E-commerce hits ERP

All users interviewed, both in the U.S. and in Europe, use some form of enterprisewide application software, either developed in-house or purchased from a vendor.

Provided by INPUT  

All users interviewed, both in the U.S. and in Europe, use some form of enterprisewide application software, either developed in-house or purchased from a vendor.

The functional areas in which these systems are in use in the U.S. organizations are accounting, sales, purchasing, distribution, logistics, and manufacturing.

While the range of modules used tends to be determined to a certain extent by the industry sector in which the buyer operates, the most widespread implementation of enterprise application software was in the areas of accounting/finance (68 percent), sales order processing (65 percent), and purchasing (62 percent). The same ranking was also true for those users interviewed in Europe, where the top three functional areas were accounting/finance (60 percent), sales order processing (50 percent), and purchasing (50 percent). This is consistent with the enterprise application solution market, in which usage is typically dominated by financial / accounting modules.

Integrating Electronic Commerce and Business Functions
Users are already processing electronic commerce transactions in sales, purchasing, AR/billing, accounting, and logistics.

"Orders" impact all areas of a business, and users defined this area very broadly as anything related to getting and processing an order--purchase orders, order schedules, order entry, invoices, acknowledgements, confirmations, and so on. Overall, users are sharing information with their customers and suppliers:

  • Suppliers checking on invoices
  • Customers tracking orders
  • Customers dialing in and extracting select information
Thus it comes as no surprise that the highest percentage of responses was in the integration of sales order processing with electronic commerce capabilities, followed by purchasing.

Impact of Electronic Commerce on Business Functions
The question that is on top of everyone's mind looking at the electronic commerce marketplace is what business functions are being seen as important or necessary to integrate with electronic commerce capabilities.

Users were clearly expecting electronic commerce to impact a wide range of enterprise application functions. Externally allowing them to share more information with customers, suppliers, and trading partners, and internally providing better coordination of raw materials from suppliers and optimization of production schedules.

It should not be a surprise that for those that have already integrated EC with EAS, the areas that were considered to have high impact match those areas that were already integrated.

The users that are planning to integrate viewed AR/billing as the area most impacted. This is probably due to the fact that finance/accounting is the most widely used enterprise application module.

As did users in the U.S., users interviewed in Europe viewed sales order processing as the business function most impacted by electronic commerce; but differed from their U.S. counterparts in considering AR/billing versus purchasing as the next most impacted function.

Among those users that are planning to integrate, purchasing ties with AR/billing as the second most impacted function.

Integration Objectives
To understand why there is such intense interest in electronic commerce, one must understand and appreciate the objectives/benefits businesses and customers expect to achieve.

For U.S. users, the importance of expected benefits associated with integrating electronic commerce and enterprise applications are reduced costs and order-to-delivery time, as well as increased ability to manage business and increased revenue. There's also an expectation of reduced application development time.

Users surveyed still expect the traditional benefits of shorter cycle time, improved responsiveness to customers, and lower operating costs. The two most highly rated anticipated benefits for integrating EC and enterprise application software were the potential to reduce overall cost of operations and reduce the overhead costs of order-to-delivery.

In fact, for more than 80 percent of the organizations that integrated electronic commerce and enterprise applications, the potential to reduce the cost of operations was viewed as a highly important benefit. "The goal is a totally seamless operation with no paper." ($1.4 billion wholesale distributor)

Focus of Profit Generation is Shifting
But the trend we are beginning to see is that the focus of profit generation is shifting from cost reduction to revenue growth--electronic commerce integration is seen as a top line initiative to win new business, retain existing relationships, expand into global markets, and improve the competitive advantage. And this was reflected by the users: managing the business and increasing revenues followed close behind in the importance rating for those users already integrated, and for those planning to integrate, increasing the ability to manage the business ranked higher than reducing order-to-delivery time.

"Disintermediation" Not a Concern
What did come as a surprise was that "disintermediation" (decreasing costs from channel bypassing/cutting out the middleman) was not cited as an important benefit to be achieved. This runs counter to what many industry analysts and vendors have been reporting as a major benefit of electronic commerce integration with enterprise applications.

Security will probably always be an issue. The leading concern users had is security of information/security risks and reliability, primarily related to the Internet and extranets. Most of these concerns were not related to EDI, because there was the belief that VANs, direct connections, and private networks, and security mechanisms built into EDI transactions were adequate protection.

Concerns were related to:

  • The need to protect information from being tampered with (which can be solved by encryption)
  • The need to prove that customers and merchants are who they say they are (which can be solved by authentication technologies)
  • The need to ensure that each participant can do what it is that they want to do (which can be solved by authorization)
  • Many organizations were concerned about competitors gaining access to critical information. This was a major issue with manufacturers. They were fearful that their distributors (whom also handle other products) would divulge information to their competitors.
  • Other organizations were concerned about fraud. While it has been reported that companies should expect to lose $1 per $1,000 of transactions due to electronic commerce fraud--this is significantly less than telephone fraud ($16/$1,000) or cellular phone fraud ($19.83/$1,000).
  • Additional concerns were expressed regarding sales force automation software enabling changes to be made to key data that may, for example, lower prices.
Users need to verify whether the concerns are real, and vendors need to help users address this concern, much of which might be irrational due to media hype. Today there exists a vast array of internet and EDI security methods--firewalls, intrusion detectors, digital certificates, access control, virtual private networks, software-based protocols, and encryption technologies--that are in place to virtually guarantee protection in this area.

Users also need to understand the impact of taking security measures on their business. For example, if they provide too much security they could slow down the processing of online activity.

In general, in the business-to-business e-commerce environment, security is less of a problem than business-to-consumer. In business-to-business commerce, users know whom they are dealing with. They usually have a small number of partners and fewer transactions. When working with suppliers, distributors, and other business partners, they can usually make assumptions about their partners technology base, connectivity, and response time. On the other hand, in business-to-consumer you don't know who or what you are dealing with.

EDI issues and speed/timeliness of integration were tied as the next major areas of concern. There exists a lot of confusion and fear over EDI.

Some of the confusion was related to misconceptions and lack of understanding related to EDI, and there still exists a lack of awareness that most of the service providers offer programs designed to assist companies with communicating with non-EDI trading partners. There was also confusion over what is EDI, EDI translators as an integration technology, and EDI vendors as value-added network service providers.

"The perimeters for EDI are so broad, and sending and receiving is too complicated. Our customers are not demanding it, and we prefer not to do it." ($1 billion retail distributor)

"Most of our suppliers are not up on EDI--they don't understand it. We need more suppliers to get up on this area." ($10 billion process manufacturer)

There was confusion related to EDI vs. the Internet for electronic commerce. For example, while the Internet makes sense for many businesses, it has not eliminated the need for EDI.

In the area of speed/timeliness, the concerns were primarily related to the process of implementation. This might be due to the reality that many of the existing enterprise applications could not support interactive e-commerce because they are comprised of a variety of incompatible hardware, software, and data descriptions. Because they were intended to link application systems across enterprise boundaries, many existing infrastructures were designed to support only certain EDI batch exchanges and data translations. Such enterprise applications cannot be used as a foundation for an EC infrastructure that must link Web-based EC and traditional transaction processing systems. Thus, the greatest fear is that of replicating the length of time re-engineering/implementation of enterprise systems has been known to take.

  • It is well known among everyone in the industry, and especially users in very large organizations, that enterprisewide application systems typically take greater than 24 months to implement, and generally take a longer than expected time to implement.

  • In fact, SAP has been struggling to address this issue, which was identified by one of their competitors in an advertising campaign. The ad headline read: "Imagine a headache that could last for more than two years." And the copy read: "Re-engineering your organization has become like a dull thud in the back of your skull. After two years, the business software system is still in implementation phase. The costs are mounting up. And there's no end in sight."
There was valid concern that the network, systems and applications management challenges of electronic commerce would be radically different than those of either client/server or the mainframe.

All of these concerns appear to be examples of having fear of the unknown, as none of the companies that had completed the integration exercise mentioned these as issues or areas in which they should have acted differently.

However, these concerns should not be dismissed. Instead, they must be incorporated into the planning process, and potential vendors should be asked to explain how their solutions overcome these concerns.