Welcome to the ultimate guide on SAP Ariba Sourcing Types! Whether you are new to procurement or just diving into SAP Ariba as part of your sourcing career, understanding the different sourcing types is key to leveraging the full potential of this powerful tool. This tutorial will walk you through the basics, leading to advanced concepts, and give you the confidence to create or participate in sourcing events effectively.
What is SAP Ariba?
Before diving into sourcing types, let’s start with an overview of SAP Ariba. SAP Ariba is a cloud-based procurement solution that helps companies connect with suppliers globally to manage their entire sourcing and procurement process. It makes sourcing more efficient by simplifying tasks such as requests for proposals (RFPs), quotes, and information (RFIs).
SAP Ariba is used to streamline sourcing events like RFIs, RFPs, and Auctions, helping businesses achieve the best prices, mitigate risks, and make strategic supplier decisions. SAP Ariba’s sourcing types allow flexibility and customization depending on the specific sourcing needs of an organization.
Overview of SAP Ariba Sourcing Types
SAP Ariba Sourcing Types are specific ways in which buyers and suppliers can engage during sourcing events. These types are broadly divided into RFI, RFP, and Auctions. Each type serves different procurement needs:
- RFI (Request for Information): An exploratory document to gather general information about suppliers.
- RFP (Request for Proposal): A request for detailed proposals that include costs, strategies, and how the supplier will deliver the services or products.
- Auctions: Competitive events where suppliers bid to win contracts; these can be reverse auctions or forward auctions.
| Event Format | Description | Business Scenario |
|---|---|---|
| Rank Only | You determine whether participants can see only their own rank. | None |
| Rank Only with Lead Bid | You determine whether participants can see their own rank and the lead bid. | None |
| Full Disclosure with Generic Aliases | You determine whether participant responses are revealed to other participants. Participants cannot determine the number of competitors. | None |
| Full Disclosure with Unique Aliases | You determine whether participant responses are revealed to other participants. Participant identities are displayed as Company 1, Company 2, and so on. | None |
| Rank While Winning | You determine whether participants can see their own rank only when winning, i.e. Lowest Rank. | None |
| Seal Bid | No Market Feedback is displayed. | None |
| Request For Proposal | RFP is used to create a questionnaire with sections, questions, requirements, and/or line items to collect pricing information, and/or qualify participants, possibly for an auction. You can weigh and grade participant responses, and create an overall score for each participant. Participant responses are not revealed to other participants. | None |
| Request for Proposal with Price Breakdown | This type of RFP is used to create a questionnaire with sections, questions, requirements, and/or line items to collect a price breakdown. You can weigh and grade participant responses, and create an overall score for each participant. Participant responses are not revealed to other participants. | None |
| Request for Proposal with Total Cost | This RFP type is used to create a questionnaire with sections, questions, requirements, and/or line items to collect pricing information, and/or qualify participants, possibly for an auction. You can add additional cost factors, such as Shipping Fees, to calculate a total cost for each supplier. You can weigh and grade participant responses, and create an overall score for each participant. Participant responses are not revealed to other participants. | None |
| Reverse Auction | This is the standard auction. In a reverse auction, suppliers submit bids, offering progressively lower prices in an effort to outdo their competition and offer you the best price. | Suppose your computer manufacturing business knows of several participants that are capable of providing, at competitive prices, the specific goods or services that you want to purchase. You use an auction to bring the participants into competition for your business. Create line items for everything that you want to buy. You can group line items into lots to create a package of goods or services to bid on. Specify ceiling and reserve prices, timing rules, and other strategic rules, to maximize competition. |
| Reverse Auction with Bid Transformation | Use this auction type to create a competitive bidding event for line items and/or lots, including factors other than price. Buyers determine whether they want suppliers to see only their own rank, their own rank and the lead bid, or all supplier responses. | Sometimes suppliers’ prices are very different, but when added costs are taken into account, the total cost for their goods or services is very similar. For example, you need to buy raw materials for a plant in the United States and are considering two suppliers: one is local and one overseas. The overseas material is less expensive, but you must ship it much further. The price of the overseas material, plus the extra shipping costs, equals the cost of buying it locally. The Reverse Auction with Bid Transformation template allows you to design an auction to bring the two suppliers into competition. You set up the auction to automatically include the shipping costs of the material in the prices that the participants bid. |
| Reverse Auction with Total Cost | You use this auction type to create a competitive bidding event for line items and/or lots, including factors other than price, such as shipping cost, taxes, and the cost of changing supplier, which applies to all the suppliers except the incumbent. | You use this auction type to create a competitive bidding event for line items and/or lots, including factors other than price, such as shipping cost, taxes, and the cost of changing supplier, which applies to all the suppliers except the incumbent. The total cost can be expressed in a formula, such as: Price * quantity + shipping + taxes + switching. You determine whether the values for these factors. |
| Index Auction by Percentage/Amount | If you are sourcing a commodity product that is subject to frequent price fluctuations, use an index auction to cause participants to bid in discounts or premiums relative to a market index. There are two templates, one causes participants to bid in a currency amount added or subtracted from the index, and another that causes participants to bid in a percentage value added or subtracted from the index. | Index Auction is used for Commodities which are based on different Index. |
| Dutch Reverse Auction | In a Dutch reverse auction the buyer sets a very low initial price and raises it periodically until a supplier accepts the price or a predetermined ceiling price is reached. Suppliers are motivated to accept the listed price as soon as they can or risk losing the business altogether. | Dutch is ideal when there aren’t many suppliers bidding for the good or service or there is a large preliminary bid price gap between 1st and 2nd place. |
| Dutch Reverse Auction with Bid Transformation | Use this auction type to create a Dutch style competitive bidding event for line items and or basket lots, including factors other than price. Bid transformation allows you to “transform” buyers’ bids by adding cost terms you define. Working with SAP Ariba Sourcing events Items with a bid adjustment interval set to Percentage and an adder or subtracted cost term, can cause the bid value you see to differ from the bid value displayed to participants. | None |
| Forward Auction | This is the standard Forward Auction. In a Forward Auction, participants submit bids, offering progressively higher prices in an effort to outdo their competition. | Index Auction is used for Commodities which are based on different Index. |
| Forward Auction with Bid Transformation | Use this auction type to create a competitive bidding event for line items and/or lots, including factors other than price. Buyers determine whether they want suppliers to see only their own rank, their own rank and the lead bid, or all supplier responses. | You might have negotiated with participants and agreed to pay the costs to ship their purchases to them. Suppose that one of the participants is based in the United States, and the other is based in France. Since you have agreed to pay the shipping costs, the participants based in France must offer a higher bid if you are to earn the same profit by selling to them. |
| Dutch Forward Auction | In a Dutch Forward auction the buyer sets a very High initial price and decrease it periodically until a supplier accepts the price or a predetermined price is reached. Suppliers are motivated to accept the listed price as soon as they can or risk losing the business altogether. | None |
Understanding Different SAP Ariba Sourcing Types
1. Request for Information (RFI)
An RFI is one of the simplest sourcing types in SAP Ariba. It is used primarily at the beginning stages of a project to gather information from potential suppliers. In an RFI, the buyer doesn’t ask for pricing; instead, they seek to learn about the capabilities, qualifications, and general information about the suppliers.
Why Use an RFI?
- Qualification Process: To filter out vendors who do not meet the necessary qualifications.
- Benchmarking: To get an idea of industry capabilities and innovations.
Sub-Types of RFI
- RFP with Price Breakdown: Some RFI events may also include additional sections for a price breakdown to prepare for future RFP events.
2. Request for Proposal (RFP)
An RFP is a detailed request where potential suppliers provide proposals including pricing, services, methodologies, and timelines for a project. This type is best suited when you know what you need but want to choose the best vendor based on multiple criteria.
Features of an RFP
- Comprehensive Information: Includes costs, delivery schedules, and strategies.
- Evaluation Criteria: Vendors are evaluated based on multiple aspects, including cost, innovation, and reliability.
Sub-Types of RFP
- RFP with Total Cost: This allows buyers to consider overall costs instead of unit pricing, which helps in understanding the complete impact of the sourcing decision.
3. Auctions: Types and Categories
An Auction in SAP Ariba is a competitive event where multiple suppliers bid in real-time, often driving down the price of a product or service. Auctions are useful in cases where the buyer knows exactly what they need, and the price is the main differentiator.
There are two primary types of auctions:
- Reverse Auction: Suppliers compete to offer the lowest price for a contract.
- Forward Auction: Buyers compete to purchase goods or services, often at increasing prices.
Below is a breakdown of different auction types:
| Auction Type | Description | Sub-Types |
|---|---|---|
| Reverse Auction | Suppliers lower their prices to win a contract, driving down costs. | Reverse Auction with Rank, Rank with Lead Bid, Full Disclosure with Generic Aliases, Full Disclosure with Unique Aliases, Sealed Bid |
| Bid Transformation | Bids are adjusted based on factors like delivery time or location to ensure comparability. | Rank with Lead Bid, Full Disclosure, Sealed Bid |
| Index Auctions | Procurement is tied to an index or benchmark price. | Index Auction by %, Index Auction by Amount |
| Dutch Reverse Auction | Starts with a high price that decreases until a supplier accepts the current price. | – |
| Forward Auction | Buyers compete to purchase items, often leading to increased prices. | Auction with Rank, Rank with Lead Bid, Full Disclosure, Dutch Forward Auction |
a. Reverse Auction
A Reverse Auction is a common practice in procurement where suppliers lower their prices to win a contract. The goal is to drive down costs, and it is typically used for well-defined products or services where the main concern is price.
Sub-Types of Reverse Auctions:
- Reverse Auction with Rank: Suppliers see only their rank but not the actual bids of others.
- Rank with Lead Bid: Suppliers can see their rank and the current leading bid.
- Full Disclosure with Generic Aliases: Suppliers can see all bids but without knowing the bidder’s identity.
- Full Disclosure with Unique Aliases: Suppliers see all bids and know who has made them.
- Sealed Bid: All bids remain hidden until the auction closes.
b. Bid Transformation Auction
A Bid Transformation Auction is a unique form where bids are adjusted based on factors like delivery time or location to ensure comparability among suppliers.
Sub-Types include:
- Similar to reverse auction sub-types, including Rank with Lead Bid, Full Disclosure, and Sealed Bid options.
c. Index Auctions
Index Auctions are designed when procurement is tied to an index or benchmark price. For instance, the price may vary based on market indexes. Index Auctions by % or by Amount allows for different formats of such auctions.
d. Dutch Reverse Auction
In a Dutch Reverse Auction, the auction starts with a high price that decreases over time until a supplier accepts the current price.
4. Forward Auction
A Forward Auction is used when a company wants to sell items to multiple buyers and increase prices based on competitive bidding.
Sub-Types of Forward Auctions:
- Auction with Rank: Bidders can see their ranking in real-time.
- Rank with Lead Bid: Bidders can see their rank as well as the leading bid.
- Full Disclosure: Similar to reverse auctions, where bidders may see generic or unique aliases, giving a transparent view of the competition.
- Dutch Forward Auction: Price starts low and increases over time until a buyer accepts the price.
Choosing the Right SAP Ariba Sourcing Type
Choosing the right sourcing type depends on several factors:
- Stage of Procurement:
- Use RFI if you are still exploring your options and want to know your potential suppliers better.
- Use RFP when you know what you need and require detailed proposals.
- Use an Auction if the product or service is well defined and price is the primary concern.
- Nature of Requirements:
- If you are purchasing a commodity where the specifications are standardized, an Auction can help drive down prices.
- For customized services or products, an RFP allows you to choose the best supplier based on a detailed proposal.
Advantages of SAP Ariba Sourcing Types
- Transparency: SAP Ariba auctions offer transparent processes, allowing suppliers to see their ranks.
- Efficiency: Automated processes save time, particularly with reverse and forward auctions.
- Improved Competition: Auctions bring competitive bidding, helping you achieve the best market rates.
- Customization: RFP and RFI events allow for a customizable approach to choosing suppliers based on qualitative and quantitative metrics.
Advanced Features of SAP Ariba Sourcing Types
- Event Configuration: You can customize different stages of events based on your requirements.
- Weighted Scoring: In RFPs, you can apply weightages to different criteria to ensure suppliers are selected not just on price but based on total value.
- Supplier Management Integration: SAP Ariba integrates with supplier management to ensure all your data about suppliers can be utilized effectively during sourcing events.
Conclusion
SAP Ariba sourcing types provide a robust and flexible way to manage procurement events, from the initial information gathering with RFIs to detailed proposals through RFPs, and competitive pricing via Auctions. Understanding the different sourcing types can significantly impact procurement efficiency, reduce costs, and enhance transparency in the sourcing process.
Whether you are a beginner or moving towards advanced procurement roles, getting familiar with SAP Ariba Sourcing Types is essential for leveraging the platform’s full capabilities. With the knowledge shared in this guide, you are now ready to confidently start creating, managing, and optimizing your sourcing events in SAP Ariba.