Commerce Cloud Evangelist: Q&A with Ariba’s Bob Calderoni Page 12

www.SDCExec.com

Special Edition – May 2010

Beyond the Cloud

A new breed of cloud-based applications aims to simplify
business commerce and drive new levels of productivity.
And Ariba is leading the charge. Again.
Page 8
PLUS
Peering into the Cloud –
Analysts’ Take on the Cloud-based
solutions Page 16
Practitioners Look to the Cloud for
the Next Level of Business Efficiency
Page 19
Clarity in the Cloud –
A Procurement Viewpoint
Page 22
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 table of contents
Inside
4 Executive Memo
Ariba’s Push to Transform Business
Commerce
By Andrew K. Reese

5 Data Points
Running the Numbers on Cloud
Commerce
Projected growth in worldwide IT Cloud services
On the Cover revenue, users’ anticipated benefits and business
benefits of the Cloud.
Page 8 By Editorial Staff

8 Cover Story
Beyond the Cloud
A new breed of cloud-based applications aims to
simplify business commerce and drive new levels of
productivity. And Ariba is leading the charge. Again.
By Editorial Staff

12 Question Session
The Evangelist
Ariba Chairman and CEO Bob Calderoni talks about
Procurement’s continuing evolution and driving the
next evolution of Business Commerce
Solutions-based Intelligence for Supply Chain ROI By Editorial Staff
Published by Cygnus Business Media
Special Edition • May 2010 16 Analyst View
Peering into the Cloud
President, Cygnus Publishing Division Mike Martin Analysts’ take on Cloud-based solutions
Brand Director Gloria Cosby
Publisher Jolene Gulley By Editorial Staff

Editorial Staff
Editor Andrew K. Reese
19 Practitioner Viewpoint
Managing Editor Stacey Meacham The Forecast for Procurement: Cloudy
Cloud solutions are fueling the next level of
Contributing Writer procurement – and business – productivity
W. Lamar Chesney
By Editorial Staff
Art Director Bobbi Burow

Corporate Production Director Brett Apold

22 Procurement Viewpoint
Prepress Manager Scott Shearer Clarity in the Cloud
Production Service Representative Connie Wolf By W. Lamar Chesney
Audience Development Manager Angela Kelty

Corporate Sales
Publisher Jolene Gulley, jgulley@sdcexec.com
Sales Account Manager Kathleen Arnold, karnold@sdcexec.com
This Special Edition of
Editorial Advisory Board
R. Jerry Baker, C.P.M, Executive Vice President, MyGroupBuy, Inc.
Supply & Demand Chain Executive
Carla Lallatin, President, Lallatin and Associates produced in conjunction with
Dick Locke, President, Global Procurement Group
Julie Murphree, Founding Editor, Supply & Demand Chain Executive
R. David Nelson, C.P.M, Chief Supply Chain/Strategy Officer, HTC Global Services, Inc.
Jay U. Sterling, Ph.D., CPA, Sr. Research Scholar, Center for Business &
Economic Research (CBER); Associate Director, University Transportation Center
for AL (UTCA), University of Alabama
Joseph Yacura, Co–Founder and Chief Strategist, Supply Chain Management, LLC

www.SDCExec.com
Special Edition/May 2010 www.SDCExec.com 3
executive memo
Ariba’s Push to
Transform Business
Commerce
T
he first time I spoke with Bob Calderoni in 2001, he’d been
in his new post at the head of “e-procurement technology
company” Ariba for all of about a day. Ariba, like many
companies born in the tech boom of the ‘90s, was finding its
way in the wake of the tech bust
at the dawn of the millennium.
As he stepped into his new role,
Calderoni brought two things
with him to the CEO suite. First,
he brought his experience – and
his viewpoint and sensibilities
– as a former chief financial
officer; he’d been CFO at Avery
Dennison, SVP of finance at
Apple Computer and CFO for
IBM’s $8 billion Storage Systems
Division. That was a good sign for
the investment community that
wanted to see a focus on finances
and the bottom line at a time of
economic turmoil.
But Calderoni also brought
a vision for where he wanted to lead Ariba. His focus was
on providing “spend management solutions” rather than
“e-procurement technology,” and his fundamental premise
was that chief procurement officers must work more closely
with CFOs and other senior management to truly manage and
control their companies’ spend. But whereas industry analysts
and thought-leading procurement executives – and Supply &
Demand Chain Executive magazine – preached the message
that “supply management must be strategic,” Ariba under Bob
Calderoni set out to actually arm Procurement with the solutions
they needed to make good on that vision.
On the back of that vision, Ariba has slowly, steadily built a
strong record over the past 10 years. The company’s network
encompasses four-fifths of the Fortune 500 and 94 of the Fortune
100, as well as more than 300,000 suppliers. Industry analyst
firms like Forrester and Gartner have pegged Ariba in the top
quadrants for a range of spend management solutions. Revenues
have been strong, especially on the “on-demand” side, and the
company has a healthy stash of cash in the bank to fund further
development and growth.
Now, just as the recent economic turmoil is prompting
4 Supply & Demand Chain Executive Special Edition/May 2010
companies to plumb their supply chains for even more value,
Calderoni and Ariba are extending their vision for procurement
and spend management with the move to the Commerce Cloud.
In a recent earnings call, Calderoni noted: “Companies coming
out of this recession are coming out leaner, and they’re embracing
new operating models that rely heavily on external trading
partners that use alternative low risk infrastructure approaches
like software-as-a-service and Cloud computing. Ariba’s at the
center of these more collaborative business practices as evidenced
by our continued strong performance, both with our on-demand
solutions and our global trading network.”
In this special edition of Supply & Demand Chain Executive,
we’ll examine both the broader trend toward the Cloud and
Ariba’s push to bring Procurement into the Commerce Cloud.
Beginning on page 8, our cover story explores this next revolution
in commerce and describes how Ariba is evolving to meet the
needs of business done in the Cloud. In a Q&A beginning on
page 12, Bob Calderoni sketches out his vision for the Commerce
Cloud, while the analyst community weighs in, with views from
the top thought-leaders in the procurement space, starting on
page 16. For a practitioners’ eye view of procurement in the
Cloud, we turn to leading executives across industry sectors in
the article starting on page 19. And we round out our coverage
with a column by W. Lamar Chesney, executive vice president
and chief procurement officer at SunTrust Banks, Inc., which is
already well advanced in its journey into the Cloud.
What do the next 10 years hold for procurement and spend
management – and for Ariba? Prognostication is as tricky a
business as ever, so let’s just say – if you’ll forgive the expression
– that the forecast remains cloudy. However, one thing that’s
crystal clear is that as business heads into the Cloud, Ariba is
positioning itself to be rocket ship that gets it there. ■
Andrew K. Reese
Editor
Supply & Demand Chain Executive
 data points
By Editorial Staff

Running the Numbers

Source: Ariba. Special Edition/May 2010 www.SDCExec.com 5

 data points
Billions

Projected Growth in Worldwide IT Cloud Services Revenue, 2009-2013. Source: IDC.

Benefits Commonly Ascribed to the

Cloud by Surveyed Users
Source: IDC.
6 Supply & Demand Chain Executive Special Edition/May 2010
 data points

Running
the
Numbers

Special Edition/May 2010 www.SDCExec.com 7

cover story

Beyond the Cloud

A new breed of cloud-based
applications aims to simplify
business commerce and
drive new levels of
productivity. And Ariba
is leading the charge.
Again.
By Editorial Staff

8 Supply & Demand Chain Executive Special Edition/May 2010


W
hy is it so easy to buy a book on Amazon.com but so hard
to source the goods and services you need to run your
business? How can you manage your personal finances
and pay your bills on time online, yet have no idea what you’re
spending with whom or when you’ll get paid at your company?
Why do you know more about what your friends ate for lunch
than the status of your key trading partners? In short, why is
buying, selling and managing cash in your personal life so easy,
yet business commerce is so complex?
They’re questions that have been nagging at Ariba. But the
company thinks it has the answers. And the answers are to be
found in the Cloud.
Sound like a joke? Don’t laugh. This is, after all, the company
that transformed Procurement more than a decade ago using
online catalogs and auction technology that everyone said would
never work.
“Ariba’s always been a company that prided itself on innovation,
from the day that we started,” says Kevin Costello, the company’s
president.
Ariba’s latest mission? To improve the efficiency and
effectiveness of business commerce through a new breed of
Cloud-based offerings.
“Business commerce shouldn’t be so hard,” says Tim Minahan,
Ariba’s chief marketing officer. In fact, Minahan thinks it should
be as easy as personal commerce. “When you go to Amazon.com
to buy a book or eBay to sell something, or when you log onto
your bank’s Web site to pay your bills, you don’t need to think
about anything because everything you need to complete your
transaction is right there.”
cover story
Commerce in the Cloud
This is what Ariba aims to deliver on the business front with
the Ariba Commerce Cloud. The Commerce Cloud is Ariba’s
vision for creating a more efficient and effective way for companies
to control costs, minimize risks, improve profits and optimize
cash flow and operations.
Ariba’s timing in rolling out the Commerce Cloud may be
propitious, given the tumult in the economy over the past two
“Ariba’s timing in rolling out the
Commerce Cloud may be propitious,
given the tumult in the economy
years and the growing reluctance
of organizations to make major new
technology investments.”
years and the growing reluctance of organizations to make major
new technology investments. “There has been almost a tsunami
of movement towards on-demand technologies, not just in the
procurement space but in all spaces,” Costello notes. He cites
industry figures showing that Ariba holds greater than 50 percent
market share in on-demand application space for procurement
and spend management, and he suggests that this position gives
Ariba the credibility it needs to begin evangelizing the Commerce
Special Edition/May 2010 www.SDCExec.com 9
cover story
Cloud concept.
“We see that as companies are getting more familiar with
the concepts behind the Cloud, those concepts are starting to
increasingly take hold,” Costello says.
Moving to collaborative commerce, Minahan says, isn’t as
simple as plugging in a piece of software. It requires technology,
community and capability. Inter-enterprise collaboration
must be built on a technology platform that automates and
optimizes the full commerce lifecycle. But, importantly, that
technology platform must be shared between the trading partners.
Collaboration, after all, is all about sharing a business process.
Replicating the sins of the past, when companies had their own
individual systems and were doing point to point integrations,
would lead to segmented and siloed business processes.
“Companies should be able to drive an end-to-end commerce
process without integrating to other systems, learning new taxonomies
or going anywhere else to get things done,” Minahan says.
Collaborative commerce also requires a community, so
companies must have the ability to quickly pre-enable a network
that allows them to rapidly discover, connect and collaborate with
the trading partners that can deliver the greatest value to them.
Finally, with regard to capabilities, next-generation commerce will
require companies to ensure that they are employing best practice
business processes in collaborating with their trading partners.
The point, Costello says, is to avoid simply doing a bad process
faster. It’s about leveraging the functionality available through the
Cloud to enable new ways of doing business
for buyers and suppliers. Costello points
to the capabilities in Ariba Discovery,
a tool within the Ariba Network
for doing trading partner discovery
and qualification. “It’s a new way
for buyers to source new suppliers
by identifying and interacting with
suppliers that they might otherwise
not have known about,” he says.
“And it’s a new way for sellers to find
prequalified leads that they wouldn’t have
known about. So it’s about taking advantage of
the community of businesses in the same way
that Facebook or LinkedIn allows you to tap
into a community, or a network, of people.”
Components of the
Commerce Cloud
Given these requirements, Minahan
Bhaskar
Himatsingka
10 Supply & Demand Chain Executive Special Edition/May 2010
suggests that the only way to deliver this inter enterprise
collaboration platform is to turn to the Cloud. “First, because
it needs to be Web-based technology that is shared among
everyone. Second, because there needs to be a pre-enabled
trading community built-in. And third, because you need to
be able to leverage the intelligence for that community so that
everyone makes not just faster business processes but smarter
business processes.”
Ariba believes that it has brought together these different
aspects of collaborative commerce within its Commerce Cloud.
The offering encompasses applications for spend management,
working capital management and sales acceleration delivered
as cloud-based services. The services are wrapped around the
Ariba Network, which connects more than 300,000 global
suppliers across 130 countries and 70 currencies, and is used to
process more than $121 billion in annual PO spend volume.
The Network, in a sense, is the community, allowing companies
to discover, connect and collaborate with a global network of
trading partners.
Companies can also access market, category, technical, strategic
and other expert capabilities within the Cloud to support
changing business needs and objectives and tap into the knowledge
and experience of procurement staff and executives through the
Ariba Exchange, a networking and peer collaboration forum
linked to the Cloud. Finally, the Commerce Cloud provides
access to a range of Ariba solution partners, including business
process outsourcing providers, financial institutions, integration
service providers and specialists in working capital management
and document scanning and archiving.
“Everything that’s needed for efficient and effective business
commerce is in the Cloud,” Minahan says.
Impact on Procurement ... and IT
The movement of procurement and supply management into
the Cloud is likely to have an impact on both how the technology
consumer interacts with the solutions and how a solution provider
brings new capabilities to market. For procurement executives,
Minahan suggests that the move from transactional, price-based
relationship management to the strategic collaborative value-
driven relationship management – a broad transition taking
place in supply chain management, but one consistent with the
move to the Cloud – will put a premium on a different skill set.
“It requires much more strategic thinking: strategic planning,
project management, financial acumen and analytics, and the
ability to leverage technology in order to facilitate not just faster
but more effective collaboration,” Minahan says.
Kevin Tim
Costello Minahan

In addition, Cloud-based supply chain strategies will put a
premium on IT’s ability to work with procurement to model
and think strategically about business processes rather than just
“screwing in” technology to solve a business problem. “It’s not
so much about the technology alone, although technology is
a key enabler,” says Minahan. “It is really about the business
process transformation that’s enabled, that is, the combination
of technology and, in this case, community and capabilities, and
that requires a different skill set.” As a result, the technology
leader in the company must be able to make key decisions about
which portions of a business process, and which portions of the
company’s IT infrastructure, could benefit from connecting
to, and leveraging, the capabilities of the Cloud. The goal is
to enable the best process that can give the company – and its
entire value chain – the greatest competitive advantage. “It’s not
simply a question of what I put on my servers and what I put in
the Cloud,” Minahan says. “That’s the least of it.”
Bhaskar Himatsingka, Ariba’s chief technology officer, says that
the move to the Cloud also is changing the way that solution
providers like Ariba develop their solutions and work with their
customers around those solutions. This is a function of the
responsibility for the timing and management of upgrades to
solutions shifting to the providers of Web-based applications.
“There are two aspects to this,” Himatsingka explains. “One is
how we ensure that we introduce capabilities in a way that is
cover story
not disruptive to users who are on the system today, in terms
of the user experience. Second, it’s a matter of how we educate
both end users and administrators about new capabilities. The
days of shipping a CD with the software and then waiting for
the company to do the change management and training are
over. That ship has sailed.” Ariba, for example, typically makes
available upcoming software a couple months before it goes
into production so that users and administrators can try out
new functionality. That helps build familiarity with, but also
confidence in, new releases.
Solving the Business Problem
Himatsingka hastens to add that Ariba is not setting out
to position itself as a “Cloud company” in the same way
that saleforce.com is looking to become the next-generation
application development platform for third-party solution
providers. “We are positioning ourselves as a business commerce
solutions provider – a provider who’s going to enable businesses
to get to the next stage when it comes to collaborative business
commerce, be that about buying, selling or managing cash,”
he says.
If the past is any indication of future success, it’s almost a sure
bet Ariba will do just this. ■

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Special Edition/May 2010 www.SDCExec.com 11

question session

The Evangelist
Under the leadership of Chairman and CEO Bob Calderoni,
Ariba revolutionized procurement. Now the company is at it
again. This time, it’s taking on business commerce

12 Supply & Demand Chain Executive Special Edition/May 2010


By Editorial Staff
“
I
t can’t be done.” It’s a phrase that
Ariba Chairman and CEO Bob
Calderoni has heard more than a
few times. But one that he’s never put
much stock in. “You can’t automate the
procurement function. Buyers and sellers
will never go for it.” “You can’t deliver your
solutions on demand. You’ll die without
the license revenue.”
As Ariba embarks on its latest effort to
shake things up with the launch of the
Ariba Commerce Cloud, the skeptics
are again chiming in. “You can’t do real
business in the Cloud.” But Calderoni is
tuning them out and moving forward with
an ambitious plan to transform the way
that business is done.
question session
SDCE: Ten years ago, Ariba set its sights
on revolutionizing procurement and helping
companies to better manage their spend. Now
you’re tackling the entire commerce process. Why
the wider scope?
Calderoni: Over the last decade, business
has spent billions on technology to streamline and
automate internal functions such as Procurement,
Human Resources, Accounting, and Sales and
Marketing. Yet commerce between companies
remains hugely inefficient. And that’s costing
our customers and their trading partners a lot of
money. The Global 2000 alone loses $380 billion in
productivity a year by our estimates.
To get to the next level of productivity and
savings, companies need to tackle the inefficiencies
that hinder effective commerce – like conducting
transactions manually and sending paper-based
invoices – and leverage solutions that allow them
to share common processes among key trading
partners and adapt these processes as their needs
and resources change. And Ariba is uniquely
positioned to help them do this.
SDCE: How so?
Calderoni: Inter-enterprise collaboration
has failed because it is largely driven through
proprietary systems that have no scale. What
companies need is a common platform like the
Ariba Commerce Cloud through which they can
automate shared business processes among partners
and fuel the agility needed to adapt and adjust these
processes as their needs and capabilities change.
But technology alone isn’t the answer. Technology
can help companies do things faster and more
efficiently. But doing bad things faster won’t
help them deliver results. To get to the next level
of enterprise efficiency, companies need – in
addition to technology – skills and capabilities to
supplement their internal resources, and market or
community knowledge that they can use to make
more informed business decisions.
The power of the Ariba Commerce Cloud is
that it introduces a new level of information and
performance transparency that allows companies to
Special Edition/May 2010 www.SDCExec.com 13
question session
optimize their business processes and ensure that
they are making the best decision for their business
and their partners. Whether you’re buying, selling or
managing cash, you can do it better in the Cloud.
SDCE: What do you say to Procurement
executives who have already invested in behind-
the-firewall applications and are now being told
that they need to invest in Cloud-based apps to
achieve the next level of success?
Calderoni: The beauty of the Cloud is
that companies can extend and improve their
collaborative trading relationships regardless of
their architecture or delivery model decisions. For
example, Ariba On Demand
customers who embrace the
Ariba Commerce Cloud
benefit by having all their
commerce processes in one
place. Customers using Ariba
On Premise or third-party
applications from vendors
like SAP or Oracle benefit
from more efficient trading
partner enablement and
more effective collaboration
around procurement and financial processes. Even
companies with no commerce applications at all
can benefit from the Cloud through new business
discovery and better collaboration with customers.
SDCE: Ariba is widely known as a leader
in Spend Management. But you’re talking now
about helping companies better manage their
finances, increase their sales and maximize their IT
investments. Can you deliver all of this?
Calderoni: We have been for quite some
time. Spend management is the most visible aspect
of what we do because cost reduction is job number
one in today’s economy, and we have proven our
ability to deliver some pretty hefty savings on a
dime. But our solutions have always done more
than help companies cut costs. They help finance
improve cash flow and increase productivity.
They help IT maximize their resources and make
the most of their investments. They help legal
14 Supply & Demand Chain Executive Special Edition/May 2010
manage their contracts and mitigate risk. And they
help sales and marketing find and accelerate new
business opportunities.
It’s not unlike what we did when we shifted our
business to a SaaS model and re-engineered all of
our solutions to be delivered on-demand to make
spend management affordable and available to
companies of all sizes. By delivering our solutions
through the Ariba Commerce Cloud, we can help
more companies – and functions within them –
drive more value across the entire commerce process.
SDCE: So this is bigger than Spend
Management.
Calderoni: It’s all about Business
Commerce. Commerce is the lifeblood of the
global economy and the engine of business. But
commerce is hard. To be successful, companies
need to sell their product or service at the best
possible price; buy the goods and services they need
to operate at the lowest-possible cost; and control
finance activities so they have the cash to reinvest in
growing their business.
Companies that manage this commerce lifecycle
efficiently and effectively can drive highly profitable
growth and gain a competitive edge. And that’s
exactly what we are aiming to help them do
through the Ariba Commerce Cloud.
SDCE: Skeptics claim that Cloud-based
solutions are neither mature nor secure enough
to manage business commerce. How do you
respond to that?
Calderoni: They said the same thing about
the Internet and procurement 10 years ago, and
look how far the discipline has come. Procurement
is a much more efficient, effective and strategic
function because of the technology-enabled
solutions and processes that companies have
implemented to drive it.
SDCE: What does the move to Cloud
computing mean to procurement as a profession?
Calderoni: Procurement can’t continue
to pull the same lever anymore. Cost reduction
remains their top priority. But to drive their
objectives, they are going to have to collaborate
with their suppliers in new and different ways and
connect with other processes across the value chain.
They’re going to need to align with finance and
leverage things like working capital management
solutions not only to improve their own cash
position but to ensure that their suppliers remain
viable. They can’t do these things using traditional
software or proprietary systems. But they can do it
in the Cloud. By making these connections, they
will ultimately become more strategic and create
greater value for their organizations.

SDCE: Will the next wave of procurement

enhancements be driven by Cloud offerings?

Calderoni: Cloud solutions are going

to drive the next wave of business commerce
improvements. And as a key component of the
commerce process, procurement will clearly benefit.
Spend is easier to manage on a common platform.
With the Ariba Commerce Cloud, Procurement has
more visibility into corporate spending and can drive
new levels of process efficiency and compliance.
They also have access to the world’s largest supplier
network, through which they can uncover new
sources of supply, secure best-value agreements, and
streamline procure-to-pay operations.

SDCE: What’s next for Ariba?

Calderoni: Our goal is to simplify business
commerce because it shouldn’t be as hard and
ineffective as it is today. And we’re going to continue
to invest in developing and delivering solutions
that can do this. Companies should be able to do
business like they shop in their personal lives. They
should be able to replicate an Amazon.com-like user
experience and not be tied to legacy technology that
is difficult to implement and use. They should be
able to get the same level of information on their
trading partners that they can get on their friends
through social networks like Facebook and Twitter.
And they should be able to interact with their peers
to learn best practices and leverage community-based
intelligence to make informed decisions rather than
acting on gut instincts. ■

Special Edition/May 2010 www.SDCExec.com 15

 analyst view

Peering
into the Cloud
The analyst community projects rapid growth in the adoption
of Cloud-based solutions and services as business leaders
increasingly see potential for rapid value
By Editorial Staff

16 Supply & Demand Chain Executive Special Edition/May 2010


T
he technology sector is abuzz these days with
chatter about Cloud-based applications and
their potential to fuel higher levels of trading
partner collaboration – and drive rapid returns for a
lower upfront investment than behind-the-firewall
applications. But at least one industry analyst cautions
supply chain executives against getting overly fascinated
with the technology of the Cloud.
“Do you really need to know what it means? No,
as long as it gets your business issues resolved,” says
Mickey North Rizza, who focuses on supply management
technologies as a research director at AMR Research,
a unit of Gartner.
North Rizza speaks almost daily with procurement
and supply chain executives about how to enable their
transformation initiatives. She says that many of the
business leaders she speaks with are interested in Cloud-
based solutions and the concept of the Commerce Cloud
because the Cloud represents technological innovation.
But she notes that the economy also is driving companies
to look for rapid returns, and they see the Cloud as
potentially driving value quickly.
“They’re more open to understanding how technology
from a Cloud-based perspective can help them versus
waiting on a long implementation to get something
done,” North Rizza says.
Cumulating Clouds
Maureen Fleming, program director for business
process automation and deployment at analyst firm
IDC, offers a broad definition of the Cloud: “It’s
consumer and business services delivered and consumed
in real time over the Internet,” she says, adding that
typically Cloud-based applications are distinguished
by their strong use of standards and strong self-service
capabilities. In addition, Cloud-based offerings typically
provide for a pay-as-you-go model.
Fleming’s research suggests a coming rapid
accumulation of Cloud-based services. IDC estimates
the market for all Cloud offerings at $17.4 billion in
2009, but the firm projects the market will grow to
$44.2 billion in 2013. Indeed, Frank Gens, chief analyst
and senior vice president with IDC, reports that Cloud
computing adoption is growing at over six times the
rate of what he calls “traditional IT.”
IDC’s research also highlights specific benefits that
are driving interest in the Cloud, including the ability
to “pay for what you use,” thereby avoiding overpaying
for IT capabilities (cited by more than 80 percent of
respondents in a September 2009 IDC survey); easy and
fast deployments; subscription-based payment models;
and the way that Cloud-based offerings force adherence
to standards to gain access to business services.
Supply Management Gets onto
the Cloud
Specifically within the supply management arena,
analyst view
the potential benefits that are drawing companies to
Cloud-based solutions are similar, according to Debbie
Wilson, research director for procurement strategies
and systems with Gartner. In an article for SDCExec.
com highlighting the findings from a recent research
report on sourcing applications, Wilson notes that the
on-demand or “software-as-a-service” delivery mode
dominates this market segment.
“Of the 107 companies we surveyed for the report, only
29 percent license their strategic sourcing application
suite and run it behind their firewall,” Wilson writes.
“An on-demand, subscription-based implementation
is preferable for these suites because most buyers
don’t need to customize the suite to use it effectively;
vendors assume the responsibility for upgrades; buyers
can expense rather than capitalize their investment;
and most buyers want to keep suppliers out of internal
systems anyway.”
Dennis Gaughan, who studies IT management and
service-oriented architecture as a vice president at AMR
Research, suggests that it is only natural that supply
chain executives should find the Cloud so attractive.
“Line-of-business
leaders are on the
hook for major results,
and they’re looking for
a rapid return to value”
– AMR analyst Mickey North Rizza
Writing in an April 2010 report entitled “Are Supply
Chain and the Cloud Like Chocolate and Peanut
Butter?”, Gaughan notes that in multi-enterprise supply
networks, companies must collaborate across enterprise
lines with many different partners.
“The emerging cloud applications and platforms,”
the analyst continues, “are designed with collaboration
in mind, providing centralized access to information
and delivering a user experience that fosters strong
community development.”
Dispelling the Storm Clouds
The analysts do see companies carefully considering
several issues as they look to move into the Commerce
Cloud, including security issues (particularly around
data security), availability and performance (particularly
for mission-critical supply chain applications), and
long-term cost.
On the first point, Gaughan writes in his report,
“Although the issues on security in the cloud are much
better understood than three years ago, the fundamental
Special Edition/May 2010 www.SDCExec.com 17
analyst view
challenges of protecting data outside a
company’s firewall remain and need to
be mitigated.” However, with vendors
such as Cloud poster child salesforce.
com and Ariba gaining wider adoption
for their Cloud-based offerings, those
concerns are steadily being allayed as more
companies gain greater experience – and
greater confidence – in the Cloud. Ditto
on the performance issues.
Regarding cost, the question is whether
the subscription model ultimately will
entail a higher total cost of ownership
versus paying a one-time license fee. That
does not necessarily apply in the case
of enterprise applications, since major
solutions typically require significant
ongoing maintenance fees for upgrades
and continuing support and service
anyway.
In addition, with the economy coming
out of the Great Recession, North Rizza
points out that many companies have
curtailed their investments in major
platforms or applications. And yet their
business challenges are still just as urgent,
and the line-of-business leaders know they
still need tools to address those challenges.
So it’s natural for them to start looking for
a solution that requires a lower investment
right now.
“Because the line-of-business leaders
are on the hook for major results, that’s
forcing their hand. They can’t live with
what they have and still get the results
they need to produce unless they hire
more people – and they can’t hire more
people. So they need a new solution,”
North Rizza says. With the Cloud, they
can often make the decision to go with a
solution or service that they need, get the
ROI faster, and demonstrate the results
they need to achieve. “They’re looking
for a rapid return to value,” North Rizza
emphasizes.

Sharing the Cloud with IT

One touted benefit of moving to
the Cloud is that it typically requires
significantly lower levels of IT involvement
Solutions-based Intelligence for Supply Chain ROI in the deployment and adoption of the
solution. But North Rizza believes that
the Cloud will actually foster greater levels

More Knowledge…
of collaboration between Procurement
and IT. “It’s going to make the IT and
business folks come together and talk
about what’s really required to run the
business,” she says.

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IT, the success factors for implementing
a Cloud-based solution are similar to
those for behind-the-firewall applications,
North Rizza adds. “It still comes down
to user adoption, the applicability of the
solution, and how it solves the business
problem,” she says. “It really is about the
business problem.”
So does the Cloud represent a
revolution or an evolution in how
companies are leveraging technology?
The real answer to that question may be,
“Who cares?” Businesses aren’t focused on
the technology, the analysts say. Instead,
executives are more worried about solving
a business problem and about whether
Cloud-based applications can do that
better and faster than other options.
“What matters to them is whether they
can get a solution and use it and make a
difference in their business – that’s what
ultimately matters,” North Rizza says.
“How that hooks up with your overall
IT strategy is important, and they’re not
ignoring that. But they’re really looking
at how to drive the business.” ■

18 Supply & Demand Chain Executive Special Edition/May 2010


The Forecast for Procurement:
Cloudy
Cloud solutions are fueling the
next wave of procurement – and
business – productivity
By Editorial Staff
I
n today’s economy, it’s all about doing more with less. And
doing it faster, better and cheaper than ever before. It’s a
tall order. And the pressure is on Procurement to deliver.
Over the last decade, Procurement has proven its ability to drive
savings and efficiencies using business commerce technologies. But
can it continue its run and get to the next level on software alone?
The High Cost of Inefficiency
Businesses have spent billions on technology to streamline
and automate their internal operations. Yet commerce between
companies remains naggingly inefficient.
Consider this: According to industry analysts, more than
80 percent of business-to-business commerce transactions are
completed manually. And companies still send 85 percent of
invoices and payments on paper. The cost of this inefficiency:
practitioner viewpoint
$650 billion a year by some estimates.
To stem these losses and drive the next level of improvements
across their business, many companies are looking to a new
breed of solutions.
Productivity 1.0
The first wave of technology-enabled productivity focused on
making employees more effective in their daily jobs by simplifying
key tasks such as developing documents, presentations and
spreadsheets and communicating with other team members. And
it led to the dawn of the desktop operating system.
The second wave leveraged Web-based technologies to drive
greater productivity within particular functional areas like
Procurement and Human Resources. And with it came the advent
of the enterprise operating system.
Special Edition/May 2010 www.SDCExec.com 19
practitioner viewpoint
Productivity 3.0
The next wave of productivity is all about collaboration and
aims to attack the inefficiencies that remain between companies
to enable more effective collaboration among trading partners.
Industry watchers say “Productivity 3.0” will be fueled by Cloud-
based platforms that allow businesses to share common business
processes in areas like product development and commerce.
According to global market intelligence firm IDC, “Cloud
infrastructure computing will move squarely into the mainstream as
a significant number of Fortune 1000 companies adopt the utility
computing model demonstrated by moving a portion of their
‘sandbox’ apps into production on public Clouds.” (IDC, “Worldwide
Software Business Solutions 2010 Top 10 Predictions: The ‘New
Normal’ for Enterprise Software,” #222024, February 2010).
Insiders agree. “I believe that most CIOs have built their last
data center,” said Charles Bonomo, chief information officer with
MSC Industrial Supply. “Computing power will be the first and
most visibly impacted area. The model of buying computing power,
as/when I need it, from a remote data center, run by a company
that specializes in building the world’s best data centers, makes
much more sense than trying to build this capability myself.”
So just what is Cloud computing? And can it really transform
business commerce? More important, how will it shape the future
of procurement?
Procurement’s View
“Cloud computing to me seems to be a new buzzword for
something that has been around for quite some time, at least in
concept,” says Kevin Castle, chief procurement officer and director
of global procurement with Varian Inc. “Cloud computing
basically allows IT infrastructure, software, best practices and
standards to be shared across an entire community in a way that
allows individuals to only pay for what they use, while leveraging
an infrastructure that is far greater than one could cost-effectively
build on their own.”
When it was first suggested that technology could be used to
automate and enhance the procurement process, more than a
few eyebrows were raised. Today, you’d be hard pressed to find
a company that hasn’t implemented some sort of software to
better manage its spend.
Companies of all sizes, across industries and geographies have
tools in place that give them greater visibility into and more
control over their spend; allow them to more effectively manage
their contracts, suppliers and risk; and streamline and enhance
“Finally, we in Procurement
can make decisions on how
to use technology to facilitate
best practices that match the
way our supply chains actually
interact, rather than adjusting
our processes to match inflexible
and cumbersome software and IT
policies.” - Kevin Castle, CPO,
Varian Inc.
20 Supply & Demand Chain Executive Special Edition/May 2010
invoicing and payment processes. Yet many still struggle to
connect and do business with key trading partners.
“Inter-enterprise commerce is still very difficult because it is
largely driven by closed systems and processes,” says Kevin Costello,
president of Ariba, Inc., a leading spend management solutions
provider. “The key to extending and improving collaborative
trading relationships lies in open systems that can be easily accessed
regardless of their architecture or delivery model decisions.”
Translation: Cloud-based solutions. Many companies are still
trying to figure out what the Cloud is and how it might actually
benefit their business. But Varian isn’t waiting.
“Procurement organizations that strategically implement newly
accessible Cloud applications can create competitive advantage
for their companies,” Castle says. “Those that take a sit-and-wait
approach may find that competing supply chains will quickly
surpass them in agility, speed and efficiency.”
Varian currently manages all its sourcing projects through
the Ariba Commerce Cloud, a Web-based platform for inter-
enterprise commerce. Within the Cloud, Varian has created
standard global processes for sourcing events, RFI, and Lean
and Six Sigma projects, complete with the templates, process
steps, decision trees and authorizations needed to execute them.
Commodity managers manage their global categories and
suppliers in the Ariba Commerce Cloud. Supplier report cards
are tracked and commodity teams survey key stakeholders around
the globe to determine how suppliers are performing with both
objective and subjective data in the Cloud. Negotiation plans are
approved and all projects are tracked with complete transparency
to ensure sourcing decisions are made based on auditable lowest
total cost data in the Cloud. Global spend data are scrubbed
from SAP and encoded into a UNSPC-structured format that
allows for spend visibility, reporting and analysis in the Cloud.
“Finally, we in Procurement can make decisions on how to
use technology to facilitate best practices that match the way
our supply chains actually interact, rather than adjusting our
processes to match inflexible and cumbersome software and IT
policies that don’t coincide with our objectives,” Castle says.
A New Way of Operating
In an environment where budgets are tight and resources
constrained, organizations are increasingly moving toward
more variable operating models that allow them to balance their
internal competencies with external technology, expertise and
infrastructure delivered as a service. They’re looking for solutions
“Cloud computing will change
business commerce as it is
less restrictive and minimizes
barriers to entry.” - Michael
S. Clem, director of global
purchasing for North America,
AGCO Corporation

that can be dialed up or down as their needs and objectives change.
And, of course, they want to reduce their costs.
Cloud solutions promise to deliver all this. And some like
Michael S. Clem, director of global purchasing for North America
with AGCO Corporation, believe they can. “Cloud computing
should reduce capital investment, improve reliability and offer
continuous access to state–of-the-art technology through lower
cost upgrades due to shared engineering costs,” he says.
But in Clem’s mind, this isn’t the real value of the Cloud.
“Cloud computing will change business commerce as it is less
restrictive and minimizes barriers to entry,” he says.
Patricia Spugani, program director for global web sales strategy
with ibm.com, agrees. “Because of the flexibility and shared nature
of Cloud solutions, costs for adoption of spend management
capabilities decrease and time to realize ROI decreases,” she says.
“As a result, there will be wider adoption of e-purchasing by more
companies in both mature and growth markets.”
Spugani believes Cloud solutions not only will increase the
adoption e-purchasing but also will enhance the buyer-supplier
“Because of the flexibility
and shared nature of Cloud
solutions, costs for adoption of
spend management capabilities
decrease and time to realize ROI
decreases.” - Patricia Spugani,
program director for global web
sales strategy, ibm.com
practitioner viewpoint
relationship by facilitating standardized processes and capabilities
across all procure-to-pay transactions between buyers and suppliers.
Changing the Buyer-Supplier Dynamic
Clem, who uses Ariba’s Cloud-based solutions to manage his
sourcing activities and supply chain, is already seeing this. “We
have developed a more precise and fast-paced way of doing
business with our incumbent supply base that is highly accepted
and respected,” he says. “And there is definitely a sense of best-
in-class processes – e-auctions for example.”
IBM has done the same. “We were able to build a software
catalog for a client who uses the Ariba Commerce Cloud in less
than two weeks,” Spugani says. “The process was quick and
efficient for both the customer and IBM. We were able to transact
business very quickly, resulting in increased client satisfaction
and a new sales opportunity.”
Making It Work
Like any new technology, successfully implementing Cloud
solutions requires careful planning and lots of change management.
It also takes a realistic view of what Cloud-based applications
can and can’t do.
“Cloud computing only reduces some of the friction in the value
chain,” Castle says. “Perhaps you could compare it to trading up from
a Volkswagen Bug to a Ferrari. If you’re strategically heading for a
cliff, the only thing a Ferrari will do is send you off the cliff faster.”
Castle’s advice to other supply chain leaders? “Have a clear vision
of where you want to go and see Cloud computing for what it
is – an enabler to get there, not a destination in and of itself.” ■
Special Edition/May 2010 www.SDCExec.com 21
procurement viewpoint
Clarity in the Cloud
By Lamar Chesney
S
upply chain management and procurement organizations
are being asked to bring value to the enterprise in new ways.
Long since passed are the days when it was acceptable to be a
well-run transactional, “back-office” function. Especially in today’s
tumultuous economic environment, supply chain management
and procurement executives must not only learn how to bring
innovation to the table but also demonstrate the delivery of that
innovation. It is in part the price for enjoying a “seat at the table”.
William Buxton, principal researcher with Microsoft Research,
describes innovation this way: “Too often the obsession is with
‘inventing’ something totally unique, rather than extracting value
from the creative understanding of what is already known.” For
supply chain management and procurement executives to deliver
“innovation,” they must connect elements of such traditional
disciplines as sourcing, contracting, demand management,
compliance and performance management, to name a few. And, as
businesses become increasingly networked in “commerce clouds”,
“Moving supply chain management
to the Cloud will impact every
aspect of the business. Maintaining
momentum will require strong
leadership and consistent articulation
of the benefits of change.”
creating value as part of integrated webs of companies, supply chain
management must expand its innovativeness through managing
supplier, partner, customer and internal client relationships.
Innovation is part art, part science. And, indeed, supply chain
management is to be viewed as a science that’s artfully applied.
To be well applied, supply chain management must be built on
a solid, proven foundation of principles, policies, practices and
processes. However, to enable a world-class procurement function,
this foundation must, in turn, be further supported by a technology
system that adds rigor, discipline, consistency and quality to those
processes and protocols. Without a thoughtfully designed system
to enable effective and efficient processes, one cannot attain world-
class status, and innovation will continue to be a difficult journey.
A thoughtfully designed system provides both certainty and
flexibility. The market is evolving rapidly, and this dynamic
environment demands that companies respond not only to
the direction of change but also to the pace of change, the
“digestibility” of change and the complexities that are inherent
in change. The systems that enable this flexibility today are
evident in “the Cloud”. Indeed, the Cloud comprises both the
on-demand solutions that power one company’s internal processes
22 Supply & Demand Chain Executive Special Edition/May 2010
as well as the electronic networks connecting companies and
their ecosystems of suppliers, partners and customers. Cloud
computing, in a sense, is the “utility” that provides a channel
for the data and information exchange, process integration and
transparency between buyer and supplier interactions through
a low-cost means of integration.
Enterprises that are able to leverage the power of Cloud-based
solutions and the Commerce Cloud will benefit from the speed,
agility and scalability that the Cloud enables. The Cloud actually
accelerates change by allowing for the faster introduction of new
capabilities and new functionality in the applications that drive
commerce. At the same time, the “pay-by-the-drink” model of
Cloud solutions allows companies to be more agile by “turning the
dial” up and down for services that they are leveraging, scaling as
necessary to meet the demands of the market. Moreover, the Cloud
can empower procurement to take advantage of the latest supply
chain management solutions and to ensure consistent quality and
services without having to draw excessively upon scarce internal
IT resources. And finally, the Cloud can ensure a company obtains
marketplace competitiveness, as it allows the business to “plug and
play” the most appropriate mix of solution capabilities, knowing
that those solutions are the most advanced available.
At my company, SunTrust Banks, we have been exploiting
almost all aspects of the Cloud-based solutions for supply chain
management available from our solution provider partner, Ariba.
This includes basic functionality such as managing RFx documents,
or awarding and managing contracts, as well as more advanced
capabilities such as tracking the inclusion of diverse suppliers in our
network, or allowing users to actually buy off-catalogue through
a series of supplemental supportive risk mitigation processes,
management of finance and payables processes, and tracking supplier
performance and supplier relationship health.
Moving supply chain management to the Cloud will require
a focus on managing change and expectations similar to any
other significant enterprise transformation. It also calls for a
willingness to partner with IT in a very positive, productive
way that addresses the CIO’s concerns. Recognize that moving
supply chain management to the Cloud will impact every aspect
of the business. While one need not be a Pollyanna, maintaining
momentum will require strong leadership that demonstrates
consistent articulation and reinforcement of the benefits of change.
The Cloud represents both an evolution of the technology that
drives business and a revolution in how business will be conducted.
From such, innovation will surely emerge. Leaders must be prepared
now to step boldly into the new connected world that is emerging
and leverage that which already exists. ■
About the Author: W. Lamar Chesney is executive vice
president and chief procurement officer at SunTrust Banks,
Inc., based in Atlanta, Ga.
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 We’d Like to Cloud
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