01 June 2000
The newest IT solutions are said to integrate systems throughout the supply chain. But while they seem both vital and tempting, Elizabeth Bellamy urges caution
The massive boom in e-commerce means that purchasers are bombarded each month with news of trading exchange launches. Many large firms have been quick to get in on the act, including Ford, General Motors and DaimlerChrysler with their recently named Covisint marketplace.
The trend for online trading has led to a greater need for better integration of buyers' and suppliers' IT systems, say experts. As with e-procurement, software suppliers have been quick to start selling solutions, but questions have been raised about how good the products are and to what extent purchasing and supply staff need to look closely at what is on offer before they buy.
The market for better data integration software, of which enterprise application integration (EAI) is the latest wave, has grown in the past 18 months, said Peter Cheese, a partner at Andersen Consulting with responsibility for developing capabilities in application systems.
"The integration issue has been around for ages, but clearly what has arrived now is a challenge to integrate systems within the supply chain, as well as inside the four walls of an organisation," he explained.
Trading exchanges and e-procurement have lent a new urgency to the task of providing better integrated capabilities, added Cheese, and businesses face increasing pressure to demonstrate seamless ways of working.
The trend is also being driven by more collaboration between companies, suppliers and customers, and the need for a greater sharing of data, said Roy Lees, EAI marketing manager for Global eXchange Services (GXS), part of US company GE.
"Capital EAI" - the practice of integrating internal systems, such as financial, customer and order processing services, through mechanisms such as electronic data interchange (EDI), has been around for at least a decade. But inter-enterprise integration, or "little EAI" as Cheese puts it, is a relatively new development.
A major motivation for companies considering inter-enterprise integration is the ever-growing cost of integrating systems for more streamlined supply chains. "For every £1 million companies spend on supply chain software, £9 million is spent on systems integration," said Steve Scala, GXS's president of software.
Value Direct, a small UK brown and white goods retailer, has successfully integrated its application systems. The company started retailing via a paper-based catalogue, but it has since moved online. Despite operating on the Internet, Value Direct's business processes were being slowed down by non-interfacing communications systems, said Ian Bland, the company's managing director.
"We would take incoming orders on one system, retype them into our own system and then type them again into our manufacturers' processing system," he explained. Installing an EAI system had enabled Value Direct to get its order processing facilities and Internet activities into an "efficient and cost-effective state".
According to Bland, the system has led to a 61-per-cent cut in transaction costs, as well as reduced payroll costs, as the firm no longer needs to recruit 26 administrative staff over the next three years. The software cost £80,000, but this was recovered within six to 12 months.
Other benefits have included improved customer service, shorter lead times, fewer errors and better relationships with suppliers, he said.
Supermarket chain Tesco has also been successful with its Tesco Information Exchange solution for data integration. The system, which feeds data back from the cash register to a central location, gives suppliers access to sales information, which allows them to adjust their production levels.
But for every success story, there are an equal number of failures and firms introducing EAI systems need to be aware of the risks.
An important factor is making sure that the chosen system is accessible to all suppliers and customers, said Ben Wright, EMEA vice-president of marketing and alliances at e-commerce-solutions provider Ariba. "Firms are often dealing with a wide range of suppliers and they need to keep that in mind," he said, adding that a good system would incorporate EDI, XML (the new Internet language), fax and e-mail capabilities.
It is also inadvisable to change all your systems at once. Firms should not "boil the ocean" and integrate all applications in one go, but focus on crucial areas. These, said Andersen's Cheese, are likely to include the order-to-payment cycle - linking sales systems to management and supply, and then finance and accounting systems.