(Note: Last week, I had a Q&A with Paul Hampton, marketing director, Ariba Northern Europe who is based in London, on the necessity and importance of Spend Management solutions in increasing visibility through the supply chain and thus reducing costs. Below, you can read a refined version of this Q&A).

SupplyChainer: Thank you very much Paul for accepting our invitation to have a Q&A with SupplyChainer. As the starting question, would you tell us what is the origin of Spend Management and how it has evolved to the current state?

Paul: Ariba started out 10 years ago in 1996 when procurement was very labor intensive and paper oriented. We were the first company to come out with an e-procurement solution that automated requisitions, the approval process, generating purchase orders and more. We did that for five years and were very successful. Working with customers, we then evolved the concept of spend management as being a separate business process with three distinct phases. The first phase is spend visibility, which enables companies to understand their current spend situation and identify opportunities for savings. The second phase is the Negotiation of sourcing. With Ariba, customers can negotiate contracts with suppliers, invite them to come online, and manage the whole process online. The third piece - contract management - is the compliance piece, which ensures those savings are realized. But it's not just about the technology. Today, we offer a comprehensive range of solutions that enable the people, processes and technology that companies need to manage their spend from end-to-end and achieve excellence. All of our solutions combine tecnology, expertise and services in a songle package, because spend management is about more than simply automating the purchasing process. You also need the expertise to help customers with their spend management. We have teams around the globe-like China and South America-that help our customers understand those particular markets much more intimately. We have a deep understanding of global market dynamics, and our commodity specialists and sourcing professionals can help identify suppliers and guide our customers to make sure they're successful.

SupplyChainer: Is there any gap in current available solutions in which spend management tries to fill? Because it seems to me that some part of the information may be achieved by ERP systems.

Paul: ERP systems can do a good job of telling you where you're at, but not where you're going. But if you look at a typical Fortune 1000, you've got multiple ERP systems from mergers, aquisitions, and different departments, which makes getting an aggregate understanding of your financial data across the organization extremely difficult. Early this year, at our Ariba Live conference in London, one of the senior supply chain managers at Heinz presented a case study on their experience using Ariba spend management. They have 35 to 36 ERP solutions across Europe. They didn't have any control over their purchasing, contract management or contract negotiation across the organization. After implementing Ariba as an add-on to their ERP portfolio, and by achieving a high level of visibility into the spending process, they were able to manage the negotiation of the sourcing phase and go through the RFP and RFQ phases in a much more efficient manner.

British Airways is another good case study. The airline industry has traditionally been characterized by steep fluctuations in demand. The last few years have been particularly tough for the industry with the huge losses and bankruptcies of many established airlines. BA's response was to launch an initiative called 'Future Size and Shape' in 2001. This called for a 10% operating margin to be achieved through a £650 million cost savings from 2002 to 2004 with an additional £450 million cost reduction from 2003 to 2005. By using a custom-designed spend management solution from Ariba, the company was able to hit its financial targets.

SupplyChainer: What do you see as the emerging trends in spend management area?

Paul: In the past, spend management solutions were usually reserved for large, Fortune 1000 enterprises. There was huge, pent-up demand among the smaller, mid-market companies that saw the cost savings benefits these huge organizations were realizing. They wanted the same benefits but didn't have the technical or financial capability. By offering on-demand delivery of our solutions, we removed those barriers. Now companies of all shapes and sizes can manage their spend and have access to an invaluable body of knowledge without a big investment for reduced time to ROI.

SupplayChainer: So, does it mean that a trend similar to the increase in On Demand CRM services since the last 8 years is emerging?

Paul: Yes, that's true. Salesforce came up with the software on demand concept. We take it a step further and provide software and services. As part of our on-demand offerings, you get access to the techology but also to a large body knowledge and expertise. To be successful, you also need supplier relationships. Some companies try to link directly to all of these suppliers. The problem is these suppliers have a lot of links. What we created was a hub that links buyers and suppliers and manages all of their transactions. The Ariba Supplier Network is one of the largest open trading networks in the world. Features include access to supplier knowledge threads, new business opportunities from buyers, enhanced reporting capabilities, and other premium features. More than 140,000 suppliers are on the network, and it's growing all the time. Last year, $90B worth of transactions went through the Ariba Supplier Network. To give you a sense of how big this number is, eBay manages transactions amounting to $46.

SupplyChainer: Thank you very much Paul. Is there anything special for SupplyChainer readers which you want to pinpoint?

Paul: Recently, we did a study in collaboration with London Business School on procurement and realized that effective management of transactions is a strong driver for business performance. As a concluding point, I can say that companies, especially in these days of intense competition, should pay more attention to this area to increase visibility and reduce their value chain costs.