Business-to-Business E-commerce And Enterprise Resource Planning: Increasing Value In Supply Chain Management

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1 Business-to-Business E-commerce And Enterprise Resource Planning: Increasing Value In Supply Chain Management Zinovy Radovilsky, Professor California State University, Hayward, CA 94542, 510/ Abstract. The modern ERP systems are fully integrated with e-commerce supply chain solutions like e-procurement, seller-oriented marketplaces, exchanges and auctions, etc. However, these integrated ERP systems still have substantial implementation and utilization issues including complexity, high cost of ownership, long time to recover investments, and being unaffordable for small- and middle-size companies. The paper presents the framework of overcoming these issues and increasing value in supply chain e-commerce development and ERP. Introduction. In 2000, more than 35,000 firms worldwide paid around $20 billion to enterprise resource planning (ERP) vendors. ERP applications are expected to continue to be one of the largest, fastest-growing and most influential players in the field of integrated business solutions well into the new millennium. According to several forecasts, the industry will grow to approximately $70 billion in One of the main trends in developing the ERP systems is their growing relationship with the Internet capabilities specifically in business-to-business (B2B) e-commerce and online supply chain management. Yet little is found in the research literature about the future trends in ERP in relation to B2B e-commerce supply chain management. The purpose of this paper is to present and analyze these trends. ERP is a result of modern organizations' attitude towards how their information systems are to be developed to run the business. Merely automating systems is no longer the cure. The major bottleneck in getting to build system solutions is integration. Various functions of an organization have to be linked together so that whenever a change in an external pull takes place, the company is able to adjust to it immediately and effectively. This proactive adaptability of an enterprise around redefined business objectives is called enterprise-wide integration. The trend today is that many organizations are changing from function-oriented businesses to process-driven entities. ERP systems enable this to happen, not only at the information systems level but also at the applications level. Having evolved from the Manufacturing Resource Planning (MRP II) system, ERP is an applications and software architecture that facilitates the flow of information between operations, finance, accounting, marketing, and human resources functions within a company and, as such, is an enterprise-wide information system. Using a centralized database operating on a common computing platform, ERP system components interact with an integrated set of commonly designed applications, consolidating all business operations into a uniform system environment. Originally, ERP gave companies two major benefits that did not exist in the days of nonintegrated (although interfaced) systems: a unified enterprise view of the business common to all functions and departments (integration); and an enterprise database where all significant business transactions are entered, recorded, processed, monitored, and reported (data

2 automation). Other benefits described in the literature sources and observed by practitioners were: easier access to reliable information; elimination of redundant data and operations; reduction of inventory and production cycle times; and easier adaptability in a changing business environment. Analysis showed that, despite the leaps in performance improvement that many companies saw through ERP, the fist phase of the ERP evolution is now ending. It was typified by many failed and extraordinarily over budget ERP projects. Implementation of ERP was usually a time-consuming, expensive and arduous task. ERP systems forced firms to re-design current practices to fit within the processes described by the ERP modules. The integration of the system was still not complete, because ERP usually represented the back-end of the enterprise. ERP did not incorporate an evolving set of the front-end applications of B2B e- commerce like storefronts (seller-oriented marketplaces), e-procurement solutions, exchanges, and others. Selecting the wrong software could result in an unwilling commitment to architecture and applications that do not fit with the organization's strategic goals. Expectations of a company might exceed the capabilities of the system. An ERP system was not all-powerful, it could not change a company immediately, and alone it would not make a firm more competitive. Companies generally realized the financial commitment required for an ERP implementation, but often they failed to recognize the amount of other resources also necessary. The enormity of an ERP project was regularly underestimated; sustaining the system requires a continued long-term commitment of resources. It is well documented that the main tier-one ERP vendors, including SAP, Oracle, Invensys, PeopleSoft, J.D. Edwards and others, have begun in 1999 and continue today a second phase of the ERP evolution. Comparative analysis of the modern ERP systems and evaluation of the literature sources allowed concluding that the second phase is characterized by the new trends in the ERP development. Among those are: Enhancing existing ERP systems with advanced optimization solutions in forecasting, materials requirements planning, short-term scheduling, inventory management, finance, marketing, human resources, etc. Moving towards web-related ERP systems Integrating ERP with B2B e-commerce supply chain management solution including selleroriented marketplaces, buyer-oriented exchanges (e-procurement), e-portals, exchanges, and others. The last (but not the least important) two trends represent the core changes that happened in the ERP development in the past two-three years. Today, ERP systems have direct relations with the evolving applications of e-commerce, specifically its B2B supply chain applications. It is interesting to point out that major enterprise software vendors do not call their software ERP any more, but use the software titles related to e-commerce solutions. For example, the Oracle s recent set of ERP applications is titled E-business Suite. SAP is claming the development of E-business Platform.

3 B2B E-commerce Solutions in ERP. The idea of combining B2B e-commerce applications and ERP systems is deeply rooted into the needs of fully integrating and automating the electronic enterprises flows, making them more quick and efficient. For example, a B2B storefront, where the company sells its products online, represents a front-office of the company. However, the needs of timely fulfillment of the sales orders require their prompt processing into the master scheduling, material requirements planning, distribution resource planning, and, eventually, quick passage of information to the company s suppliers. This necessitates an integration of the front-office and the ERP back-office of the company. On the other side, the modern e-commerce solutions for purchasing and outsourcing (buyeroriented or e-procurement solutions) provide online supplier catalogs, quick RFQ bidding, and simplified supplier-customer relationships. However, the e-procurement decisions are tightly related to the overall purchasing systems in the company, supplier selection and scheduling processes, which are parts of ERP. The integration of B2B e-commerce and ERP takes place in various areas of supply chain management including its networking, coordination, planning, and execution. The modern ERP systems (SAP, for example) could provide the following e-commerce supply chain management solutions: Private Exchanges--e-marketplace infrastructure that enables to extend the supply chain processes across enterprise boundaries by linking suppliers, partners, and customers Supply Chain Portals allow users collaborate with colleagues down the hall or across the globe, both inside and outside the enterprise Mobile Business--extends the efficiencies and benefits of networked supply chain management to every member of the network Collaborative Demand and Supply Planning -- enables buyers and sellers to collaborate on demand and order forecasting, synchronizing plans based on the dynamic exchange of information Supply Chain Design -- allows to align supply chain infrastructures to changing market conditions, such as new product launches and new customer segments, that enable to reduce time to value Supply Chain Event Management -- monitors every stage in the supply chain process, from price quotation to the moment the product arrives at the customer site -- including alerts when things go wrong Supply Chain Performance Management -- monitors and reports on key indicators and objectives of supply chain performance, including costs and assets across the supply chain network Collaborative Procurement -- integrates Web-based buying processes, including rule-based procurement, automated replenishment, and multiple supplier support Collaborative Manufacturing -- manages supply chains throughout all stages of the manufacturing process -- even across enterprise boundaries Collaborative Fulfillment -- enables to quickly determine where and when to obtain a product, and handles order management, availability checks, and transportation management.

4 The described solutions that integrate ERP and e-commerce supply chain management are designed to provide the benefits to all elements of supply chain. For the customers, this integration benefits could be the following: Provide quick delivery times Enable permanent access to the enterprise selling capabilities Lower cost for the Internet-related purchases. Access detailed and accurate order status information, resulting in higher customer satisfaction Transform from a supply-centric to a customer-centric demand chain, in which actual customer demand drives design, production, and replenishment. For the enterprise, the main link in a supply chain, the e-commerce integration with ERP systems might provide the following benefits: Quickly and easily compare suppliers on a global basis Match supply and demand through integrated and collaborative planning tools. Reduce inventories Collaborate with partners and optimize supply planning and execution across enterprise boundaries Achieve faster responsiveness to unanticipated demands Introduce new products and promotions with efficiency and accuracy Increase planning accuracy and real-time location of products around the world, improving customer service Respond to changing customer requirements quickly and efficiently. For the suppliers, the value proposition in the integrated ERP and e-commerce supply chain could mean: Better capabilities for planning and scheduling supplier production Faster responsiveness to unanticipated demands Collaboration with customers on forecasting, new product design, and delivery schedules. Problems in ERP and E-commerce Integration. Having recognized the importance and potential benefits of integrating the ERP systems with e-commerce supply chain applications, we need to admit that the implementation of such solutions still did not really happen in the majority of companies. Statistics show that only 5 to 8% of companies, that originally utilized ERP systems, have already implemented or are implementing integrated ERP and e- commerce solutions. Most of the companies with ERP systems still either do not have any e- commerce supply chain applications, or prefer to utilize a non-erp vendor company for their e-commerce solutions. The analysis of the ERP and e-commerce integration allowed to cluster the issues related to this implementation into three main groups: ERP-related issues, e- commerce related issues, and infrastructure related issues. Web-enabled ERP systems and their implementation still remain very complex, time- and costconsuming. These systems require substantial testing, parallel implementation, and trained professionals. The cost of upgrading an existing (old technology) ERP system to a web-

5 enabled one could be, depending of the company size, from 0.4 to up to $300 mln. Hence, in many cases the companies seek less expensive e-commerce solutions for their B2B selleroriented or buyer-oriented marketplaces, and then apply other system integration software to bridge the e-commerce applications with the existing back-office systems. This scenario, being usually less costly, does not provide really one-system integration of supply chain management solutions and leads to the continuation of the old practice of managing customers, manufacturing, and suppliers separately. Moreover, the existing ERP systems are still unaffordable by the great majority of small and some mid-size companies. One of the ways to reduce the cost of ERP is to outsource its applications from a hosting company-applications service provider (ASP). These companies develop and host ERP related software themselves or host software developed by others. ASPs rent the use of the software to companies and are responsible for running the applications the customers rent. The customers usually pay a monthly fee to get access to the software capabilities. However, the utilization of ASP poses potential problems related to: the ability of a hosting company to provide reliable and timely service; security of the data hosted by a third-party organization; customization of the system according to specific customer needs; and others. The problems in integrating e-commerce supply chain management and ERP systems are also related to the modern status of B2B e-commerce. The first phase of e-commerce development, characterized by the great explosion and proliferation of small.com companies in supply chain management, has finished. Many of these companies disappeared or were acquired. Today, we are at the beginning of the second phase of this development, which is associated with: various mergers and acquisitions of the e-commerce companies by existing businesses or other e-commerce companies; creating consortia (joint venture) e-commerce corporations; and adding services and capabilities to the existing e-commerce vendors. This all increases the role and market share of the newly developed e-commerce vendors in selling and supporting their own applications in various production and service organizations. At the same time, the role of integrated ERP and e-commerce solutions may be diminished. Many businesses still feel the psychological effect of the massive crashes of e-commerce companies in Thus, they remain very cautious in terms of implementing e- commerce supply chain management solutions. Besides, the Internet-enabled applications are still lacking security level necessary for data and records protection. There are also potential cost disadvantages in the e-commerce solutions including: increased transportation cost due to inventory aggregation and increased handling cost if customer participation is reduced. The infrastructure problems in the ERP and e-commerce integration is mainly related to the bandwidth limitations of the web-enabled systems, reliability and security of the Internet service providers, and incompatibility with some operating systems and hardware. These reduce the level of applicability of various scenarios if the ERP and e-commerce integration. Improving Implementation of Integrated Solutions. The analysis of the implementation of web-enabled ERP systems and their integration with B2B e-commerce solutions allowed recommending several directions that would positively affect the future growth and proliferation of that integration. The main idea of the proposed improvement is the simplification of the integrated solutions, their cost reduction, and future increase of hosting applications. The main highlights of these improvements are as following:

6 Development and implementation of simplified web-enabled and e-commerce integrated systems for small- and middle-size companieslower applications and implementation costs by selling individual ERP modules integrated with e-commerce solutions Enhancing existing ERP and e-commerce hosting solutions with more variety and flexibility for accommodating various customer needs. REFERENCES Book references: Buck-Emden, Rudiger. The SAP R/3 System: An Introduction to ERP and Business Software Technology, Addison-Wesley, Curran Thomas & Gerald Keller. SAP R/3: Business Blueprint, Prentice Hall, Norris, Grant at al. E-Business and ERP: Transforming the Enterprise, John Wiley and Sons, Inc., Langenwalter, Gary. Enterprise Resource Planning and Beyond: Integrating Your Entire Organization, The St. Lucie Press, Ptak, Carol A. ERP: Tools, Techniques and Applications for Integrating the Supply Chain, The St. Lucie Press, Journal or magazine article references: Anderson, Michael and Hau Lee, The Web-Enabled Supply Chain: From the First Click to the Last Mile, Supply Chain Management Review, January-February Dillon, Craig, Stretching Toward Enterprise Flexibility, APICS-The Performance Advantage, October Fleischaker, Celia, ERP Options Expand for the Middle Market, APICS-The Performance Advantage, October Hicks, Donald A., The Manager's Guide to Supply Chain and Logistics Problem-Solving Tools and Techniques, IIE Solutions, Vol. 29, No. 10, Lange, Ed, ERP s Future Focus, APICS-The Performance Advantage, June Martin, Michael, An ERP Strategy, Fortune, Vol. 137, February 2, Michel, Roberto, Reinvention Reigns: ERP Vendors Redefine Value, Planning and Elevate Customer Service, Manufacturing Systems, Vol. 15, No. 7, Robinson, Ann & David Dits, OR & ERP: A Match for the New Millennium, OR-MS Today, June, Web site references: Michael, Totty, The Next Phase, May 21, 2001 SAP Applications, Oracle Applications,