The penny pincher's tool

Software maker Ariba helps Fortune 500 companies suss out waste, cut costs.

By Jia Lynn Yang, writer-reporter

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NEW YORK (Fortune) -- It used to be that only a few CEOs were known for their obsessive love of cost-cutting -- guys like Mark Hurd at Hewlett-Packard (HPQ, Fortune 500) and Jamie Dimon at JPMorgan Chase (JPM, Fortune 500). But these days, with revenues everywhere grinding to a halt, everyone's getting into the act. Not surprisingly, a new breed of enterprise software has emerged to help the bean counters.

Ariba (ARBA), for example, sells software that helps companies track where they spend money. In your typical big organization, there are thousands of people making purchases individually, and they might be using different systems to track those expenses, especially if there have been acquisitions of other companies over time. The simple act of finding out how much the company spends on ballpoint pens, for instance, can be riddled with red tape.

Here's where Ariba comes in. The company can consolidate all that information into one place, so it becomes clear that instead of using seven different suppliers for pens, the company could just use one. Then Ariba sets up a reverse auction for suppliers to bid for business. Or if someone wants to order a huge shipment of pens but that spending would put the company over-budget, Ariba's software prevents the purchase. Voila -- savings.

"It's the one area in technology that companies are spending money on because they can make a difference in their profitability," says Mickey North Rizza, an analyst with AMR Research.

While software giants Oracle (ORCL, Fortune 500) and SAP (SAP) offer similar services, Ariba is the largest software provider that focuses exclusively on what the company calls "spend management." It works with more than half of the FORTUNE 500.

Like Salesforce.com (CRM), Ariba uses the so-called "cloud computing" subscriber model where clients essentially rent access to Ariba's software and can access it online. Analysts at Gartner project that while IT spending overall will drop by nearly 4% this year, "cloud computing" revenues will rise 21.3% to $46.4 billion.

Last quarter, Ariba's subscription revenues were up more than 70% from the year before; total revenues were up 12%.

Diebold (DBD), the company that makes ATMs and voting machines, has worked with Ariba since 2001. In 2006, Diebold set out a goal of saving $100 million in the next three years. Using Ariba's tools, the company found savings in literally every corner: from office supplies to travel expenses to the supply base for manufacturing ATMs.

Before using Ariba, Diebold had trouble making sense of its purchases, which were tracked by different software platforms throughout the company. Ariba's software became "key to understanding who our suppliers were," says Michael Rager, a procurement executive at Diebold. "Its like having a black box that takes English, Portuguese and Chinese and spits out a standard language that everyone can understand."

Other examples: Ariba recently helped a major fast food chain consolidate its pickle purchases. And it also worked with a bank to renegotiate its temporary labor costs. Ariba's software revealed the company was spending $40 million on 13 different suppliers with about 30 different contracts. After on online auction, the company reduced that total cost to $30 million.

But what happens when the economy rebounds?

Bob Calderoni, Ariba's CEO, points out that even after a company finds a new supplier who's helping it save money, there has to be a system in place to make sure employees stick to that supplier.

"This never ends," says Calderoni. "As time goes on, [people] use more of it, rather than less of it." Thrift is in, and maybe it's here to stay.  To top of page

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