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March - 2000 - issue > Cover Feature
B2B E-Commerce: The Third Wave
Friday, November 21, 2008
“In July 1997, the White House released a document declaring a revolution, “… a revolution that is just as profound as the change in the economy that came with the Industrial Revolution.”
The Internet is bringing profound change to the business world and has enabled a new way of conducting business. To compete in the emerging digital economy of the new millennium, companies will need to change their business models, rethink the way they work and form new relationships with their trading partners and customers. Even though e-commerce has just arrived on the business scene, this new business framework is changing rapidly. For some forward-thinking companies, the third wave of e-commerce has already begun.

Evolution

In its first wave, e-commerce was little more than “brochureware.” The Web created a global repository for documents and other forms of multimedia, enabling everyone to be a publisher of information with as little as an HTML-enabled word processor, a free file transfer program and a $19-a-month ISP account.

The second wave of e-commerce is well underway, giving companies the capability to handle transactions electronically. Companies like Cisco, Dell and Amazon.com have been successful in creating electronic storefronts for selling while GE, Bellcore and John Hancock have streamlined purchasing of indirect materials.

With experience as their teacher, forward-thinking companies riding the wave of e-commerce, have come to realize that B2B e-commerce is neither just a buy-side nor sell-side package. To them, e-commerce is an infrastructure for a whole new way of doing business and gaining competitive advantage.

The third wave of e-commerce involves Inter-enterprise Process Engineering (IPE). While Business Process Reengineering (BPR) was about streamlining business processes internal to the enterprise, IPE is about streamlining and automating business processes that unite an enterprise with its trading partners (customers, suppliers, distributors, and so on). ERP applications sought to streamline and link intra-company processes and systems. B2B e-commerce applications, on the other hand, streamline and automate inter-company processes.

Opportunities and challenges permeate the enterprise affecting R&D, engineering, manufacturing and production, supply chains, marketing, sales, and customer care. From this perspective it becomes clear that B2B e-commerce is not something a corporation can just go out and buy off-the-shelf. It requires careful thinking and planning by each company in order to identify opportunities for streamlining interactions with its trading partners to create new business or improve operational efficiencies.

Any two B2B e-commerce implementations, therefore, are as different as the businesses they support. However, there are four major categories into which B2B e-commerce applications can be roughly classified: vendor management, extended value/supply chain, I-market and customer care.

In the vendor management category, maintenance, repair and operations (MRO) procurement is the most common business-to-business e-commerce application. MRO procurement is used to reduce costs in the purchasing of office supplies and other non-production materials needed by a business. As an example in the procurement category, Telcordia Technologies (formerly Bellcore) implemented an online MRO procurement system to reduce the $135 processing cost per purchase order. In the first year alone, the company realized cost savings of $6 million in this area.

Meanwhile, in the extended value/supply chain category, GE Aircraft Engines used its integrated logistics solution to reduce order cycle time by 15 to 30 days and reduced the cost of creating a purchase order from $100 to $5. To be successful, buy-side initiatives will have to deliver such breakthrough efficiencies and achieve dramatic cost reductions.

Online catalog sales such as Cisco are examples of B2B I-Markets. As of December 1998, Cisco conducted almost 70 percent of its commerce transactions via the Web, expecting to generate over $6 billion of its $10 billion revenue for 1999 over the Web! Further, more than 45 percent of Cisco’s volume is directly fulfilled from third party production lines to customers!

McKesson, a $17 billion pharmaceutical wholesaler, has developed such a comprehensive customer care system on the Web that it has transformed itself from a drug distribution company to a value-added provider in the healthcare industry. To be successful, sell-side initiatives have to focus on revenue growth opportunities, holistic customer relationship management, engineering consumer processes that delight the user and building communities-of-interest.

Challenges in Implementation

Most companies, of course, engage in both roles of buyer and seller, sometimes simultaneously in a single commerce transaction. For example, an online order placed on Dell.com for a custom PC immediately flows up Dell’s extended supply chain, thus enabling them to build-to-order rapidly without carrying extremely high inventory costs.

Thus, extending a company’s existing business processes from the inside out must begin with a thorough analysis and understanding of customers’, suppliers’ and trading partners’ business needs and requirements; e-commerce systems must be designed from the outside in.

Several key challenges in implementing B2B e-commerce are:

* Integration of enterprise and legacy applications across enterprises: There are a host of enterprise and legacy applications that support a company’s business, for example:

* Enterprise Resource Planning (ERP), e.g. SAP, Baan, PeopleSoft, Oracle

* Supply Chain Management (SCM), e.g. i2, Manugistics, SupplyBase

* Sales Force Automation (SFA), e.g. Onyx, Siebel

* Customer Relationship Management (CRM), e.g. Silknet, Siebel

It is easy to see from Figure 3 that implementing the many bi-directional linkages between an enterprise’s applications with those of its trading partners quickly becomes a painstaking and complex process. And every new business relationship — a new supplier, for example, brings more B2B application development work with it. Therefore, implementing B2B is not an event, but a continuous process. Hence, the B2B e-commerce implementation must be extensible.

* Responsiveness to changing business requirements: The integration nightmare described above is exacerbated by the fact that business relationships can, and do, change on a regular basis. For example, a supplier might decide to launch a new digital marketplace, requiring its customers to access its products through the marketplace instead of via electronic catalogs. Because such dynamic business interactions need to be supported by a dynamic B2B e-commerce platform, the B2B e-Commerce implementation must be rapidly adaptable.

* Implementation is expected in Internet Time: Unlike implementations of traditional client-server systems that take several years to complete and several months to upgrade, e-commerce platforms must morph dynamically as the business needs evolve. Release cycles measured in weeks are expected and even necessary in order to compete.

* Lack of resources with required technical and process skills: There is an acute shortage of the skill sets required for implementing complex dynamic B2B applications. Technical expertise in new technologies such as Java, EJB, XML, application servers and security are a scarce commodity. Also, the processes required to rapidly develop, host, operate, maintain and evolve these dynamic B2B application platforms need to be significantly more dynamic than traditional software delivery approaches.

To summarize, implementing B2B e-commerce involves developing multiple e-commerce applications that are customized to the unique business requirements of the enterprise and integrating these applications with existing legacy/enterprise applications. In addition, these applications need to be delivered in the shortest possible time frame, keeping them adaptable and extensible to meet evolving business requirements.

It is clear that neither traditional software platform delivery approaches, i.e., build-from-scratch or buy-a-package applications, nor newer approaches like renting a package application from an ASP are sufficient to support the requirements of “dynamic e-business models”. These traditional approaches lead to “static software.” A new unified approach to deploying and continually evolving dynamic B2B e-commerce platforms is required.

Implementing B2B e-commerce is not an option — it is an imperative! Companies that ignore this imperative do so at the risk of their own peril. Enterprises must begin by defining their B2B e-commerce strategy, and act, by quickly implementing a small piece of the puzzle, followed by a series of rapid incremental releases. Wherever required, enterprises should get assistance from experts in the field and outsource whatever is not their core competency in the field of implementing e-Commerce, be it in the areas of strategy, or delivery (development, hosting and evolution).

The time to act is now…. According to Vinod Khosla, co-founder of Sun Microsystems and partner at the top VC firm Kleiner Perkins Caufield & Byers, “Iterate, not plan; discover, not ‘focus research’!”

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