Last year, companies focused their application-integration efforts on cutting costs by automating internal business processes. These efforts saved money by reducing time and errors associated with paper processes. They'll continue in 2002, but leading-edge companies hope to gain even greater competitive advantage by marrying integration technology with the Internet to provide services to increase customer and partner loyalty and improve productivity.
Those leading companies are getting help from next-generation standards, such as the emerging Web-services specifications, XML, and Java, that are incorporated in the latest versions of EAI and application development tools.
Web services provide a common language for integration, which should hasten companies' abilities to integrate enterprise applications, create cross-company workflows, and share common business processes with partners and customers.
The development platforms that support these emerging standards are making it easier to link applications to business processes, such as moving a purchase order through accounting, inventory, and warehouse-management systems. Some tools provide graphical modeling environments within a browser that let nondevelopers define, manage, and automate business processes.
While these tools are considered immature and are used mostly within a single company's IT department, they're also starting to be used to build business scenarios between companies for activities such as supply-chain collaboration. Meridien Research predicts the market for EAI technologies will grow about 22% annually, reaching $12.5 billion by 2006.
Making it easier for customers and partners to do business with a company is the underlying theme of application integration for technologically savvy companies in 2002. Last year, about 90% of integration efforts were focused on connecting order-entry applications, either on the Web or as part of a customer-relationship management system, with inventory software and financial applications in enterprise resource planning systems, says Joanne Friedman, market analyst for Meta Group.
Many companies are looking to broaden integration efforts to include advanced planning, product data management, and manufacturing resource planning systems and to provide partners and suppliers more access to their internal data. Such integration lets companies formulate more accurate demand forecasts, reducing the amount of excess inventory they have on hand. Integration projects are also encompassing online product design and corporate portals. "The world doesn't revolve solely around procurement," Friedman says.
That's a lesson Aviall Inc. knows well. The distributor of aircraft parts and maintenance supplies sold $485.9 million in goods in 2000 in a market of "dog-eat-dog" competition and thin margins, says Joe Lacik, Aviall's VP of information services. The company seeks to stand out from the pack by offering services beyond its core distribution business, hoping to someday use the services in negotiating better prices from suppliers and exclusive contracts with customers.
This month, Aviall's extranet will show suppliers the company's demand forecasts for their products, the amount of products in inventory, and aggregated customer data related to products, such as how much was purchased by region. The added service stems from tying Aviall's CRM applications from Siebel Systems Inc. with Xelus Inc.'s forecasting, planning, and inventory-management system. The integration middleware that Aviall used is licensed from New Era of Networks Inc., which was acquired in March by Sybase Inc.
Another extranet service planned for next year is an E-library of manufacturer-supplied manuals for all products carried by Aviall. The parts supplier will upload digitized versions of the documentation into the content-management application within Aviall's Web-based order-entry system from BroadVision Inc. Integrated into the E-library application will be a search engine from Trinovia Technologies Inc.
EAI is based on the notion of integrating disparate data and technologies into new business processes. The integrated technologies can include legacy or mainframe systems, enterprise and manufacturing resource planning systems, Java applications running on an application server, or a Windows application built with tools from Microsoft.
The idea behind business-process automation offered in some EAI tools is to abstract for the nondeveloper the integration plumbing from the underlying complexity of integration middleware. An icon displayed within a graphical modeling environment represents each integrated application or component. Business processes are created or modified by connecting the icons. When the model, which becomes a kind of metaprogram, is executed, it calls each of the applications in sequence to the flow of the business process.
This year, more companies are expected to move toward this kind of abstraction to conserve expensive IT resources and give business managers more control over their lines of business.
McKenna & Cuneo LLP, a Washington, D.C., law firm specializing in many areas of law, including government contracts, international trade, and the environment, is using e-work, a business-process management tool from Metastorm Inc. E-work ensures that business processes, such as processing new clients or new work on behalf of existing clients, are uniform throughout the law firm. Uniform processes are crucial to law firms, which use client data to make decisions on conflicts of interest, billing, and the nature of work done with certain clients.
An example of business-process integration is the law firm's automation of a procedure involving new clients, which are investigated to ensure that there are no conflicts of interest between the firm and the client's business. This investigation involves many departments examining new client information and cross-referencing it against the firm's databases.
"The biggest challenge for these new cases has been defining the workflow and integrating it with existing systems," IT director Bob Lamy says. The process includes programming parameters to look for key words and routing E-mails to the right people who can determine whether there's a conflict, he says. This year, the law firm, which has 500 employees and six U.S. offices, plans to expand e-work's role to automate HR functions, such as vacation requests, new hires, and time-sheet reporting.
The coming year will bring about the evolution of standards for connecting business applications across the Internet to automate supply-chain processes. Proponents say Web services, a set of XML-based specifications getting the most industry buzz, will someday define how software communicates across the Internet.
That day is still a ways off. Forrester Research predicts traditional EAI technologies will prevail until 2004, because Web-services standards for security, auditing, and transactions won't stabilize until then. By 2006, Forrester says, business executives will become confident enough to start applying the technologies in more complex, transactional business processes.
Among the more mature XML-based technologies in use for connecting business applications over the Internet are Partner Interface Processes, or PIPs, from RosettaNet, a consortium of more than 400 mostly high-tech companies. PIPs are specialized system-to-system dialogues that define business processes between trading partners. Because they target a particular vertical industry, PIP adoption has grown faster then more generic standards.
Arrow Electronics Inc., a $13 billion distributor of electronic components and computer products, introduced its first PIP in February 2000 to move purchase orders from its legacy system to Intel and receive a response from the chipmaker. Since then, Arrow has expanded its use of PIPs in supply-chain-related business processes with 20 to 30 suppliers and customers.
The technology is used in a variety of areas, including order management, product design, and product information sharing. This year, Arrow will expand its use of PIPs to finish automating entire business processes. For example, if Arrow is chosen as a participant in a customer's design process, the distributor can use PIPs to share product information and to credit accounts receivable every time a product using the design is sold.
Ultimately, Arrow wants to be an integral, but almost invisible, part of its customers' businesses. "For the more sophisticated kind of partner relationships, we become a virtual department within the company," says Mark Settle, CIO for the Melville, N.Y., company. "They wouldn't know the difference between dealing with us and having their own supply department sitting in a building adjacent to their manufacturing facility. That's sort of the nirvana that people are working towards."
Despite the introduction of PIPs and other Web-based technologies into its supply chain, most data is moved among Arrow and its suppliers and customers via electronic data interchange, an older technology that sends batches of data, including demand forecasts, purchase orders, and product information, between companies at timed intervals. Because of the huge investment that large companies have made in EDI technologies, Arrow doesn't intend to replace the reliable, mature integration technology soon.
"We expect a coexistence of these integration approaches for some time to come," says Paul Katz, Arrow's VP of digital supply-chain solutions. However, because EDI is too expensive for small and many medium-size businesses, Arrow is offering Web-based alternatives.
Late in the first quarter of this year, Arrow will provide updates to demand forecasts on its extranet, called the Arrow Collaborator. Through a browser, smaller customers can compare their forecasts with the actual inventory status at Arrow: What parts are due in and when, what's on order, the location of supplies, etc. "All the information that relates to the customer side of the process and Arrow's side of the process come together in this Web-based service," Katz says.
Arrow built the front end of its extranet in Java, running the applications on BEA Systems Inc.'s WebLogic application server. About 1,000 of Arrow's smaller customers move forecast information from their manufacturing resource planning systems to the distributor, which maps the data into its EDI connection to its own legacy systems using EAI tools from Peregrine Systems Inc.
In addition to supply-chain processes and forecasting, corporate integration projects focus on product design, which analysts say represents as much as 80% of the cost of making a product.
Celestica Inc., a $9.8 billion contract manufacturer, believes in entering its customers' design process for new products as early as possible. This lets Celestica understand where information gaps or requirement shortcomings are likely to pop up, CIO Lisa Colnett says.
Celestica, which lists Cisco Systems, IBM, and Sun Microsystems as customers, has tied MatrixOne Inc.'s product-development-management system with two tools for collaborating with customers over the Web. The tools include products by e4eNet Inc. for electronic components found on printed circuit boards and Alventive Inc. for online design of mechanical components, such as computer covers.
Another driver of application integration is corporate portals. Many companies are building portals that give customers personalized information on products and orders, similar to what Aviall and Arrow are doing. Other companies are also building portals for employees to access human-resource and benefits information through a browser, as well as to provide access to job-related applications and information.
General Motors Corp. plans to roll out its employee portal early this year. Built on the iPlanet Portal Server from Sun, the software is connected to the automaker's back-office applications from SAP and Oracle. However, GM won't make iPlanet its user interface for specialized applications. "Somebody who works in a CAD system most of the time will still be able to access the CAD system directly without using the portal," says Tony Scott, GM's chief technology officer.
Also this year, GM will push to have suppliers adopt Covisint LLC, a supply-chain platform and online marketplace owned by GM, Ford, and DaimlerChrysler. "Covisint remains our core strategy for supply-chain integration," Scott says. GM has used Covisint mostly for buying indirect materials--products not pivotal to GM's production line. Since Covisint's launch in September 2000, GM has bought more than $96 billion in raw materials and parts. GM launched a pilot project in October using Covisint Fulfillment to link an undisclosed number of manufacturing plants with key suppliers.
GM's strategy for the coming year is to expand its use of Covisint Fulfillment, which is based on SupplySolution Inc.'s I-Supply product, to make a greater number of purchases. This will mean that GM relies less on conventional order and supply-chain management technology such as its own private communications network. As GM's major suppliers come aboard, GM expects that lower-tier suppliers, who report to the company's major suppliers, will also sign on to take advantage of Covisint's supply-chain offerings.
Companies the size of GM, which sold $184.6 billion in cars and trucks in 2000, are doing a lot to move their industries toward Internet-based business-to-business integration. Suppliers will have little choice but to use Covisint once GM makes it clear that the exchange is its preferred way to do business, says AMR Research's auto industry analyst, Kevin Prouty. If a tier-one supplier resists using Covisint's supply-chain offerings, it would soon find itself "at a major disadvantage, because there are plenty of other suppliers who will," Prouty says.
Suppliers willing to work with major manufacturers such as GM are learning to leverage the Internet in an increasing number of their core business activities. By collaborating with customers and integrating processes with trading partners, these companies are realizing a distinct competitive edge. They're cutting inefficient processes out of their workflows and providing partners with essential business data in close to real time. That's bound to give these companies a leg up on their competitors who haven't yet realized the benefits of a tightly integrated supply chain.