By Alan Radding
Managers can't miss the incessant buzz from the business gurus who stalk each new trend: Manage your supply chain; implement end-to-end supply chain visibility; extend your systems to your customers; manage the customer relationship; collaborate with partners, suppliers, customers. The gurus pile on the theories, case studies, methodologies, and research data, often packed into dazzling PowerPoint presentations, to prove their case.
But behind it all, behind supply chain management, customer relationship management, collaborative commerce, there's something else. Before any of these practices can pay off as promised, the organization's systems have to interoperate with those of the other parties — and that means B2B (business-to-business) integration.
Integration refers to the process of connecting a system so that it can communicate, system-to-system, with another system. Integration today comes in two basic flavors.
Enterprise application integration (EAI) connects systems and applications within the organization, such as an ERP system from one vendor, say SAP, with CRM from another vendor, such as Siebel.
Business-to-business (B2B) integration refers to the process of connecting one company's systems with those of another company. The distinction between EAI and B2B integration, however, is blurring, as business processes increasingly cross corporate boundaries.
Of these two types of integration, B2B poses the more formidable obstacles. With EAI, the organization controls the systems, the people, and the standards or protocols to be used. It establishes the business processes and defines the data structures and formats. And even then, the diversity of systems, data, and protocols makes integration a major undertaking. With B2B, the organization has no control of the systems, people, processes, or data on the other end of the wire.
Two years ago, B2B integration was the rage, but it had a distinctly Internet, on-line commerce emphasis. Organizations then were just recognizing the potential of the Internet and Web to streamline communications between trading partners and open the company's circle of potential trading partners to the world at large.
Public on-line exchanges looked like the perfect B2B integration vehicle. Procurement systems could scour the exchanges for the lowest possible prices on commodity items or to post RFPs and RFQs. The idea of exchange-driven B2B commerce took off, and within months the number of announced exchanges topped 1,000.
But the dot-com bubble burst, and B2B exchanges collapsed. The culprit was the business model: They failed to deliver value to all the participants. "Those exchanges were not true B2B collaboration. They were about getting products for the lowest price, but that didn't excite the suppliers. It was only a one-way benefit," recalls John Leffler, global head/collaborative value chain solutions, PricewaterhouseCoopers (PwC) Consulting. Although a few public on-line exchanges continue to operate in industries such as the automotive, the on-line exchange in its private form may yet prove to be a B2B integration winner.
"B2B integration now is quite a bit different," notes Benoit Gaucherin, vice president/advance technology at Sapient Corp., Cambridge, MA. "On-line exchanges were just the first step. You also need to bring in existing systems."
Ideally, an organization needs both EAI and B2B integration to build a seamless system to support the extended business process. "It all needs to be part of the same enterprise architecture," notes Nick Caramello, senior technology specialist at Sapient. Again, more blurring of the distinction between EAI and B2B integration. Adds Jay Bellissimo, partner, PwC: "If you are going to do transactions, you need EAI in the company first."
For instance, the ERP system of a manufacturer requires a certain amount of a particular part for a production run it is scheduling. Through EAI, it can pass its needs along to the procurement system. Through B2B integration, the procurement system passes the request to a supplier's order-taking system. On the supplier's side, the order-taking system, through EAI, passes the order along to a fulfillment system and to a billing system. The necessary acknowledgments follow the path in reverse.
In the end, the goods arrive on the manufacturer's loading dock, which has been alerted to their arrival. The invoices arrive electronically and are automatically matched with the shipping receipts and passed to the payment system. Through the power of EAI and B2B integration, the process is automated end-to-end; nobody makes phone calls, sends faxes, or enters or re-enters data. There are no messy manual handoffs or incorrectly entered orders — nothing falls through the cracks.
Before this happens, however, organizations face significant technical and business challenges. On the technical side, such integration requires sophisticated middleware and comprehensive standards, and it still often must be accompanied by some amount of custom coding and scripting as well as extensive testing. And as soon as something changes, it most likely has to be revised.
On the business side, integration usually requires change management. Business processes will change, jobs will change, and the organization's culture must change. Especially in B2B integration, the culture shock can be, well, shocking. For example, exposing the pending order queue in your ERP system to an outside supplier's systems or revealing the supplier's level of available inventory to the customer's system requires a degree of trust that is rare in business today, to say the least.
But when it works, when the organization can put together the technical and business components of system integration — especially B2B integration — the payoff can be great. In a recent study by NerveWire, Inc., a management consulting and systems integration firm based in Newton, MA, companies that achieved tight integration with their trading partners reported, on average, 40 percent increases in revenue; 30 percent reductions in cost; and 35 percent increases in customer retention rates attributable to the integration.
However, NerveWire found that few companies have attained such high levels of integration with outside parties or reaped significant benefits. In its survey, only 2 percent of companies were very highly integrated with external parties for product development. For manufacturing operations, which includes procurement, only 3 percent reported very high external integration. Customer acquisition, 4 percent, and order fulfillment, 5 percent, achieved a slightly greater level of very high external integration. Many more companies reported lower levels of integration, but they also experienced lower paybacks.
"This means that most companies are conducting the majority of their interactions with outside parties through on-line viewing and electronic exchange of information, but with limited ability for parties to change each other's databases through automated transactions or to link each other's business processes," concludes Sanjiv Gossain, NerveWire CTO.
The survey results, however, suggest great opportunities in B2B integration for consulting firms that can handle the technical and business challenges. For example, PwC is handling a number of B2B integration engagements for companies engaged in complex manufacturing. Complex manufacturing describes companies that make or assemble products consisting of many components provided by other companies.
"These companies do a lot of outsourcing, and they have lost control of their supply chain. Now they want to get it back," says Leffler. B2B integration plays a key role in enabling companies to regain control of their supply chains. To deliver the necessary integration, PwC has chosen to partner with leading integration middleware vendors including IBM (MQ series), TIBCO, Vitria, and See Beyond.
Other interests driving B2B integration are procurement and collaborative planning and demand forecasting — activities that require companies to share data. What trading partners are saying is, "I need you to give me the best real-time information at your command. Don't pad your numbers," Leffler explains. B2B integration, system-to-system, is the only way to make sure this happens.
Although on-line exchanges failed for business reasons, the integration concept remains valid. "The latest trend in B2B integration is the e-hub, a private on-line exchange," says Bellissimo. The private exchange is simply a Web site or portal accessible over the Internet. Only authorized parties have access to the site, where their systems can exchange data, automate transactions, and collaborate within a controlled environment.
Public on-line exchanges also failed, in part, due to the sheer number of exchanges a supplier was faced with integrating. With private exchanges, the business model is far different, but integration "still requires a significant investment in time and effort," Bellissimo continues. It remains to be seen how many private exchanges a supplier can handle and whether private exchanges will work for anyone but the top tier of customers and suppliers. Companies will likely build private exchanges for their most important partners first, adding second-tier partners later.
Web services promise to ease the B2B integration challenge, whether connecting through a private exchange or directly. Web services provide a core set of standards, XML and SOAP, to facility data exchange and system-to-system requests. "We are very excited about Web services for B2B integration, but it is very early in their development," notes Sapient's Caramello. Based on Sapient's early work with Web services, Caramello believes that the technology can reduce integration costs. However, at this point there is a need to supplement Web services with technology such as ebXML, which orchestrates the business process and manages the activity over an extended time.
Although the B2B integration technology — private exchanges, Web services — is falling into place, consulting firms still have to help their clients handle the business process and cultural change that B2B integration requires. In the end, these challenges may be prove more difficult than the technical integration itself.
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