From the September 2010 issue of Treasury & Risk magazine

Better Supply Chain View

Ariba is using cloud computing to introduce fine-tuned cash flows to supply chain management, offering both buyer and seller more visibility and control over their working capital. "Pain points change," notes Peter Lugli, senior director in charge of the working capital management practice at Ariba. "Now cash is indeed king and working capital is getting a higher priority than ever, so tying up cash unproductively has become an acute pain point."

Ariba for years has staked out a position as a provider of high-tech spend visibility and control solutions, primarily for buyers. The Sunnyvale, Calif.-based company claims 91 of the Fortune 100 as customers and boasts a network of 300,000 suppliers. Now cloud computing is "letting us take things to the next level," Lugli says.

"Many supply chains are still mired in paper-laden, closed-loop systems," he says. "Without visibility and collaboration, corporate finance leaders are meeting the ups and downs of today's volatile business environment with one hand tied behind their back. Cloud-enabled technology, collaboration and community consciousness help companies better manage cash expectations among them."

Cloud computing involves software running on multiple servers in multiple locations that share the hosting and processing burden. Cloud-based solutions help buyers and sellers to quickly and easily connect and do business, regardless of their technology platforms. Companies can combine data from disparate systems, including ERPs, to get a clear, consolidated view of their spending--including cash obligations and cash expectations--and make more informed decisions.

"Managing working capital is still very inefficient because it is largely driven by closed systems and processes," Lugli added. "The key to improving things lies in open systems that can be easily accessed regardless of their architecture or delivery model decisions. Cloud-based applications bring a higher level of productivity to whole supply chains, along with a greater degree of collaboration."

In Europe, global glass manufacturing leader NSG Group is deploying the e-invoicing and discount management solutions within Ariba's working capital management suite. Ariba has long offered electronic invoicing, supplier visibility and dynamic discounting, but Lugli says its new cloud computing platform will provide NSG with some important advantages over the older model, such as on-demand technology to eliminate the burdens associated with deploying software and speed time and value; a Web-based community through which to discover, connect and collaborate with a global network of trading partners; and the ability to augment internal resources with always-on expertise and commerce services.

"Buyers like NSG are putting in place these solutions in a cloud-based environment to reduce cost and start-up time and leverage an existing community of already connected suppliers," Lugli says.

In addition, solutions within Ariba's working capital management suite let suppliers monetize receivables whenever they choose, he says. With highly flexible dynamic discounting, both buyers and sellers can negotiate accelerated payment of any invoice on any date at a discount that satisfies them both, without involving third-party financing, Lugli explains. "With companies hoarding cash at record highs and earning record lows on cash investments, it's a great time to invest in your own supply chain and earn an attractive return with low risk at the same time you support your company's sales."

NSG, a Japanese company with $6.3 billion of revenue in 2010, acquired U.K. glass manufacturer Pilkington in 2006.Its U.K. treasury staff is spearheading a supply chain liquidity initiative that will target first Europe, then North America and finally Asia/Pacific, according to John Wilgar, the company's Manchester-based global procurement manager for process and performance.

As it launched its initiative, NSG considered three providers. All three were good at moving invoices from point A to point B, but Ariba offered broader functionality for suppliers, and that factor dictated NSG's choice. "A lot of consideration for suppliers went into our decisions," Wilgar says. "We also liked [Ariba's] global scalability." It helped that Ariba's network included languages like Polish, he adds.

The project, which kicked off in June, won't begin delivering customer invoices electronically through Ariba until the fall, so NSG can't yet quantify its benefits. But its goals are to provide integration with suppliers' systems, offer real-time visibility into the company's working capital, reduce cycle times, eliminate paper and improve dynamic communication with suppliers, Wilgar explains. In Europe, NSG currently receives only paper invoices, roughly 250,000 annually, and he says one quantifiable goal is to convert half of those to electronic delivery.

NSG clearly has an opportunity to reduce cycle times. It is pretty efficient in Germany, but in other countries, it may take up to 30 days just to get an invoice received, approved and into the accounts payable system for payment, Wilgar says.

etting electronic invoices through Ariba's system, using automated workflow and getting those invoices quickly into AP will reduce NSG's cycle time dramatically and take a lot of strain off its European suppliers, he says. Suppliers will be able to see the status of the invoice right away. In some cases, cycle time will be cut from 30 to zero days, he adds.

Once the company has visibility, the days before an invoice is scheduled for payment become fertile ground for dynamic discounting. If a supplier offers a static discount, NSG will see that and be able to take advantage of it. "So far we have not been nimble enough to take advantage of the discounts being offered in some countries," Wilgar notes.

The supplier can see a range of dynamic discounting options that essentially let it determine when it will be paid and how much of a discount it will concede for the early payment date of its choice. The funds for that early payment may come from NSG or a third party, depending on the circumstances and NSG's preference, Wilgar explains.

While results are not yet in, Wilgar is confident that the project will pay for itself in less than a year. Replacing a highly manual process for sending out invoices with a highly automated one will save staff time.

NSG will also save money by optimizing discount possibilities and earning a much higher return on that use of its short-term cash than it would realize by investing in bank or money market products. And improved relationships with suppliers could translate into better contract prices from preferred providers--and financially healthier suppliers to meet future demand--down the road.


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