Increasing Cash Returns from Dynamic Discoun5ng Presented By Drew Hofler, Sr. Solu5ons Manager, Ariba
Ariba Overview Ariba s Mission: Be the world s business commerce network Help nearly 1 million global companies buy, sell, and manage cash Process annually nearly $300 billion in spend, over 25 million PO s, and over 60 million invoices Network growth through expanding community of buyers and sellers, acquisitions (include Quadrem and b- process) and a growing Partner Ecosystem including: ScanOne, TrustWeaver, Receivables Exchange, Oracle, HubSpan 2 2011 Ariba, Inc. All rights reserved.
Collaborative Commerce: Helping Companies Buy, Sell and Manage Cash better Buyers BUY MANAGE CASH SELL Sellers Sourcing & Procurement Improve spend control and performance with reduced costs, lower risk, improved and enhanced compliance. The discipline of using collaborative solutions to make your money work for you and your trading partners Accelerate sales through efficient processes fostering stronger relationships with new and existing customers. Sales & Marketing Finance Finance Accounts Payable Collaborative Finance Electronic Invoicing Working Capital Management Discount Professional Collaborative Procurement PO Automation Accounts Receivable Scanning & Workflow Supply Chain Financing Supplier Portal IT Matching & Compliance Payment Automation Receivables Finance P-Card Settlement Supplier Enablement Connectivity Services IT 3
Working Capital Tension Situation and Objectives of Buyers and Suppliers Buyers Historic Cash Reserves: $1.9T+* Low Interest Rates: 0% - 0.3% Investor pressures for greater returns Supply Chain Risk Working Capital Tension Suppliers Payment Terms Stretched Limited bank credit Low visibility into cash flows Cash flow is critical 4 2012 Ariba, Inc. All rights reserved.
Manage Cash better and achieve millions in savings
Best Practices Commonalities among the most successful companies Top 5 Best Practices 1. Formalize a Program to Align objectives of AP, Treasury, Finance and Suppliers 2. Define a Payment Terms Strategy: Optimize & Rationalize 3. Capture missed pre-negotiated savings through electronic invoicing. 4. Offer Automatic Dynamic Discounts through supplier outreach and cash flow portal 5. Introduce Ad-Hoc Dynamic Discounting to meet periodic cash flow needs. 6
Best Practice #2: Include Terms Strategy Top Quartile Results from Combined Approach Payment Terms Ra5onaliza5on Payment Terms Extension Ra;onalize terms within group/ commodity Align consistency Align DPO with industry Posi;on extended Net terms DPO Improvement & Greater Dynamic Discount Opportunity 2012 Ariba, Inc. All rights reserved. 7
Best Practice #3/4/5: Increase Discount Capture Capture Missed Discounts & Increase New Discounts Ariba solutions drive early payment discount adoption Enroll suppliers at enablement Recent Aberdeen study shows 50% of pre-negotiated discounts are never captured Engage right supplier audience Introduce sliding scale discount Include net term invoices < Capture missed discounts through Smart Invoicing < 50% currently captured 8 2012 Ariba, Inc. All rights reserved.
Process Efficiency is the Key to Success e-invoicing -- the First Step to Maximizing Discount Capture 3% Reduce invoice approval cycle time to: ü Drive out cost while improving efficiency ü Increase visibility into payment timing ü Maximize early payment discount savings ü Mitigate supply chain liquidity risk Discount Rate 2% 1% e-invoice Approvals Reduce Cycle Time Paper Invoice Approvals Example discount term: 2%10 Net 30 10 30 20 Days of Invoice Approval and Payment 60
Smart e-invoicing Ariba s Smart e-invoicing drives touchless processing and delivers auto post rates of 98% + Level 1 basic field-level existence ERP Level 3 advanced optimized matching and compliance 98% Touchless Level 2 intermediate field-level Account Coding Contract & Receipt Match Price & Tax Compliance Sub Total & Total Amount PO-Line Change Line & Total Consumption Thresholds Shipping & Tax Thresholds GST/VAT Compliance PO & PO-Line Match Buyer Match (non PO) UOM & SKU Change Currency Match Invoice Number Bill To / Ship To PO Number Requestor (Non PO) Invoice Date VAT / GST IDs Level 1 Level 2 Level 3 Invoice Immediate, Smart Feedback to Suppliers dramatically reduces time to clean invoice Faster cycle benefits buyers & suppliers
Best Practice #3/4/5: Increase Discount Capture Capture Missed Discounts & Increase New Discounts Ariba solutions drive early payment discount adoption Enroll suppliers at enablement Recent Aberdeen study shows 50% of pre-negotiated discounts are never captured Engage right supplier audience Introduce sliding scale discount Include net term invoices < Capture missed discounts through Smart Invoicing < 50% currently captured 11 2012 Ariba, Inc. All rights reserved.
Suppliers Benefit from Early Pay Why many suppliers are eager to participate When we submit paper invoices, it can take a long time to get our invoices approved. With Ariba, we get paid as quickly as four days, and the visibility into payment status is like gold. I love the Ariba service. Joy Stoelting, Studio Manager, Big-Giant ATM for Receivables Automatic and Ad-Hoc Early Payment Early Payment on Demand Opt-in/out at any time By submitting invoices over the Ariba Network, we have improved our cash forecasting and seen a dramatic increase in prompt payments. The substantial DSO improvement is a huge advantage in this difficult economy. 12 Trish Jackson, AR Mgr, Photo Craft 2012 Ariba, Inc. All rights reserved. Control over timing and amount Non-Debt Cash Flow Reduces DSO
Dynamic Discount Case Studies Best Practices Waste & Disposal Services Retail Energy/Oil & Gas Collaborate with Treasury, AP, Procurement Align with Supplier Enablement Robust Supplier Training and Communica5on Assign to P&L to drive behavior Define a clear targets & segmenta5on strategy Align with Supplier Enablement Robust Supplier Communica5on & Customer Service Assign to P&L to drive behavior Centralized AP in 2012 Use Early Payment as incen5ve to einvoice Supplier Enablement Target Right Suppliers in Waves Ariba Rapid Ramp services 2011 Ariba, Inc. All rights reserved. 13
Dynamic Discount Case Studies Results Waste & Disposal Services Retail Energy/Oil & Gas 500% Increase in Supplier Adop5on (2011) 900 Indirect + 600 Merch. Suppliers on AN Wave 1: 500 Suppliers 27% Month/Month savings growth 92% transac5ng in 12 months $1.1M discounts in 3 months ~$2 Million annual Savings (<$1B Spend) 24% Avg. APR >$1M annual savings (14% - 36% APR) Paid for P2P investment in <1 Year Transformed AP From Cost Center to Profit Center Paid for einvoice ini5a5ve before system went live 2011 Ariba, Inc. All rights reserved. 14
Pillars of Success Technology, Community and Services combine to deliver value Technology Cash Op;mizer Flexible Integra;on to ERP Dynamic Discoun;ng Community Largest B2B network Ac;ve Resource Ac;ve Community Services Diagnos;cs & Strategy Rapid Ramp Program Management 15 2012 Ariba, Inc. All rights reserved. 2012 Ariba, Inc. All rights reserved. 15
Q&A Ariba LIVE 2012 Customer Presenta5ons and Stories: Ø hzp://www.youtube.com/watch?v=vpd1h8einbo Ø hzp://www.youtube.com/watch?v=ytdlrr9rguo Ø Ariba Live 2012 Customer Dynamic Discoun;ng Panel: hzp://www.slideshare.net/ariba/dynamic- discoun;ng- new- opportuni;es- for- norisk- highyield- cash- returns Drew Hofler Solu;ons Marke;ng Ariba Network & Finance Solu;ons +1.412.297.8194 dhofler@ariba.com 2012 Ariba, Inc. All rights reserved.
FAQ: Balancing DPO & Discounts Discount Savings with Net Positive DPO Impact 1 Terms Rationalization/ Extension 2 Drive Discount Growth 3 Net Positive DPO DPO 40 35 30 DPO = 30 + + Terms Ra5onaliza5on / Extension Invoice Compliance - Discount Program -5 days Net positive impact +10 days DPO = 35 25... Current State Illustrative only results will vary depending on spend, levels of automation, visibility and control Future state
Challenges for Finance What do we do with all our short term cash? Historic Cash Reserves Supply Chain Risk Historic low Interest Rates Pressures for greater returns 18 2012 Ariba, Inc. All rights reserved.