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February 12, 2001

The B-To-B Integration Equation

continued...page 2 of 2

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)

While many companies bank on business-to-business integration to save them money over time, it's not clear that achieving supply-chain efficiencies through XML tools will be cheaper or less complex than using EDI, at least at first. Osram Sylvania has installed Microsoft BizTalk Server, an XML translation and routing tool that takes data from Osram's SAP system, translates it to XML, and routes it to suppliers. Though Osram buys from more than 10,000 suppliers, it has integrated with only one vendor via BizTalk Server since turning on the system in October. Osram has invested three months and more than $10,000 in the project so far, but is having trouble finding business partners that can communicate via XML and are capable of delivering the kind of real-time data it's looking for. One issue, Laghaeian says, is that companies must "really be on top of their game"--having made similar investments in ERP applications that provide real-time, accurate data--but many smaller suppliers aren't. Another trouble spot is a hesitation about XML among some businesses, which suspect it's little more than a reincarnation of the EDI concept.

Still, Laghaeian predicts XML will eventually provide an integration model far superior to EDI, one that's driven by real-time business events rather than arbitrary batch transmissions. The company plans to integrate with 50 to 100 of its top suppliers this year via XML. "This is the way business is going to be done," Laghaeian says.

Others say XML's complexity is deja vu all over again. Haystack Toys Co., a small toymaker in St. Louis, uses Microsoft BizTalk Server to process purchase orders, inventory data, and shipment information from its online sales channels. Those channels include Haystack Toys' own Web site; Amazon zShops, which sell products from specialty retailers, small businesses, and individuals; and Overstock.com, a discount retailer that sells manufacturers' excess stock. BizTalk sends purchase orders to Haystack's online fulfillment partner, Submitorder.com, which, in turn, ships the merchandise from its distribution centers in Memphis, Tenn., and central Ohio and sends shipping data back to Haystacktoys.com via XML. To make that possible, Haystack's one-man IT shop spent several intense days mapping each field of its standard purchase-order, ship-to, and other documents generated in Microsoft Commerce Server, the platform Haystacktoys.com operates on, to the RosettaNet consortium's version of XML. "RosettaNet [XML] is fairly complex," says Mark Sundt, chief technology officer of Haystack Toys, "not unlike EDI."

Various business sectors are working to create industry-specific ways of mapping business data to XML to eliminate some of the difficulty. Many companies are hesitant to adopt XML until that occurs. But the efforts will take years, and the work of standards groups such as RosettaNet is nowhere near completion. "If we thought SAP was tough, everything just changed," says Osram's Laghaeian. "This is the outside world. To assume coordination will happen quickly and easily isn't a given anymore."

Even $5.3 billion chemical manufacturer Eastman Chemical Co. is moving slowly to integrate with suppliers and customers via XML. Using an XML integration tool from webMethods Inc. (in which Eastman is an investor), it takes an average of eight weeks to add a trading partner to the system. So far, the company is using the application with eight suppliers and customers and has used it to integrate its two online marketplaces, OneChem and Envera. Eastman has even footed the $10,000 bill to have webMethods' software installed at four of its partners' sites. But Eastman has yet to use the webMethods software to send shipment or payment notices, invoices, change orders, cancellations, sales forecasts, or inventory information. The system supports only purchase and sales orders; Eastman plans to add the other types of documents this year. "Everybody's been looking at integration for a long time. The problem is things move very slowly," AMR Research analyst Kimberly Knickle says.

InformationWeek Research's study shows that the task of adding or deleting trading partners, particularly suppliers, in an E-business infrastructure isn't for the faint of heart. In all, 45% of respondents found it somewhat or extremely difficult to add customers to their E-business infrastructures; 67% found it that way to add suppliers.

Eastman hopes to add 30 to 50 suppliers and customers to its XML hub this year, but most of its business-to-business transactions are still done via value-added network (VAN)-based EDI. The company expects XML eventually will enable real-time exchange of information about sales forecasts, inventory, and production schedules, helping to reduce inventory. "We want to substitute inventory with information," says Bill Graham, who heads Eastman's B-to-B-integration effort.

Bill Graham Phtoo by David Grace Integration can also affect a company's top line. PictureTel Corp., a $350 million maker of videoconferencing systems, was in a painful position last year. Large telecom companies that resell PictureTel's products, such as SBC Communications, Siemens, Wire One Technologies, and WorldCom, were demanding real-time data about how much product they were buying, their rebate eligibility, and sales trends, so they could plan purchases. But PictureTel, which uses EDI to communicate with resellers, didn't have the technology in place to fulfill those demands. Then, the unthinkable happened: "We lost a customer over the fact that we couldn't provide information on a timely basis," IT director Jamie Lapomardo says.

So the company chose a $35,000 application from CommerceRoute Inc. that takes data from PictureTel's Oracle ERP system and routes it to partners in their choice of an XML, EDI, flat-file, or database format. The company set up a connection to Federal Express, its distribution partner in Europe, in two weeks; it plans to integrate with SBC this way after determining a standard set of data it wants to share with channel partners. There are cost savings as well: CommerceRoute's Syncx app eventually will replace PictureTel's Gentran EDI software, from the Sterling Commerce subsidiary of SBC, and will free the two IT staffers dedicated to maintaining Gentran. The company thinks the new software can halve its $40,000-a-year EDI costs.

HomeBase Inc., a retailer in Irvine, Calif., also hopes to cut its EDI costs and implementation time. The company wants eventually to use Web-based EDI with its suppliers, so it's urging them to choose it over VAN-based EDI. In fact, to discourage use of VAN-based EDI, HomeBase is requiring suppliers that opt for it to pay their own VAN fees.

In the meantime, the company is using software from IPNet Solutions Inc. to Web-enable its EDI network. The company aims to cut the cost of EDI by as much as $2 million annually for itself and its suppliers and to quickly bring on suppliers as it moves into a new market.

Glen Hamilton Photo by Ed Carreon Faced with declining sales and profits caused by the steady growth of rivals Home Depot Inc. and Lowe's Co., HomeBase is transforming its home-improvement stores into home décor shops. It will convert 67 stores to the new format, called House2Home, by October and close the 21 remaining outlets by November. In the process, the company also will transform its supplier base, parting ways with all but 250 of its original 1,200 vendors and adding 650 new ones.

HomeBase wants to integrate with 500 new suppliers by June. Because setting up EDI between companies is complex, HomeBase is using IPNet WebForms to convert its EDI messages to E-mail. Until HomeBase establishes EDI connections with its new suppliers, IPNet WebForms software will reformat an EDI purchase order from HomeBase into a Web page, then send the supplier an E-mail with a link to the page. While WebForms is an interim step, says Glen Hamilton, manager of quick response, its implementation will take only six months instead of two years for traditional EDI--saving HomeBase 18 months of paperwork.

As a result of the company's change of business model, 25 HomeBase vendors that wouldn't be supplying House2Home had already implemented IPNet eBizness Transact to do Web-based EDI with HomeBase. The retailer has offered to reimburse them for the $1,500 price of the software. Says Hamilton, "You have to count on the fact that whatever is happening today will be different tomorrow."

And, as HomeBase and others are finding as business models and economic conditions continue to shift, counting on returns tomorrow is worth loosening the purse strings for business-to-business-integration investments today. IW