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February 12, 2001

The B-To-B Integration Equation

Tighter IT links among partners can equal savings in a cooling economy

By Alorie Gilbert (agilbert@cmp.com)

Illustration by Gene Greif

More on B-to-B integration:

sidebar:B-To-B-Integration Vendors: Who's Taking It On The Chin?

Exchanges Team To Link B-To-B E-Marketplaces (1/15/01)

TechWeb News: IBM/Ariba/i2 Alliance In Question (1/10/01)

nside Osram Sylvania, a multimillion-dollar enterprise resource planning system from SAP delivers accurate, critical data in real time to those who need it. But try to share that data with trading partners, and what happens? Delays of up to 24 hours and inaccurate data in one of five transactions.

The culprit: the slow, cumbersome, error-prone technology known as electronic data interchange. At stake is Osram Sylvania's ability to reliably exchange order, inventory, and other key business data with customers and suppliers. The stakes are growing as one of its target markets, automotive, grapples with an economic slowdown.

That's why Osram Sylvania has set up a new system for sharing business data with its trading partners. The system uses XML, a flexible way to create common information formats and share both format and data via the Web, intranets, and other means. The technology should let the $2 billion lighting-products unit of Osram GmbH exchange the same up-to-the minute data with partners that's available internally. It also may let Osram Sylvania finally realize a greater return on its ERP investment. "The main attraction for us is the fact that we can make our ERP system a true competitive advantage," says CIO Mehrdad Laghaeian.

Osram Sylvania's system-to-system integration project entered the planning stage a year ago and the implementation phase in September, but the uncertain economic climate has given it a strong boost. "It's weird, but maybe economic slowdown is exactly what the doctor ordered for this thing to take off," Laghaeian says.

As manufacturers scramble to respond to changing market conditions and coordinate production plans with partners, business-to-business-integration initiatives are among those IT projects being spared--in some cases, even gaining higher priority. Companies are adopting emerging technologies such as XML and E-marketplaces as alternatives to proprietary EDI networks or to processes that still require fax, mail, and phone calls. Such improvements in the way companies share information about orders, inventory levels, and production plans could help partners quickly send signals about demand throughout the supply chain and respond nimbly to changing market conditions as the economy loses steam.

A new InformationWeek Research study indicates that 64% of 100 IT managers surveyed have integrated or are in the process of integrating with suppliers via the Web, and 55% are doing so with their customers. Just over 60% are integrating with E-marketplaces for purchasing or sales activities. While most companies are still planning or just beginning to deploy such technologies and can't quantify results, they anticipate cost reduction, streamlined processes, fewer errors, and increased loyalty from customers.

Mehrdad Laghaeian Photo by Stephen Sherman Reducing costs is the top reason for embarking on an integration project, according to the study. Perhaps nowhere else are companies looking more critically at costs than in the auto industry, which has been particularly hard-hit by the economic slowdown. Dana Corp., a $14 billion supplier of automotive parts, believes it can shave $1 billion off its costs in four years through several E-business initiatives aimed at improving coordination with suppliers, and is already a quarter of the way there. The Toledo, Ohio, company, which spends $8 billion a year on offerings from 90,000 suppliers worldwide, last year implemented E-procurement software from Ariba Inc. to automate transactions for office supplies. It's implementing an electronic catalog of preferred factory and manufacturing supplies and demand-planning software from i2 Technologies Inc., as well as online requests for quotes from FreeMarkets. With these, Dana hopes to cut its supply base in half and provide the remaining suppliers with a Web portal that will let them retrieve demand forecasts and inventory information from the company.

Photo by Bridget A. Barret The economy's mood swings haven't shaken Dana's commitment to the deployments--or to its $1 billion savings goal. "If anything, this is a good environment for creating the urgency for change," says Kevin Moyer, Dana's VP of E-business. The company continues to press ahead with these major projects, he says, not only for the savings but for "enriched data, further connectivity to partners, and ultimately because it's part of a greater-speed-to-market model."

Aviall Inc., a $550 million aircraft-parts distributor in Dallas, ditched its mainframe system and invested $30 million in a new technology infrastructure, reasoning that new technologies would enable it to provide better service and to sell more--thus making Aviall a more attractive channel partner. So attractive, the company hopes, that it will be able to negotiate more contracts like its $100 million exclusive-distribution deal for a line of Rolls Royce helicopter engines. "It's the only way we're going to win this game," says VP of IS Joe Lacik. "We can move more product for [customers] because we work more efficiently."

Last week, Aviall launched its newly updated E-commerce site, Aviall.com. The portal presents data from CRM, supply-chain, and Web-sales applications from BroadVision, Lawson Software, Siebel Systems, and Xelus, letting suppliers check sales activity and inventory allocations, and eventually generate demand forecasts, on the site. Customers can browse catalogs, track price quotes, enter orders for multiple products, and check order history.

Part of Aviall's new technology infrastructure is an integration package from New Era of Networks (Neon) Inc. Aviall is using the product to integrate its internal applications with Aviall.com, and Neon is the key to ensuring that data on the site is updated in real time instead of batch mode. Aviall also plans to use the Neon product to exchange XML messages with suppliers that request system-to-system integration with the company. Even though it chose Neon as its integration platform, Aviall will be responsive to suppliers' needs--particularly those of large and influential suppliers. "If we enter a contract, and [a large supplier insists] on a different integration tool than Neon, we'd use whatever integration they tell us to," Lacik says.