More manufacturers want to automate their procure-to-pay (P2P) processes with paperless, cloud-based electronic invoicing -- or e-invoicing -- for their suppliers but often find the ERP integration inadequate, analysts say.
Progress on integrating e-invoicing with back-end ERP is “very slow,” said Duncan Jones, principal analyst at Forrester Research Inc., based in Cambridge, Mass. “Companies like SAP and Oracle haven’t really done a very good job of promoting the right answer. Their approach has been a pull approach. Suppliers have to manually log into a portal. In my book, it’s not really e-invoicing.”
In contrast, Jones said, “proper” supplier networks from the three leaders in the category -- Ariba, Basware and OB10 -- can fully automate e-invoicing workflows between purchasing departments and suppliers. But that doesn't always mean they have adequate visibility into the ERP system a particular buyer uses to manage invoices and execute payments.
“We know from EDI [electronic data interchange] that it’s possible to do e-invoicing, but EDI involves a lot of work for both companies. It’s really a point-to-point connection,” he said. Supplier networks, in comparison, already have suppliers set up for electronic commerce. “You give them a list of your suppliers and you give them a mandate to contact them on your behalf.” But that doesn't always mean the networks have adequate visibility into the ERP accounts payable system a particular buyer uses to manage invoices and execute payments.
Invoice automation held back by ERP integration
Better ERP integration can improve automation of the entire P2P process by eliminating wasteful steps between buyers and suppliers, according to analysts, vendors, and users who have done it.
That’s exactly what one manufacturer found when it labored for three months to integrate Ariba e-invoicing with SAP ERP. “We had a group of people in our customer service organization chasing down order confirmations and shipment notices for the drop shipment orders,” said Belinda Cordina, procurement director for processes and projects at Nalco, a Naperville, Ill.-based manufacturer of environmental systems. “The Ariba network is our communication method between Nalco and our suppliers. All information is stored in Ariba, with most information transferred to SAP.”
“The payments always come from the ERP system,” said Mickey North Rizza, research director for supply chain at Gartner Inc., which is based in Stamford, Conn. “The issue is how do you ensure that your suppliers can see what you’re doing.”
Getting payments sent out is especially hard with multiple ERP systems -- some Gartner clients have 40 to 50 of them, North Rizza said.
But current invoice automation methods haven’t worked very well, she said. Integration infrastructure vendors such as Sterling Commerce and GXS and supplier portals have proven ineffective for automating “long vendor relationships” and P2P transactions between buyers and suppliers, according to a report North Rizza co-wrote about the Ariba user conference that was held in April. The recent move by supplier networks like Ariba to expand beyond on-premises offerings to public cloud delivery should lead to quicker, lower-cost deployments, the report said.
Jones said supplier networks like Ariba have had basic SAP integration for years, but not the kind that can handle end-to-end e-invoicing.
“The challenge is more in the data,” he said, especially for companies that run multiple ERP systems and often spend substantial time simply normalizing invoice numbers.
ERP vendors are trying to address the problem by partnering with business-to-business (B2B) integration vendors that then partner with the supplier networks, Jones said. The partnership between Crossgate, a B2B integration vendor that SAP partially owns, and Hubwoo, a cloud procurement service that runs on SAP SRM (supplier relationship management), is a prominent example, he said.
In addition, financial disincentives prevent supplier networks from cooperating with each other, according to Jones. “If one network’s only charging suppliers, and another only charges customers, neither is making money out of the transaction,” he said.
Ariba goes it alone for SAP integration
SAP’s challenges in helping customers tie in more suppliers cost-effectively was the motivation behind Ariba's decision last month to repackage several SAP-integrated applications into an offering called Ariba Collaborative Commerce for use with SAP ERP.
“At SAP, ‘cost to serve’ was a problem,” said Scott Sykes, Ariba’s vice president for solutions marketing and a former SAP and Oracle employee. “It was hard to roll out to more than just a few suppliers.”
For example, one manufacturer that buys timber from Latin America has a constantly changing supply chain, Sykes said.
“They don’t have a lot of consistent relationships," he said. "Doing [procurement transactions] natively in SAP, while possible, was just tapping out their IT resources. It was easier to just leave it outside the system and just do it manually.”
Ariba’s SAP offering does a good job of letting manufacturers expose the right amount of ERP data to suppliers and gain access to Ariba’s huge supplier network, according to North Rizza.
“What this does is allow them to look in one area,” she said.
For its part, SAP says it regards Ariba's offering as a competitor to its SAP SRM suite.
“Our SRM solution can conduct a real-time budget check in ERP when someone tries to requisition against a particular cost center or project account, to ensure the funds are available to support their purchase before a PO [purchase order] is issued,” said Emily Rakowski, SAP’s senior director for procurement solutions marketing. Rakowski claimed most SAP customers who need e-invoicing and procurement use SAP SRM -- which they can get in either SaaS or on-premises form -- instead of networks like Ariba. She said the suite has more than a thousand integration points with SAP ERP’s back-end financial and payment functions.
Putting suppliers first in e-invoicing software selection
North Rizza advised manufacturers to have a clear supply chain strategy and understand the nature of their relationships with suppliers before choosing an e-invoicing tool. Some suppliers might only be transitional and not worth the integration effort. “It’s really understanding where you are with your suppliers,” she said.
Jones said adoption of supplier networks has been slowed by the “selfish-buyer approach,” in which the purchasing company requires suppliers to join its network even if they already belong to others. This places an undue expense on suppliers, many of whom can’t afford it. He said manufacturers should instead support multiple networks to accommodate suppliers and consider offering discounts as incentives to join.
“If buyers can be less selfish and recognize the problem from a supplier point of view, then they can drive interoperability by requiring it and by supporting an environment [for them] to use,” Jones said. “They give the suppliers the choice.”