expense, and supply expense, but the real wild card is cash flow. When you improve your cash flow, the opportunity cost on that cash can be pretty high. So from that standpoint alone, we know it's going to be in the six figures, but as we free up cash to do other things, that’s going to make a big difference for us.

Gardner: Drew, for those interested in learning more, how would they begin? What's a good way of starting a process where they could begin to understand and even execute on something like AribaPay?

Lots of information

Hofler: A great place to go to learn more about AribaPay is simply AribaPay.com. There is a lot of information out there, some data sheets and a form that they can fill out to learn more information and hear from us.

We have some value engineering models that can help customers, both buyers and suppliers, understand how AribaPay can help their business. That would be great for a start. One other point I neglected to make about AribaPay is that we've talked a lot about the benefits of suppliers, which is great.

It's a wonderful benefit for suppliers, but we shouldn’t understate the benefit there is to buyers of not having to manage bank-account information any more. One of the benefits of AribaPay in leveraging Discover is Discover’s infrastructure and network of merchant acquirers and the process of bringing suppliers on. They’re capturing our bank information managing it, bumping it up against all the asset control checks, all of the know your customer (KYC), and things that have to happen to verify that bank information and then keeping that bank information up to date.

No longer do buying organizations, as they do today, have to hold on to supplier bank account information, if they are going to pay electronically. That is a very big benefit, particularly in light of what we’ve see in the news lately about certain companies having had their data briefs and payment information, bank information stolen. So this eliminates that risk by offloading the management of that bank information into a trusted third-party like Discover whose business is managing that information.

We have some value engineering models that can help customers, both buyers and suppliers, understand how AribaPay can help their business.

Gardner: Drew, looking to the future of maybe 12 months from now, the next Ariba LIVE or conference of note, what can we expect? Are there some added services or more analysis and analytical benefits that you can draw? Where do you expect this to go next?

Hofler: Right now, AribaPay is going to be launched in the second quarter of this year to general availability. It’s just the beginning. It’s first being launched to the U.S. alone. The very next thing for us is expanding that into other jurisdictions. So I would look for that, first and foremost in the next year.

Gardner: Well, great. I'm afraid we’ll have to leave it there. We've been talking about how Arlington Computer Products has improved their financial processes and operations using the new AribaPay cloud service. By examining an early users experience like an ACP, we've seen how an integrated and on-demand approach to ordering, billing, and settlement processes benefits both the buyers and the sellers.

A big thank you then to our guest, Arly Guenther, Chief Executive Officer at Arlington Computer Products. Thank you so much, Arly.

Guenther: Thanks, Dana. Thanks, Drew.

Gardner: And we've also been joined by Drew Hofler, Manage Cash Solution Marketing Director at Ariba, an SAP company. Thank you, Drew.

Hofler: Thank you, Dana. It's my pleasure.

Gardner: And also, a thanks to our audience for joining this special Podcast coming to you from the recent 2014 Ariba LIVE Conference in Las Vegas.

I’m Dana Gardner, Principal Analyst at Interarbor Solutions, your host throughout this series of Ariba-sponsored BriefingsDirect discussions. Thanks again, for listening and come back next time.

Listen to the podcast. Find it on iTunes. Download the transcript. Sponsor: Ariba, an SAP company.

Transcript of a BriefingsDirect podcast on how AribaPay is changing the face on online billing and payments, benefiting both buyers and sellers. Copyright Interarbor Solutions, LLC, 2005-2014. All rights reserved.

You may also be interested in:

• Business success increasingly hinges on supply chain innovation and procurement advantages
• Workforce of the Future -- and Why Preparing Means Rethinking Human Resources Now
• Ariba announces business network analysis enhancements, first transactions conducted under AribaPay
• Spot buying automated by Ariba gives start-up KooZoo a means to shop more efficiently
• Combining big data and cloud capabilities for ecommerce matches buyers and sellers like never before
• Here's Why Healthcare Businesses Must Efficiently Manage Their Suppliers, Purchases, and Processes
• The Open Group conference emphasizes healthcare as key sector for ecosystem-wide interactions improvement
• Research: Spot buying automation delivers greater B2B procurement efficiency
• Blue Marble Media Shows How Mid-Market Selling Gains new Life Via Ariba Discovery
• Ariba LIVE roadmap debrief: Cloud data analytics