What is Ariba?

The Amazon for Businesses

Disclaimer: some of the stories of the post, although they may have been inspired by real life, are exaggerated and modified for the sake of explaining what Ariba is.

When you search “What is the Ariba Network” on Google you get this:

Ariba is the creator and provider of the Ariba Network, a cloud-based B2B marketplace where buyers and suppliers can find each other and do business within a single, networked platform.

All that means is this:

Ariba is Amazon for businesses.

Ok sounds simple enough…except, you’re probably wondering:

Companies can’t. There’s a lot of complicated rules that makes the process of buying and selling stuff a lot harder for businesses:

Amazon doesn’t really take care of these complicated rules.

So, it’s not that simple.

What you are reading is a guide about these complicated rules. I’ll try to make this guide as entertaining as possible and easy to understand. If you’re new to the company and don’t know much about what Ariba does, you’re in the right place.


Introduction

Ariba specializes in “the process of procurement

You will hear the term “procurement” exchanged a lot in the company, because it is synonymous to “everything the company does.”

If you Google search “procurement,” you get this definition, that is super complicated and detailed. If you use it as your main reference, you will probably end up doing this:

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Procurement is just the process of a company buying from other companies.

The companies that sell items in procurement are called suppliers or vendors.

The companies that buy items in procurement are called buyers.

Now, let’s go back to the what I mentioned about buying and selling for businesses at the beginning. Procurement for business is complicated. There exists a lot of rules.

Good question.

Next, I’ll explain from a real life example how procurement for business gets complicated. This may seem like a really long tangent, but bear with me.

Part I

Part 1a.

Last year, I ran a community service program on the behalf of my school, the University of Southern California. The program’s goal was to teach students from underserved high schools near USC about entrepreneurship and tech. For the purposes of this explanation I’ll use a pseudonym for this community service program. I’ll call this program “The Tech Education Program.”

The Tech Education Program (I’ll abbreviate as “TEP” from now on) involved bringing high school students every other week from their high school to a classroom in USC to be taught a new topic in tech or entrepreneurship. TEP raised $9,000 for this program. TEP needed the money because:

  • It wanted to give the high school students in the program laptops
  • Then give the highest performing students scholarships
  • And finally, order t-shirts, magnets, transportation, and food

The $9000 dollars were to be managed in one TEP bank account. TEP could have managed the money by keeping it in individuals’ accounts like mine and then just have those individuals buy from Amazon. But there was a big problem that could arise if TEP did so:

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So keeping the money in individuals’ bank accounts would not be a smart idea, because members of TEP could then use the money to spend on unnecessary things or even worse, for kickbacks to afford personal desires.

It would be better to put all the money in a TEP bank account, where every time someone took money out of the bank account, withdrawing the money would need to be approved, according to a proposed budget (a list of things TEP decided TEP needed to buy for the program and how much each of those things cost).

Example Proposed Budget — note this budgeting information is not relevant at all to the real life TEP. I really just found this by searching up “example proposed budget” on Google Image Search.

The approval of a withdrawal of money or purchase would be done by someone trustworthy managing the bank account [1].

The people running TEP didn’t want to spend the time to make a TEP bank account and there seemed to be a lot of advantages of buying with a bank account under USC’s name (one such advantage being that USC is a non-profit, and non-profits don’t have to pay taxes on a lot of things). It made most sense to let USC manage TEP’s money, which the school did by creating a TEP designated bank account that USC owns and had an employee manage/approve requests by TEP to take out money.

Now let’s move on to making the first purchase TEP made. T-shirts.

The TEP program knew the t-shirt supplier it was going to use. Other programs that were similar at USC used this supplier before. Therefore, the TEP program started looking for more information about this supplier (let’s call the t-shirt supplier T-Shirts4All).

T-Shirts4All had some prices listed on its website, but it was pretty hard to find an exact price tailored to the number of t-shirts TEP wanted to buy at the price it wanted to buy them at. All the prices were somewhat expensive, but TEP didn’t know how much it could trust other suppliers so it went with T-Shirts4All.

T-Shirts4All had a phone number that TEP could use to tell someone (a sales representative) at T-Shirts4All through a call about the t-shirts TEP wanted to buy and the price TEP wanted them for.

One of the members of TEP, Will made a call to T-Shirts4All. Will told the T-Shirts4All representative on the phone about TEP and how many t-shirts TEP wanted to buy and at what prices it wanted to buy them for. Will then, made a “Request for a Quote,” also abbreviated RFQ.

A RFQ is just a document, or in this case, a phone call, asking for a price for a list of things a buyer wants to buy.

(If you see the term Request for Proposal (abbreviated RFP) — it’s pretty similar to an RFQ, it is just that a RFP requests details about a business partnership along with the price. Such details might be the terms of conditions that go along with buying from a specific supplier).

After making a RFQ over the phone, the company took a few days to get a price to Will. Will had to send another email and then he got a “quote” or a price for the t-shirts. Will didn’t like the price, so a week of negotiations over emails between Will and the T-Shirts4All sales representative ensued about what the price should be.

Finally, Will and T-Shirts4All sales representative agreed on a price and TEP purchased the t-shirts.

Well…TEP didn’t exactly purchase the t-shirts. TEP promised that it would purchase the t-shirts eventually. And the way TEP promised to purchase t-shirts allowed T-Shirts4All to trust that if it were to ship the t-shirts to TEP right now and the t-shirts got delivered to TEP on time, TEP would pay for the t-shirts eventually.

This trustworthy promise that businesses somehow can make and that TEP sent to T-Shirts4All is called a purchase order.

Example purchase order form

Why did TEP make a purchase order (abbreviated PO) if it already had $9000? TEP made a purchase order because TEP had a monthly spending limit of $5000, in order to follow some rules that all bank accounts owned by USC had to follow. These rules were set in place by the university to keep organisations like TEP responsible with money. TEP had to spend a lot of money on laptops on the same month, so TEP had to postpone the purchase for t-shirts till later.

TEP got the t-shirts and all seemed good and done. Except two months later this happened:

And here’s the second unfortunate thing. Will did not know how to resolve this problem. He confirmed that TEP would comply to the purchase order and assumed that TEP would do so because TEP had the money needed allocated for the order, but Will did not have access to the TEP bank account. Instead, only an accountant that USC designated to manage TEP’s bank account could approve purchases through the TEP account. Let’s call this accountant Meg.

Here’s Meg:

Meg has a lot of responsibilities. She manages bank accounts for 100s of initiatives like TEP. And you’ll soon learn that Meg’s job with managing TEP’s bank account is already hard enough for one person, because of the way she’s been asked to do it.

Will sent the email that he received from T-Shirts4All to me, because I’m the one in contact with Meg. Then, I scheduled Will’s email to be sent to Meg at an ideal time where the email had the highest probability of immediately catching her attention. Because Meg had and still has to manage 100s of bank accounts like TEP’s, she might still miss this email.

Upon receiving the email, Meg realized she forgot to make a purchase after the purchase order and purchased the t-shirts.

T-Shirts4All finally got its money, 2 months and 2 weeks late. T-Shirts4All certainly wasn’t happy that it took so long, and the sales representative may have gotten into a little bit of trouble.

The special characters in the speech bubbles mean nothing (like no special word is censored) in particular. I was just trying to find an easy way to express anger/frustration in a drawing.

Getting a sense of how complicated simply just buying stuff for businesses and organisational entities can be? But that’s only part a of part 1.

Let’s go on to the next purchase, laptops.

Part 1b.

Programs like TEP had gotten discounts on technology from Microsoft in the past, so TEP wanted to see if Microsoft will give discounts on laptops for TEP’s program. So I went ahead and called the Microsoft sales phone line for businesses and schools and told the sales representative I got connected to about TEP’s program.

The sales representative and I easily were able to agree on a price because there was a interface for a catalog with not that much room for negotiation. I then visited Meg and told her about the purchases. All the laptops together were slightly above the $5,000 limit, so I had to purchase some of the laptops personally and request a reimbursement through an expense report. An expense report is just a list of items you have bought along with the receipts for each one of them attached to it so anyone reading the list can also verify the purchases listed with the receipts.

Meg would be able to purchase the rest of the laptops through the TEP bank account. 4 days after making the purchase TEP received the laptops.

An unintended surprise came with the shipment of laptops. It turns out Microsoft shipped TEP 5 extra laptops.

1 month later I had to call the Microsoft sales representative again and I told him about the extra 5 extra laptops. His reaction was this:

But a smaller supplier’s reaction might have been:

I had to connect with the sales rep. from Microsoft one month later however because of a much bigger problem.

Meg reached out to me because she was trying to figure out how many laptops TEP bought. She received 3 email receipts (called invoices) of laptop purchases when Meg and I had together made only 2 purchases and Meg had only made one. 2 of the invoices that Meg received were invalid; someone was trying to steal over $4000 from TEP.

Even more worrisome, Meg thought that she had made two purchases on TEP’s behalf. She manages 100s of bank accounts, so sometimes she is prone to forgetting details like the number of purchases of a specific product made for a specific program. Also, she could only prove that one of the invoices were invalid. Since there seemed to be no other record of the purchases other than the invoices, she was ready to make an extra purchase of over $2000 dollars for TEP. This was super worrisome, so I called the same Microsoft business and education sales phone line I called before hoping to get in contact with the sales representative that sold TEP the laptops. Thankfully, he was still working at the same sales phone line and confirmed that there were only two purchases, one by me through my personal bank account and one by Meg through the TEP bank account. I proceeded by instructing Meg to give the Microsoft sales representative a call, which got the close to disastrous situation resolved.

You probably get it by now. Buying things for companies is tough. I am going to go through one final purchase, and then I will go back to talking about how Ariba relates to the whole story of TEP.

Part 1c.

The last purchase is scholarships. Scholarships seemed simple enough to TEP at first, because TEP was not buying a product from another company. TEP’s hopes were just to award a paper certificate and to send money to a scholarship recipient’s bank account whenever the scholarship recipient requested money for an educational program that she or he wanted to use scholarship money on.

However, it was not that simple. It turns out USC had been required to comply to a clause in a contract, that said that organisations run by college students like TEP are not allowed to directly give money to individuals outside of the university.

You can think of a contract as a terms of agreement, and a clause as a statement in the terms of agreement somewhere in fine print.

The clause existed because of some past incidents the administrative board of USC found where student run organisations like TEP gave scholarships carelessly to undeserving recipients.

I did not really know about the clause and Meg was not completely aware that it was being violated by TEP, but eventually, Meg got a notification from her boss Ann.

Here’s Ann:

Meg had told Ann about the purchases before, and Ann knew about the clause and asked Meg to bring Will and me, who were running procurement for TEP, to a meeting. After getting very angry and telling Will and me about the existence of the clause,

she proceeded to create a process by which Will and I could give the scholarships, because she also realised that it was in the proposed budget and none of her employees noticed the violation of the clause.


So everything finally kind of worked out. But the result for a lot of people involved somewhere in the process was this:

Part II

As you saw above, procurement for businesses can be really complicated, and it can make a lot of people angry and sad. However, it doesn’t have to be this way.

So now, here’s the moment you’ve been waiting for.

In comes:

Ariba’s job is to clean up the whole mess I described above through a story about TEP. Most businesses that are not using Ariba are also dealing with a similar mess. Ariba makes the procurement process for businesses shiny, clean…automated. Here’s an overview of how it works.

Recall the first definition I gave of Ariba. Ariba is Amazon for businesses. Therefore, you can expect Ariba to be a website [2], connecting businesses who are trying to sell stuff with businesses who are trying to buy stuff. There’s two types of web accounts on such a website.

One for companies that want to sell:

One for companies that want to buy:

The faceless stick figure below is Jill.

Jill’s going to navigate through a map.

When he’s on the rounded squares on the left side of the map I am talking to you about the buyer’s web account; when Jill is on the squares on the right side of the map, I am talking to you about the seller/supplier web account.

First, the buyer has a tool on the Ariba website to make an RFP or RFQ. In this request, the buyer shares information about what it wants to buy, how much it wants to buy of what it wants to buy, and what it hopes to pay for what it wants to buy. Also, the buyer can request to see and collaborate on contracts that are part of the purchase, which the supplier can easily share and make. Remember Ann getting angry about TEP giving scholarships to non-university individuals. That’s less likely to be an issue for companies using Ariba.

Every supplier on the Ariba website has a profile. You can think of a profile like a Yelp profile, which shows you ratings, reviews, and what services are offered. The Ariba website sends RFQs and RFPs to suppliers with profiles that match the request [3]. Remember TEP being stuck with having to buy from T-Shirts4All. That problem is gone on Ariba. The supplier can see a list of all the RFPs and RFQs it receives from buyers in one single web page on its Ariba web account and can click on one to learn more and respond with a proposal or a quote.

The buyer receives the quote in its own web account and can now make a purchase to buy the items it wants to buy from the supplier. The buyer is however is likely to send a purchase order, because that means it can use the money it has not paid to the supplier yet to make a larger profit and then pay back the supplier later [4].The buyer has a feature in its web account which allows it to send purchase orders and manage and reference all the previous purchase orders it has made.

The supplier now can receive the purchase order and has a web page in its web account where it can manage all the purchase orders it has received. The supplier then can click on a few buttons associated with a specific purchase order to confirm the order. Afterwards, the supplier ships the items and can send a status update about the shipment through another feature on its Ariba web account.

The shipment arrives to the buyer. The web account has a feature that asks the buyer to confirm that it has received the shipment. The buyer confirms that it has received the shipment and the confirmation now shows up in the supplier’s web account.

The supplier can then send an invoice. The supplier fills out a form on its Ariba web account to send an invoice, and this form has automatic restrictions that prevent the supplier from lying on their form by checking what the user of the supplier web account types in with the purchase orders it has received (works kind of like restrictions on password complexity where you must include a special character and a capital letter). Remember the fake invoices that were sent to Meg? If Meg uses Ariba, Meg doesn’t have to deal with fake invoices anymore. The supplier sends the invoice over the Ariba website only once it passes the restrictions on the invoice form.

For even more safety, the buyer’s web account checks if the invoice sent through the Ariba website matches any of the purchase orders the buyer has stored in its web account. If the invoice does match a purchase order, then the invoice is completely validated and reaches the buyer. The buyer then can pay through a feature on its web account called AribaPay. The payment may take some time to reach the buyer and Ariba doesn’t actually manage the transfer of money, so the buyer sends a notice to the supplier web account saying that it has paid for the items. This notice is called a remittance.

And there you go…through one website, Ariba has made usually long and messy grunt work that can involve 100s of emails, dozens of phone calls, and a lot sadness, a beautifully streamlined process.

Conclusion

And there’s more features for these processes that I won’t get to that fix even more problems in the story at the beginning of this piece. Also, you can customize this process too to skip steps if a buyer or supplier doesn’t need that part of the process.

Also, I wanted to mention, since this seems to be a big part of Ariba’s offerings for buyers, Ariba has a tool on the buyer web account that allows you to track how much you are spending on Ariba and create a new budget based on your goals. Ariba calls this tool its “Spend Analysis Tool.”

Now you’re probably wondering

Well yes, not all of them.

But if there is any website that contains close to all of them, it would be Ariba. Ariba boasts 1.25 trillion dollars in annual commerce on its website.

Also, Ariba has plenty of integrations that allows it to sync up with data from a lot of other software, so it’s pretty easy for a company to get its data on the website and conduct business on Ariba without browsing through the web pages and without changing its current software work flow for procurement.

Ariba is quite incredible, but what is even more exciting is the possibilities the future hold for the company. New technology trends are coming out, and many of them apply really well to Ariba.

For example,

One trend is Machine Learning. Machine learning is the process of using data of evaluations of a specific task a machine did to make a machine better at performing the task in the future. There are clear applications of machine learning to tasks like invoice validation (think of this task like Gmail’s spam classifier) or spend analysis (which is all about using a company’s spending data to make more intelligent decisions).

Another trend is Blockchain. It’s a little harder for me to describe Blockchain simply like I did machine learning. But anyone who has heard a bit about it knows Blockchain is about transmitting data securely and easily without the administrative oversight that usually slows down transactions. This can be used to make options for paying directly through AribaPay, rather than clicking a button that triggers a payment managed by a bank account provider. For this, think of Bitcoin, the digital currency.

I am pretty excited to have the opportunity to work for some time at Ariba. And I think you should be too. Here’s links to learn more about Ariba:

  • OpenSAP Course (I would recommend this link to business and finance majors and interns)
  • Ariba Blue Book and Ariba Platform Wiki (I would recommend this to engineering majors and interns — also, you have to get your manager’s approval to get access to the platform wiki page)

You should probably check the resources above out, because I’m sure if an Ariba expert is reading this she or he would have a few disputes about me missing some important details.

Also here’s a Glossary of Terms to keep as a reference as continue on working to make procurement awesome.

The End


The style for this post was inspired by the blog WaitButWhy. WBW covers everything from the mind blowing latest technology like Elon Musk’s attempt to make brains communicate with each other to social analysis about everyday problems that are so obvious that you never realized it. It’s a self-described “popular long-form, stick-figure-illustrated blog about almost everything.

Footnotes:

[1] The process of requesting approval for a purchase to a person managing a bank account and checking if the purchase falls within a proposed budget is called a purchase requisition.

[2] If you are annoyed by the fact that I keep on saying the “Ariba website,” I acknowledge the more technically correct term is an “online network,” but for the sake of not confusing readers I won’t use this term and in its place say website.

[3] If you ever see the term “sourcing,” that is just the technical term for finding suppliers.

[4] If you ever see the term “accounts payable,” that usually just is a technical term for the debt a company has to a supplier because of a purchase order