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Introduction

In this session, we will delve into understanding procurement, specifically the differences between direct and indirect procurement, along with the various solutions offered by SAP Ariba. We will also explore the concept of Source-to-Pay (S2P) and aim for a thorough comprehension of these key areas.

Understanding Procurement

Procurement is a crucial business function responsible for securing all the necessary goods and services needed by an organization. For instance, consider a car manufacturing company. To produce cars, various items and services must be procured, including materials and tools essential for production.

Types of Procurement

Procurement can be classified into two main categories: direct and indirect procurement.

Direct Procurement: This refers to the procurement activities directly involved in the manufacturing or production of the company’s end products. In the case of a car manufacturer, components like metal parts, tires, and electronic components are considered direct procurement as they are essential for producing cars.
Indirect Procurement: In contrast, indirect procurement encompasses the goods and services necessary for the day-to-day operations of the organization but do not directly contribute to the production of the final product. Examples include office supplies, laptops, and workspace, which support the functioning of the organization.

In general, the procurement activities of a typical company may comprise approximately 70% direct procurement and 30% indirect procurement.

Solutions Offered by SAP Ariba

When discussing SAP Ariba, it’s vital to note that it primarily caters to indirect procurement solutions. While most Ariba solutions focus on indirect procurement, there are some functionalities that can support direct procurement indirectly through integration with ERP systems.

Some of the key solutions provided by SAP Ariba include:

SAP Ariba Sourcing
SAP Ariba Contracts
SAP Ariba Supplier Lifecycle Management (SLP)
SAP Ariba Buying and Invoicing

Brief History of SAP Ariba

Originally established in 1996, Ariba was designed to enhance transparency in procurement, which was heavily manual and paper-based at the time. After going public in 1999, Ariba was acquired by SAP in 2012 for $ 4.3 billion. SAP transformed Ariba into a cloud-based solution, allowing users to access the platform similarly to Gmail, without requiring software installation.

Understanding Source-to-Pay (S2P)

Source-to-Pay involves several phases, which include sourcing, contract management, ordering, and payment.

Sourcing: This initial phase entails identifying potential suppliers. For instance, suppose a car manufacturer requires 100 laptops. The procurement team would analyze the market, send out Requests for Information (RFIs) to suppliers, and eventually invite shortlisted suppliers to submit competitive quotations through Requests for Proposals (RFPs).
Contract Management: After selecting suppliers, organizations must establish contracts defining the terms and conditions. This ensures that there is a legally binding agreement regarding pricing, delivery timelines, and any discounts negotiated.
Ordering: The ordering process begins with the creation of a Purchase Requisition (PR), which contains critical details such as quantity, price, and delivery details. Once this document is approved, a Purchase Order (PO) is issued to suppliers.
Payment: Following the receipt of goods, the supplier issues an invoice. Organizations must perform invoice reconciliation to ensure the invoice matches the order and the actual goods received before proceeding with payment.

SAP Ariba solutions, such as Ariba Sourcing and Ariba Contracts, facilitate these processes, with SAP Ariba Buying and Invoicing handling the shipping and invoicing elements.

Keywords

SAP Ariba
Procurement
Direct Procurement
Indirect Procurement
Source-to-Pay
Sourcing
Contract Management
Purchase Requisition
Purchase Order
Invoice Reconciliation

FAQ

What is SAP Ariba? SAP Ariba is a cloud-based procurement solution designed to facilitate indirect procurement activities within organizations.

What are the types of procurement? Procurement is classified into direct and indirect procurement. Direct procurement refers to goods essential for production, while indirect procurement refers to goods and services necessary for day-to-day operations.

What are the key solutions offered by SAP Ariba? SAP Ariba's key solutions include Ariba Sourcing, Ariba Contracts, Ariba Supplier Lifecycle Management (SLP), and Ariba Buying and Invoicing.

What is Source-to-Pay (S2P)? Source-to-Pay (S2P) encompasses the entire procurement process, starting from sourcing suppliers to the final payment after goods receipt. The main phases include sourcing, contract management, ordering, and payment.

How does SAP Ariba support indirect procurement? SAP Ariba provides various solutions that streamline the procurement processes necessary for running organizations, including sourcing suppliers, managing contracts, and handling invoices.