September 18, 2000

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Free Advice:
Information Replaces Inventory

Resolving transaction errors requires linking the electronic and paper worlds

By David Yockelson

espite the burgeoning success of the Internet channel for both retail and business-to-business sales, the typical milestones are negative: which merchants didn't ship items to consumers on time; which manufacturers can't manage their upstream suppliers efficiently; which companies don't foresee or manage demand appropriately.

U.S. Commerce Department reports in 1997 showed the retail value chain holding some $1 trillion in inventory, mostly to compensate for uncertainties in supply and demand. Despite the fervent discussion of supply-chain collaboration capabilities and evolving standards such as collaborative planning, forecasting and replenishment, or the creation of "frictionless" Internet markets in vertical industries, the root cause of these problems often isn't addressed.

Though online business trade is expected to hit $2.7 trillion by 2004, 72% of companies are currently too apprehensive to buy more than indirect materials through E-marketplaces. To truly maximize E-commerce opportunities, businesses need to supplement E-commerce transaction technology with technology that drives efficiencies in supplier and channel-customer relationships on both sides of the commerce chain.

How have companies been addressing this need? There's certainly been a huge amount of excitement about the Extensible Markup Language as an underlying standard for "universal" information translation, and almost as much as for collaboration among retailers and manufacturers. But while these capabilities facilitate interenterprise integration and promise economical information transport and transformation, they fall short of optimizing the underlying interactive processes essential to the smooth completion of transactions and maintenance of trading partner relationships.

Currently 11% of E-business transactions experience problems that require intervention for resolution; on average, these transactions cost 300% more than transactions that don't require intervention. Establishing an efficient transaction-resolution strategy is an important component of creating a sound, cost-effective E-business structure. As the number of electronic transactions increases, the burden of discrepancies will only increase. Businesses that fail to address this problem risk falling behind the E-business curve.

Greg Dismuke, a business-process analyst at the J.R. Simplot Co., argues that it doesn't make sense to employ a business-to-business electronic commerce solution without a solution to resolve out-of-tolerance transactions. "Every second spent fixing erroneous transactions results in lost revenue and wasted resources," he says. "The most-effective solutions will provide virtual communities that enable the efficient communication, processing, and collaboration necessary to quickly and easily resolve B-to-B transaction issues."

Resolution strategies require solutions that can link the electronic world to the paper world. The key components of such solutions are strong process management or workflow; business-rule creation, change, and simulation; information movement, translation, and packaging across a variety of media such as forms, reports, images, and electronic documents; and presentation. These components must be fluidly linked so that companies can integrate at the process layer and then also rapidly transform information so that it can be consumed securely by interested parties.

Moreover, these bridges between the E-world and the paper world must be integrated with the variety of enterprise resource planning, back-office, and E-applications currently found across the expanse of businesses. Ideally, this would be available on an application service provider basis in addition to a combination of software and services--perhaps even tailored to the specific out-of-tolerance conditions for an industry or market. This way, companies could take advantage of these capabilities on a pay-as-they-go basis without incurring the cost of an extensive implementation.

Tremendous potential savings arise from integration within supply-chain processes and an ability to resolve conflicts at the point of receipt. Moreover, businesses will experience a soft benefit that is becoming more important in E-business, where competition is just a mouse-click away: enhancement of business partner relationships. Personal experience tells us the extent to which quick resolution of problems can seal customer loyalty.

David Yockelson, a senior VP and director at Meta Group, can be reached at davey@metagroup.com.

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