SAP Ariba and MercadoLibre to consumerize business commerce in Latin America

The next BriefingsDirect global digital business panel discussion explores how the expansion of automated tactical buying for business commerce is impacting global markets, and what's in store next for Latin America.

We’ll specifically examine how “spot buy” approaches enable companies to make time-sensitive and often mission-critical purchases, even in complex and dynamic settings, like Latin America.

Listen to the podcast. Find it on iTunes. Get the mobile app. Read a full transcript or download a copy.

To learn more about the rising tide of such tactical business buying improvements, please join our guests, Karen Bruck, Corporate Sales Director at MercadoLibre.com in Buenos Aires, Argentina; Diego Cabrera Canay, Director of Financial Planning at MercadoLibre, and Tony Alvarez, General Manager of SAP Ariba's Spot Buy Business. The panel was recorded at the recent 2017 SAP Ariba LIVE conference in Las Vegas, and is moderated by Dana Gardner, principal analyst at Interarbor Solutions.

Here are some excerpts:

Gardner: SAP Ariba Spot Buy has been in the market a few years. Tell us about where it has rolled out so far, why certain markets are being approached, and then about Latin America specifically.

Alvarez

Alvarez: The concept is a few years old, but we've been delivering SAP Ariba Spot Buy for about a year. We began in the US, and over the past 12 months the concept of Spot Buy has progressed because of our customer base. Our customer base has pushed us in a direction that is, quite frankly, even beyond Spot Buy -- and it’s getting into trusted, vetted content.

We are approaching the market with a two-pronged strategy of, yes, we have the breadth of content so that when somebody goes into an SAP Ariba application they can find what they are looking for, but we also now have parameters and controls that allow them to vet that content and to put a filter on it.

Over the last 12 months, we've come a long way. We are live in the US, and with early access in the UK and Germany. We just went live in Australia, and now we are very much looking forward to going live and moving fast into Latin America with MercadoLibre.

Gardner: Spot buying, or tactical buying, is different from strategic or more organized long-term buying. Tell us about this subset of procurement.

Alvarez: SAP Ariba is a 20 year-old company, and its roots are in that rigorous, sourced approach. We do hundreds of billions of dollars through contract catalog on the Ariba Network, but there's a segment -- and we believe it's upward of 15% of spend -- that is spot buy spend. The procurement professional often has no idea what's being bought. And I think there are two approaches to that -- either ignorance is bliss and they are glad that it’s out of their purview, or it also keeps them up at night.

SAP Ariba Spot Buy allows them to have visibility into that spend. By partnering with providers like MercadoLibre, they have content from trusted and vetted sellers to bring to the table – so it's a really nice match for procurement.

Liberating limits

Gardner: The trick is to allow for flexibility and being dynamic, but also putting in enough rules and policies so that things don’t go off-track.

Alvarez: Exactly. For example, it’s like putting a filter on your kids’ smartphone. You want them to be able to be liberated so they can go and do as they please with phone calls -- but not to go off the guardrails.

Gardner: Karen, tell us about MercadoLibre and why Latin America might be a really interesting market for this type of Spot Buy service.

Bruck: MercadoLibre is a leading e-commerce platform in Latin America, where we provide the largest marketplaces in 16 different countries. Our main markets are Brazil, Mexico, and Argentina, and that’s where we are going the start this partnership with SAP Ariba.

Bruck

We have upward of 60 million items listed on our platform, and this breadth of supplies will make purchasing very exciting. Latin America is a complicated market -- and we like this complexity. We do very well.

It’s complicated because there are different rates of inflation in different countries, and so contracts can be hard to complete. What we bring to the table is an assortment of great payment and shipping solutions that make it easy for companies to purchase items. As Tony was saying, these are not under long-term contracts, but we still get to make use of this vast supply.

Gardner: Tony mentioned that maybe 15% of spend is in this category. Diego, do you think that that number might be higher in some of the markets that you serve?

Cabrera Canay: That’s probably the number -- but that is a big number in terms of the spend within companies. So we have to get there and see what happens.

Progressive partnership 

Gardner: Tony, tell us about the partnership. What is MercadoLibre.com bringing to the table? What is Ariba bringing to the table? How does this fit together for a whole that is greater than the sum of its parts?

Alvarez: It really is a well-matched partnership. SAP Ariba is the leading cloud procurement platform, period. When you look in Latin America, our penetration with SAP Enterprise Resource Planning (ERP) is even greater. We have a very strong installed base with SAP ERP.

Our plan is to take the SAP Ariba Spot Buy content and make it available to the SAP installed base. So this goes way beyond just SAP Ariba. And when you think about what Karen mentioned -- difficulties in Latin America with high inflation -- the catalog approach is not used as much in Latin America because everything is so dynamic.

For example, you might sign a contract but in just in a couple of weeks that contract may be obsolete, or unfavorable because of a change in pricing. But once we build controls and parameters in SAP Ariba Spot Buy, you can layer that on top of MercadoLibre content, which is super-broad. If you're looking for it you’re going to find it, and that content is constantly updated. You gain real-time access to the latest information, and then the procurement person gets the benefit of control.

So I'm very optimistic. As Diego mentioned, I think 15% is really on the low-end in Latin America for this type of spend. I think this will be a really nice way to put digital catalog buying in the hands of large enterprise buyers.

Gardner: Speaking of large enterprise buyers, if I'm a purchasing official in one of your new markets, what should I be thinking about how this is going to benefit me?

Transparent, trusted transactions

It saves a lot of time, it makes the comparison very transparent, and you are able to control the different options. Overall, it's a win-win ... a partnership, a match made in heaven.

Bruck: Let me talk about this from experience. As a country manager at MercadoLibre, I had to do a lot of the procurement, together with our procurement officers. It was really frustrating at times because all of these purchases had to be one-off engagements, with a different vendor every time. That takes a lot of time. You also have to bring in price comparisons, and that’s not always a simple process.

So what this platform gives you is the ability to be very transparent about prices and among different supplies. That makes it very easy to be able to buy every time without having to call and get the vendor to be in your own buying platform.

It saves a lot of time, it makes the comparison very transparent, and you are able to control the different options. Overall, it’s a win-win. So I do believe this is a partnership, a match made in heaven.

We were also very interested in business-to-business (B2B) industries. When Tony and SAP Ariba came to our offices to offer this partnership, we thought this would be a great way to leverage their needs with our supply and make it work.

Gardner: For sellers, this enables them to do repeated business more easily, more automated and so at scale. For buyers, with transparency they have more insight into getting the best prices, the best terms of delivery. Let's expand on that win-win. Diego, tell us about the business benefits for all parties.

Big and small, meet at the mall 

Cabrera Canay: In the past few years, we have been working to make MercadoLibre the biggest “mall” in e-commerce. We have the most important brands and the most important retailers selling through MercadoLibre.

Cabrera Canay

What differentiates us is that we are confident we have the best prices -- and also other great services such as free shipping, easy payments, and financing. We are sure that we can offer the buyers better purchasing.

Obviously, from the side of sellers, this all provides higher demand, it raises the bar in terms of having qualified buyers, and then giving the best services. That’s very exciting for us.

Gardner: Tony, we mentioned large enterprises, but this cuts across a great deal more of the economy, such as small- to medium sized (SMB) businesses. Tell us about how this works across diverse economies where there are large players but lots of small ones, too?

Alvarez: On the sales side, this gives really small businesses opportunity to reach large enterprise buyers that probably weren’t there before.

Diego was being modest, but MercadoLibre's payment structure, MercadoPago, is incredibly robust, and it's incredibly valuable to that end-seller, and also to the buyer.

Just having that platform and then connecting -- you are basically taking two populations, the large and small sellers, and the large and small buyers, and allowing them to commingle more than they ever had in the past.

Gardner: Karen, as you mentioned from your own experience, when you're dealing with paper, and you are dealing with one-offs, it's hard to just keep track of the process, never mind to analyze it. But when we go digital, when we have a platform, when we have business networks at work, then we can start to analyze things for companies -- and more broadly into markets.

How do you see this partnership accelerating the ability to leverage analytics, leverage some of the back-end platform technologies with SAP HANA and SAP Ariba, and making more strides toward productivity for your customers?

Data discoveries

Bruck: Right. When everything is tracked, as this will be, because every single purchase will be inside their SAP Ariba platform, it is all part of your “big data.” So then you can actually drop it, control it, analyze it, and say, “Hey, maybe these particular purchases mean that we should have long-term contracts, or that our long-term contracts were not priced correctly,” and maybe that's an opportunity to save money and lower costs.

So once you can track data, you can do a lot of things, and discover new opportunities for either being more efficient or reducing costs – and that's ultimately what we all want in all the departments of our companies.

Gardner: And for those listeners and readers who are interested in taking advantage of these services, and ultimately that great ability to analyze, what should they be doing now to get ready? Are there some things they could do culturally, organizationally, in order to become that more digital business when these services are available to them?

Paper is terrible for companies; you have to rethink your purchase processing in a digital way.

Cabrera Canay: I can talk about in our own case, where we are rebuilding our purchase processes. Paper is terrible for companies; you have to rethink your purchase processing in a digital way. Once you do it, SAP Ariba is a great solution, and with SAP Ariba Spot Buy we will have the best conditions for the buyers.

Bruck: It’s a natural process. People are going digital and embracing these new trends and technologies. It will make them more efficient. If they get up to speed quickly, it will become less about controlling stuff that they don't need to control. They will really understand the benefits, so it will be a natural adoption.

Gardner: Tony, coming back full circle, as you have rolled SAP Ariba Spot Buy out from North America to Europe to Asia-Pacific, and now to Latin America -- what have you learned in the way people use it?

Alvarez: First, at a macro level, people have found this to be a useful tool to replace some of the contracts that were less important, and so they can rely on marketplaces.

Second, we’ve really found as we’ve deployed in the US that a lot of times multinational companies are like, “Hey, that's great, I love this, but I really want to use this in Latin America.” So they want to go and get visibility elsewhere.

Turn-key technique

Third, they want a tool that doesn't require any training. If I’m a procurement professional, I want my users to already be expert at using the tool. We've designed this in the process context, and in concert with the content partners. You can just walk up and start using it. You don’t have to be an expert, and it keeps you within the guardrails without even thinking about it.

Gardner: And being a cloud-based, software-as-a-service (SaaS) solution you're always analyzing how it's being used -- going after that ultimate optimized user experience -- and then building those improvements back in on a constant basis?

Alvarez: Exactly. Always.

Listen to the podcast. Find it on iTunes. Get the mobile app. Read a full transcript or download a copy. Sponsor: SAP Ariba.

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Awesome Procurement —Survey shows how business networks fuel innovation and business transformation

The next BriefingsDirect digital business insights interview explores the successful habits, practices, and culture that define highly effective procurement organizations.

We'll uncover unique new research that identifies and measures how innovative companies have optimized their practices to overcome the many challenges facing business-to-business (B2B) commerce.

Listen to the podcast. Find it on iTunes. Get the mobile app. Read a full transcript or download a copy.

To learn more about the traits and best practices of the most successful procurement organizations, please join Kay Ree Lee, Director of Business Analytics and Insights at SAP Ariba. The interview was recorded at the recent 2017 SAP Ariba LIVE conference in Las Vegas, and is moderated by Dana Gardner, principal analyst at Interarbor Solutions.

Here are some excerpts:

Gardner: Procurement is more complex than ever, supply chains stretch around the globe, regulation is on the rise, and risk is heightened across many fronts. Despite these, innovative companies have figured out how to overcome their challenges, and you have uncovered some of their secrets through your Annual Benchmarking Survey. Tell us about your research and your findings.

Lee: Every year we conduct a large benchmark program benefiting our customers that combines a traditional survey with data from the procurement applications, as well as business network.

Lee

This past year, more than 200 customers participated, covering more than $400 billion in spend. We analyzed the quantitative and qualitative responses of the survey and identified the intersection between those responses for top performers compared to average performers. This has allowed us to draw correlations between what top performers did well and the practices that drove those achievements.

Gardner: What’s changed from the past, what are you seeing as long-term trends?

Lee: There are three things that are quite different from when we last talked about this a year ago.

The number one trend that we see is that digital procurement is gaining momentum quickly. A lot of organizations are now offering self-service tools to their internal stakeholders. These self-service tools enable the user to evaluate and compare item specifications and purchase items in an electronic marketplace, which allows them to operate 24x7, around-the-clock. They are also utilizing digital networks to reach and collaborate with others on a larger scale.

We see compliance management as a way for organizations to deliver savings to the bottom line.

The second trend that we see is that while risk management is generally acknowledged as important and critical, for the average company, a large proportion of their spend is not managed. Our benchmark data indicates that an average company manages 68% of their spend. This leaves 32% of spend that is unmanaged. If this spend is not managed, the average company is also probably not managing their risk. So, what happens when something unexpected occurs to that non-managed spend?

The third trend that we see is related to compliance management. We see compliance management as a way for organizations to deliver savings to the bottom line. Capturing savings through sourcing and negotiation is a good start,  but at the end of the day, eliminating loopholes through a focus on implementation and compliance management is how organizations deliver and realize negotiated savings.

Gardner: You have uncovered some essential secrets -- or the secret sauce -- behind procurement success in a digital economy. Please describe those.

Five elements driving procurement processes

Lee: From the data, we identified five key takeaways. First, we see that procurement organizations continue to expand their sphere of influence to greater depth and quality within their organizations. This is important because it shows that the procurement organization and the work that procurement professionals are involved in matters and is appreciated within the organization.

The second takeaway is that – while cost reduction savings is near and dear to the heart of most procurement professionals -- leading organizations are focused on capturing value beyond basic cost reduction. They are focused on capturing value in other areas and tracking that value better.

The third takeaway is that digital procurement is firing on all cylinders and is front and center in people's minds. This was reflected in the transactional data that we extracted.

The fourth takeaway is related to risk management. This is a key focus area that we see instead of just news tracking related to your suppliers.

The fifth takeaway is -- compliance management and closing the purchasing loopholes is what will help procurement deliver bottom-line savings.

Gardner: What next are some of the best practices that are driving procurement organizations to have a strategic impact at their companies, culturally?

Lee: To have a strategic impact in the business, procurement needs to be proactive in engaging the business. They should have a mentality of helping the business solve business problems as opposed to asking stakeholders to follow a prescribed procurement process. Playing a strategic role is a key practice that drives impact.

Another practice that drives strategic impact is the ability to utilize and adopt technology to your advantage through the use of digital networks.

They should also focus on broadening the value proposition of procurement. We see leading organizations placing emphasis on contributing to revenue growth, or increasing their involvement in product development, or co-innovation that contributes to a more efficient and effective process.

Another practice that drives strategic impact is the ability to utilize and adopt technology to your advantage through the use of digital networks, system controls to direct compliance, automation through workflow, et cetera.

These are examples of practices and focus areas that are becoming more important to organizations.

Using technology to track technology usage

Gardner: In many cases, we see the use of technology having a virtuous adoption cycle in procurement. So the more technology used, the better they become at it, and the more technology can be exploited, and so on. Where are we seeing that? How are leading organizations becoming highly technical to gain an advantage?

Lee: Companies that adopt new technology capabilities are able to elevate their performance and differentiate themselves through their capabilities. This is also just a start. Procurement organizations are pivoting towards advanced and futuristic concepts, and leaving behind the single-minded focus on cost reduction and cost efficiency.

Digital procurement utilizing electronic marketplaces, virtual catalogs, gaining visibility into the lifecycle of purchase transactions, predictive risk management, and utilizing large volumes of data to improve decision-making – these are key capabilities that benefit the bold and the future-minded. This enables the transformation of procurement, and forms new roles and requirements for the future procurement organization.

Gardner: We are also seeing more analytics become available as we have more data-driven and digital processes. Is there any indication from your research that procurement people are adopting data-scientist-ways of thinking? How are they using analysis more now that the data and analysis are available through the technology?

If you extract all of that data, cleanse it, mine it, and make sense out of it, you can then make informed business decisions and create valuable insights.

Lee: You are right. The users of procurement data want insights. We are working with a couple of organizations on co-innovation projects. These organizations   actively research, analyze, and use their data to answer questions such as:

• How does an organization validate that the prices they are paying are competitive in the marketplace?
• After an organization conducts a sourcing event and implements the categories, how do they actually validate that the price paid is what was negotiated?
• How do we categorize spend accurately, particularly if a majority of spend is services spend where the descriptions are non-standard?
• Are we using the right contracts with the right pricing?

As you can imagine, when people enter transactions in a system, not all of it is contract-based or catalog-based. There is still a lot of free-form text. But if you extract all of that data, cleanse it, mine it, and make sense out of it, you can then make informed business decisions and create valuable insights. This goes back to the managing compliance practice we talked about earlier.

They are also looking to answer questions like, how do we scale supplier risk management to manage all of our suppliers systematically, as opposed to just managing the top-tier suppliers?

These two organizations are taking data analysis further in terms of creating advantages that begin to imbue excellence into modern procurement and across all of their operations.

Gardner: Kay Ree, now that you have been tracking this Benchmark Survey for a few years, and looking at this year's results, what would you recommend that people do based on your findings?

Future focus: Cost-reduction savings and beyond

Lee: There are several recommendations that we have. One is that procurement should continue to expand their span of influence across the organization. There are different ways to do this but it starts with an understanding of the stakeholder requirements.

The second is about capturing value beyond cost-reduction savings. From a savings perspective, the recommendation we have is to continue to track sourcing savings -- because cost-reduction savings are important. But there are other measures of value to track beyond cost savings. That includes things like contribution to revenue, involvement in product development, et cetera.

The third recommendation relates to adopting digital procurement by embracing technology. For example, SAP Ariba has recently introduced some innovations. I think the user really has an advantage in terms of going out there, evaluating what is out there, trying it out, and then seeing what works for them and their organization.

As organizations expand their footprint globally, the fourth recommendation focuses on transaction efficiency. The way procurement can support organizations operating globally is by offering self-service technology so that they can do more with less. With self-service technology, no one in procurement needs to be there to help a user buy. The user goes on the procurement system and creates transactions while their counterparts in other parts of the world may be offline.

If you can measure risk for your suppliers, why not make it systematic? 

The fifth recommendation is related to risk management. A lot of organizations when they say, “risk management,” they are really only tracking news related to their suppliers. But risk management includes things like predictive analytics, predictive risk measures beyond your strategic suppliers, looking deeper into supply chains, and across all your vendors. If you can measure risk for your suppliers, why not make it systematic? We now have the ability to manage a larger volume of suppliers, to in fact manage all of them. The ones that bubble to the top, the ones that are the most risky, those are the ones that you create contingency plans for. That helps organizations really prepare to respond to disruptions in their business.

The last recommendation is around compliance management, which includes internal and external compliance. So, internal adherence to procurement policies and procedures, and then also external following of governmental regulations. This helps the organization close all the loopholes and ensure that sourcing savings get to the bottom line.

Be a leader, not a laggard

Gardner: When we examine and benchmark companies through this data, we identify leaders, and perhaps laggards -- and there is a delta between them. In trying to encourage laggards to transform -- to be more digital, to take upon themselves these recommendations that you have -- how can we entice them? What do you get when you are a leader? What defines the business value that you can deliver when you are taking advantage of these technologies, following these best practices?

Lee: Leading organizations see higher cost reduction savings, process efficiency savings and better collaboration internally and externally. These benefits should speak for themselves and entice both the average and the laggards to strive for improvements and transformation.

From a numbers perspective, top performers achieve 9.7% savings as a percent of sourced spend. This translates to approximately $20M higher savings per $B in spend compared to the average organization.

We talked about compliance management earlier. A 5% increase in compliance increases realized savings of $4.4M per $1B in spend. These are real hard dollar savings that top performers are able to achieve.

As a top performer, if you go out and recruit, it is easier to entice talent to the organization.

In addition, top performers are able to attract a talent pool that will help the procurement organization perform even better. If you look at some of the procurement research, industry analysts and leaders are predicting that there may be a talent shortage in procurement. But, as a top performer, if you go out and recruit, it is easier to entice talent to the organization. People want to do cool things and they want to use new technology in their roles.

Gardner: Wrapping up, we are seeing some new and compellingtechnologies here at Ariba LIVE 2017 -- more use of artificial intelligence(AI), increased use of bringing predictive tools into a context so that they can be of value to procurement during the life-cycle of a process.

As we think about the future, and more of these technologies become available, what is it that companies should be doing now to put themselves in the best position to take advantage of all of that?

Curious org

Lee: It's important to be curious about the technology available in the market and perhaps structure the organization in such a way that there is a team of people on the procurement team who are continuously evaluating the different procurement technologies from different vendors out there. Then they can make decisions on what best fits their organization.

Having people who can look ahead, evaluate, and then talk about the requirements, then understand the architecture, and evaluate what's out there and what would make sense for them in the future. This is a complex role. He or she has to understand the current architecture of the business, the requirements from the stakeholders, and then evaluate what technology is available. They must then determine if it will assist the organization in the future, and if adopting these solutions provides a return on investment and ongoing payback.

So I think being curious, understanding the business really well, and then wearing a technology hat to understand what's out there are key. You can then be helpful to the organization and envision how adopting these newer technologies will play out.

Listen to the podcast. Find it on iTunes. Get the mobile app. Read a full transcript or download a copy. Sponsor: SAP Ariba.

You may also be interested in:

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• Diversity Spend: When Doing Good Leads to Doing Well 
• Seven secrets to highly effective procurement: How business networks fuel innovation and transformation
• Meet George Jetson – your new AI-empowered chief procurement officer
• SAP Ariba's chief strategy officer on the digitization of business and future of technology  
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