SMBs have greater need for transparency

Written by Sudhir Chowdhary | Updated: Nov 12 2012, 06:41am hrs
Last month, top European software company SAP bought Ariba in a $4.3 billion deal, its latest manoeuvre against Oracle in the fast-growing internet-based computing market. Ariba is now a SAP company. Its group director and head of sales for the Indian subcontinent, Amit Bhatia, says that e-sourcing initiatives have been prevalent in India for the last two decades. The difference, he says, is that it was earlier restricted to large companies in select sectors. Such companies typically turned to technology during a slowdown to save on costs. As a result, the market penetration in India was really low. In the last four years, however, the penetration has increased sharply. Today, Indian companies across the board are reaping the benefits from e-sourcing, he tells Sudhir Chowdhary in a recent interaction. Excerpts:

How do e-procurement and e-sourcing help companies to cut cost

E-sourcing and procurement does more than simply set up an electronic mechanism for buyers and sellers to seamlessly interact. Its benefits also go beyond simple cost reduction. It helps streamline work flows, enhances efficiency and drives transparency in buyer-seller relationship. It also improves the availability and accuracy of information on both supply and demand side facilitating collaboration and control and compliance. That knowledge makes up for more informed talks and richer arbitrage opportunities.

E-sourcing frees up purchasing personnel to help them focus on more strategic concerns such as supply base development and relationship management. In a nutshell, e-sourcing and procurement creates immense value by lowering spend costs, streamlining processes and creating transparency, driving control, compliance and prevent fraud risk.

For SMBs, this becomes more important as they get immense help in solving two challengeslack of procurement talent for hiring and buying muscle power due to small spends. Typically, SMBs are owner-driven companies and they have greater need for transparency as they cannot afford to have inefficiencies and malpractices in sourcing and procurement at all.

What is the scenario in India with reference to e-sourcing and e-procurement

India is a vast and spread out market, not just geographically but also cutting across companies of various sizes and verticals. While large companies had taken up to e-sourcing across last ten years and have fairly matured, it is the relatively smaller companies that are lapping it up nowadays. They are seeing the value in terms of reducing cost and introducing transparency in their sourcing processes.

Secondly, the larger and more mature companies are moving further up the value chain and adopting entire collaborative commerce with suppliers, rather than just looking at simple e-sourcing by adopting a negotiation platform. They are realising that there is a lot more value and efficiencies to be unlocked across the entire spectrum of sourcing, procurement and compliance, seamless invoicing, early payments discounting and cash flow management.

Hence now these companies are looking to expand and extend value of their ERP systems that they implemented a few years back by adopting collaborative commerce technologies that can reduce purchase order (PO) handling costs, ensure timely PO delivery, provide supply chain visibility to mitigate supply risks, making accounts payable more effective and unlock early payment discount opportunities.

Which sectors of the Indian industry are biggest users of these technologies

This initiative is not recent and has been existent for the last two decades, however earlier it was restricted to certain large companies in select sectors only. They also generally started to use it during their downturn periods to save on costs and hence the market penetration in India was really low. However in the last three to four years, the penetration has started to really look up. Companies even as small as R100 crore in annual turnover are looking to do electronic transactions and negotiations with suppliers. The biggest users of these technologies are companies who have higher spend base in indirect spending which are generally BFSI, pharmaceuticals, FMCG, retail, oil & gas type of companies. However, there is prevalence in large automotive and infrastructure companies as well.

How often do Indian companies use these technologies for sourcing and procurement

Companies across the board right from energy, utilities, pharmaceuticals, FMCG, BFSI, heavy engineering and infrastructure are today reaping rich benefits from e-sourcing. Primarily companies can use e-sourcing for all kinds of transactions they have with their suppliers across all items, services and commodities. However as companies start to use the technology, the preference is to use it for items that are not market linked, indexed and have a large supply base. These kinds of items are typically the ones such as packaging, IT, plant maintenance, marketing expenses, print and stationery.

What are the major benefits that Ariba offers to its users

Our solutions help customers in saving time and effort in transactions with their supply chain; streamline companys internal and supplier related processes; better transparency; achieves lower prices in categories like raw materials, administration, marketing, packaging, transportation and logistics, etc. Companies using Ariba technology have saved between 5-20% of their operating expenses in a very short time. From a medium to long term standpoint, they look at it as a platform that drives compliance and transparency.

What are some of the challenges faced by you in context of India

The challenge in India is that companies have made large investments implementing transactional systems and are still making investments maintaining it. The world is now adopting cloud technology; it does not need a great investment in terms of manpower or owing infrastructure. It is a pay-per-use platform that can provide very quick return on investment in a matter of few weeks and not months or years. Hence the real challenge in India is to drive this mindset shift much more rapid than it has happened over the years. There is clearly a radical change being seen in certain section of industries and companies. And seeing the benefits achieved, they will definitely make other companies to sit up and take notice.