Dell Computer is moving quickly into the next phase of interbusiness commerce: deep integration. The Austin, Texas-based giant is opening its manufacturing systems to the procurement systems of its customers, allowing for the automation of almost the entire purchasing process.
Dell expects the program, which it calls direct commerce integration, to save large customers millions of dollars apiece in procurement costs, while at the same time creating efficiencies that will help preserve the computer maker's margins as hardware prices trend downward. That's the message Chief Executive Michael Dell will share with analysts at a briefing next month.
"This is the ability to exchange data that is actually correct, as customers pull information from our system to their own," says Gregory Daly, sales integration manager at Dell's online business development organization.
By linking its production systems to the back-office systems of its customers, including popular Enterprise Resource Planning (ERP) products and Web-based procurement packages such as Ariba, Dell is advancing its longtime direct sales model and putting some distance between itself and competing vendors. "Dell is out in front of other manufacturers on this," says Dave Rome, vice president of marketing at Ariba.
A pilot customer of the direct commerce initiative is the Commonwealth of Massachusetts, which shops for computers via a governmental portal called the Multi-State EMall. "This level of integration gives Dell a competitive advantage," says John G. Harrison, supplier coordinator for the Commonwealth. "Anytime that you can automate one of the steps in the procurement process, you get advantages in speed, cost savings or accuracy, and sometimes all three."
Dell also announced its integration with the mySAP.com portal of ERP heavyweight SAP. "This is a benefit to us both," says Jan Reinhart, who works in the chairman's office at SAP. "It lets us show that we're not just a pretty portal, but an industrial-grade B2B solution, as people can log directly from their ERP screens to external catalogs through mySap - they may not even know they're on the portal."
While many manufacturers are opening up to specific ERP systems and portals, Dell is inviting everyone to the party by making extensive use of the eXtensible Markup Language.
Dell's link to Oracle's purchasing site gives more than 250 customers access to its production. XML, a follow-on language to the HyperText Markup Language, includes tags that facilitate systems integration.
Dell is working closely with integrator webMethods to develop its open-access capability. Customers should face minimal difficulty at their end, with Dell offering a package of hardware, software and up to a week of onsite consulting for under $15,000. Several companies are now working on integration, and Dell says it should have some online by the end of this year, on its way to hundreds in the year ahead.
While the technology is straightforward, companies will still have issues about integration. "This is like an ERP project or a security project in that it's a process issue," Dell's Daly says. "It touches on groups that may not normally talk to each other, so it forces people to map those relationships."
Automation is already paring costs for Dell, which wants to get 50 percent of its revenue online by the end of next year. The value shows up in areas such as order status queries, which usually cost the company nothing when handled online, vs. $3 to $10 apiece when transacted via telephone. Three-quarters of such transactions are now done online at Dell.
Direct commerce moves beyond Dell's 27,000 Premier Pages, which allow customers access to automated purchase orders, customizable configurations, order tracking and status, and other tools and information. While Premier Pages can tie orders into the manufacturing process, customers wanted more complete back-end integration.
"This is a function of hearing what our customers are asking for," Daly says. "A year-and-a-half ago, the Premier Page tools were pretty compelling. Now the industry has evolved."
The Multi-State EMall, for example, requested that Dell accommodate the Open Buying on the Internet (OBI) standard. "They said, 'We want to integrate,' so we built some code into our commerce app to be able to talk to them," says John Winfrey, senior electronic commerce program manager in Dell's Relationship Online organization.
Now Massachusetts' Harrison can use Dell's sophisticated PC configurator and get his information back in an OBI-compliant format. "That's unique," he says.
The EMall will work on linking its back-office systems responsible for post-order events in coming months.
The same kind of customer pressure is pushing third-party players such as Ariba into the process. Ariba got involved as it became clear that many of its large buyers, including Federal Express and Phillips, shop heavily at Dell. "This is a good thing for us," Rome says. "We're happy to integrate our Ariba experience into Dell and take advantage of what they offer." In addition to Ariba, Oracle and SAP, Dell is also working with ERP vendors Baan and PeopleSoft, as well as middleware companies such as Intelisys, Microsoft and Sterling Commerce.
Dell hopes to convince customers that buying directly from the manufacturer makes sense in ways beyond the immediate efficiencies, too. The company wants to leverage the detailed information it collects on every computer shipped to build deeper relationships with buyers and gain a larger percentage of each purchasing dollar in the process. "We are laying a foundation with our customers that says, this is not a one-off thing," Winfrey says. "That's the benefit that the direct model affords us, and this is not the last step we'll take in that direction."