Forget about squeezing suppliers on competitive quotes. The real benefits of online exchanges could be as hubs for collaborative commerce.
www.amsoftware.com) e-Intelliprise is among the recently released ERP packages designed to work with a trading exchange. The Atlanta-based firm's software includes a collaborative trading portal that works with RFQs and bids.">
www.commerceone.com) offers a package called MarketSite Portal Solution which includes a B2B trading portal. Firms can either buy the package or use Pleasanton, Calif.-based Commerce One as the host">
www.fs.com). Users of a Fourth Shift ERP module called Supplier Center will soon be able to have RFQs generated automatically from within the ERP software and routed to Suppliermarket for bidding. The ERP software would first generate a demand profile for a given item being used. This profile would show what the near-future demand for the item is likely to be, then give users the option of sending out an online RFQ for bids">
www.buzzcompany.com). It runs on Windows NT or Sun Sparc and lets members of a trading community publish RFQs and product information or maintain storefronts.">
As recently as a year ago, most engineers probably thought the only interactions they'd ever have with an online e-commerce site would be when ordering books from Amazon. But things are changing fast. Business-to-business, or B2B, on-line exchanges are now promoted as necessary for almost every company to have. Moreover, engineers, designers, and manufacturing personnel may end up using exchange sites in ways largely unforeseen. The reason: Online exchanges increasingly have a dual purpose. They not only make goods available and serve as online catalogs, but also are hubs for collaborative commerce. Companies exchange proprietary data there, jointly manage projects online, and cooperate on the design of new products.
Structurally, trading exchange sites have had one of two basic business models: Businesses could auction off excess assets or inventories to the highest online bidder, eBay style. Alternatively, firms in the market for specific goods and services could post RFQs or RFPs and watch suppliers compete for the business with continuously better quotes.
The thought initially was that these exchanges would be run by neutral third parties. They'd earn their money by charging a fee equal to small percentage of each transaction, typically about 0.2%. Sellers of parts and components would be happy to pay these commissions, it was reasoned. After all, sales online would be extra business that these parties might not ordinarily see.
Guess again. Nobody likes paying commissions. The thinking now is that commissions and transaction fees on electronic exchanges will trend toward zero, just as has happened with online stock trading. Instead, third-party exchange sites will get most revenues from value-added services, such as facilitating shipping or handling appraisals for used equipment.
Moreover, many observers have revised their opinions about the form B2B exchanges may ultimately take. The new viewpoint is that auction and RFQ sites certainly have their place, but manufacturers themselves should set up their own B2B exchanges.
B2B exchanges used this way are said to cut the cost of paperwork and bookkeeping associated with organizations doing business with each other. There are fewer delays associated with organizations trading information. The procurement process gets cheaper. Productivity improves as a result.
The expenses of cooperation go down with this approach. Instead of each party buying the same groupware package, for example, they would all just sign on to the B2B site. This is a particularly attractive proposition for small firms for whom groupware investments might be prohibitive. Using the Web server as the data-transmission intermediary also eliminates the need for private networks and electronic data interchange, or EDI. Nor are large IT departments required to write interfaces that get the necessary data into and out of back-end systems such as ERP and financial databases.
At least that is the claim. Collaborative commerce proponents admit the process of working with a B2B exchange goes more smoothly for companies having up-to-date information systems. To see why, consider how B2B exchange functions would work with enterprise resource planning software.
Evolving out of the manufacturing industry, ERP today generally implies the use of packaged software rather than proprietary code written specifically for one company. It goes far beyond MRP, MRP II, and other well-known software for scheduling and managing production. ERP modules from major vendors such as Oracle, PeopleSoft, or SAP can include software not only for manufacturing, but also for order entry, accounts receivable and payable, general ledger, purchasing, warehousing, transportation, and human resources.
Typical expectations for B2B exchanges today is that users can check inventory levels and track orders they've placed online. For this to happen, there must be back-end connectivity between the ERP system and the B2B site. Unfortunately, the connections between ERP and B2B site platforms today are somewhat less than seamless. Most e-commerce platform vendors are still working on connectivity with ERP systems as from PeopleSoft and SAP, inventory systems, and legacy systems. Indeed, industry analysts say integration issues are slowing many plans to roll out sell-side e-commerce sites, those that handle auctions or sales of surplus goods. Many more companies plan to buy goods online rather than sell them, analysts have found.
Some B2B commerce applications bundle in application servers and other types of middleware to help make connections between the site and company data. Firms taking this approach include Allaire Corp. with its Spectra application and IBM through WebSphere Commerce Server.
Another package designed specifically to facilitate online transactions is called Trade-Stream from Optum Inc., White Plains, N.Y. It provides real-time views of inventories. These views are available over an electronic exchange. It is said to be particularly helpful with inventory data that is fragmented. (This is often the case when components or assemblies are outsourced to subcontractors.) The claimed benefits are the ability to cut inventory levels by perhaps as much as 30%, while still maintaining adequate stores to fill orders. Manufacturers already using the package include Bausch & Lomb, Fujitsu, and Invacare.
ERP infrastructure is considered one of the four key technologies that make B2B exchanges practical. The other three are data mining, XML, and PKI security.
Data-mining technology is a way of exploring detailed business transactions. Data-mining software employs special algorithms to uncover patterns and relationships within the business activity and history. But individuals can do their own data mining manually just by categorizing and recategorizing data until a pattern becomes obvious.
OLAP (for OnLine Analytical Processing) software is a data-mining tool that lets users analyze information that has been summarized into multidimensional views and hierarchies. OLAP places the data into a structure that can be visualized as a cube. Users can rotate the cube to see data from different views. For example, OLAP tools can help see several different kinds of trends in sales or financial performance.
Multidimensional OLAP, or MOLAP, software can summarize transactions into multidimensional views ahead of time. Queries into such databases are fast because the consolidation has taken place in advance. Relational OLAP (ROLAP) tools pull data from traditional relational databases. They use database commands to create multidimensional views on the fly and tend to be used on data having numerous attributes. The classic example of a ROLAP candidate is customer data with many descriptive fields.
A database OLAP (DOLAP) refers to a relational DBMS designed to host OLAP structures and handle OLAP calculations. A Web OLAP, or WOLAP, simply signifies OLAP data accessible from a Web browser. Such multidimensional data analysis can come in handy, for example, to find out if specific suppliers have been able to meet their pricing and contract requirements, or if specific partners or suppliers have better met spot or direct sourcing requirements.
Also handy for B2B enablement is a data warehouse. This is a special database designed to support decision making. It is batch updated and may contain enormous amounts of data say, 100 Gbytes or more of transaction history.
Information stored in a data warehouse is typically historical and static and may also encompass numerous summaries. Its structure supports a variety of analyses, including complex queries that can entail extensive searches of large chunks of data.
XML, for EXtensible Markup Language, is an open standard for describing data. It is valuable for B2B because it can potentially simplify the task of exchanging data between Web sites and back-end systems.
XML provides a way of defining data elements on a Web page and on B2B documents. Its tag structure resembles that of HTML. But where HTML defines how elements are displayed, XML defines what those elements contain. HTML uses predefined tags, but XML lets the person who devises the page define the tags. XML tags can identify data items such as part number, drawing version, cost, supplier, and so forth. In so doing, Web pages can double as database records.
XML tags can be defined to handle needs that are specific to particular industries. For example, cXML (Commercial XML) from Ariba (Mountain View, Calif.) and CBL (Common Business Library) from Commerce One (Pleasanton, Calif.) are XML vocabularies for business data. DSML is a set of XML tags that defines the items in a directory.
XML will replace many of the functions traditionally handled by EDI, the electronic communication of business transactions such as orders, confirmations, and invoices. Prior to the advent of the Web, EDI took place using private networks and a set of special data formats: X12, EDIfact and Tradacoms. X12 was the primary North American standard defining EDI transactions. It merged with EDIfact (Electronic Data Interchange For Administration Commerce and Transport) in 1997. Tradacoms has been mostly used by the retail industry in the U.K.
One controversial aspect of collaborative efforts is the idea of sharing information that must be kept private from other parties. This is why PKI (Public Key Infrastructure) security is important. It is a secure way of exchanging information that includes the use of certification authorities (CAs), digital signatures, and hardware and software that manages the process.
A CA is an organization that issues digital certificates (digital IDs) and makes its public key available to its intended audience. An example is VeriSign Inc., Mountain View, Calif. The digital certificate is actually the owner's public key that has been digitally signed by a CA such as VeriSign. The digital certificate accompanies an encrypted message to verify the identity of the sender. The recipient uses the public key of the CA, which is widely publicized, to decrypt the sender's public key accompanying the message. Then the sender's public key is used to decrypt the actual message.
Most firms don't have the expertise in-house to build an advanced B2B site. The good news is that there are e-commerce platforms available commercially. They have built-in functions for handling transactions, taking orders, and so forth. The bad news is that these applications were typically designed for business-to-consumer use. They won't work for B2B, which is inherently more complicated, without a fair amount of coding and application development.
This is why most manufacturers will out-source the job of creating a B2B hub to eCommerce integrators (eCIs). As you might expect, some integrators are better than others, and have strengths in different areas.
These are among the conclusions of a report titled "eCommerce Integrators Exposed," written by Forrester Research Inc. The Internet research firm narrowed a list of 152 eCommerce integrators to 40 leading eCIs, then graded them after in-depth inter-views, extensive reviews of an eCI-provided reference site, and quizzing clients. Forrester concluded that none of the integrators can deliver excellence across all service areas and few can provide expertise in more than one.
Each of the five categories Forrester checked was won by a different company. None of the eCIs got top honors in all five areas.
Forrester's advice to potential eCI clients: Hire eCIs with strengths that make up for your own weaknesses in design, strategy, or technology; balance the pressure to go live quickly against what you'll need in the long run. If speed-to-market is critical, get the integrator to assign its top performers to the job.
One problem is that most integrators have experience building business-to-consumer sites rather than B2B hubs. The two have different needs. Contract management, reporting, back-end connections, and bill presentment and payment, are all different for a business or collaborative site, for example.
Most business-to-consumer sites need give customers only a flat retail price for every item sold. But business trading partners negotiate terms that dictate the price. Factors in pricing may include warranties, volume-based pricing, and logistics.
No question that B2B trading partners tend to have purchasing methods that can be complex compared to those of consumers. Mitigating factors can include order history, payment records, geographic location, industry, and even customer-service costs. Few e-commerce platforms support payment methods associated with B2B, such as purchase orders or cost-center codes. Ditto for reordering on a schedule, or shipping goods that have a price that has been negotiated. All in all, getting such packages ready for B2B can require a significant amount of programming and a robust rules engine.
The existence of distributors and resellers complicates the design of B2B hubs as well. Specifically, the distributor's site must be able to incorporate product catalog information (images, descriptions, and perhaps even online calculators) from suppliers or manufacturers. E-commerce platforms must support syndication of catalog content from multiple suppliers to make this possible. There may also be application logic for formatting and pricing involved.
One package providing such capabilities is called enfinity. Devised by Intershop Communications Inc. in San Francisco, it lets companies selectively share content and applications with business partners and suppliers. Compaq is using the software to syndicate its catalog and e-commerce applications to the Web sites of its authorized retailers and dealers in Germany.
Reporting is another key. Web-site statistics usually consist of page view totals, numbers of hits, and length of visitor sessions. This information is useful for evaluating site architecture and usability, but B2B sites need more detailed commerce reporting the average sale per customer segment, say, or which products are the most profitable.
Commercial e-commerce packages are just in the initial stages of including such B2B-oriented reporting capabilities. Ditto for billing and payment resolution other than through credit cards.
Vendors are starting to respond to these needs. For example, IBM's new edition of its WebSphere Commerce Suite will reportedly include support for contracts, spot contracts, requests for proposals, and requests for quotes. Likewise, Intershop Communication's Marketplace Toolkit focuses on easier connectivity among the back-end systems of B2B trading partners, and will support marketplaces running on Commerce One.
What's in an online exchange
Platforms for online exchanges all have a few common software components. There is a transaction engine that handles the actual auction, buying, or reverse auction functions. Another module handles payments and settlements. A third is called the transaction support layer. It manages data such as RFQs, purchase orders, approvals, confirmations, and so on, in a manner analogous to traditional electronic data interchange (EDI) networks. Finally, there is an integration and messaging layer that handles communication between the buyers and sellers.
B2B online exchange platforms are necessarily more complex than those for business-to-consumer transactions. The reason: Payment methods, billing methods, shipping policies, and so on are all more complicated and may vary from one trading partner to another.