The costs of procurement using non-real-time fax- and phone-based methods are running at $50 (£32) to $250 per transaction, according to Zona Research. These costs include everything from administrative overheads to surplus inventory needed to cover unexpected demand. Zona believes Web technologies could bring costs down to as little as $5.
Real-time communications links between order and fulfilment systems could dramatically improve matters. The manufacturing, accounting and logistics software supplier SAP claims that streamlined administration and improved supply-chain visibility could bring 20% to 50% savings.
SAP's remedy, unsurprisingly, requires hefty investment in its own applications. But for some years now, the search for a universal, non-proprietary supply chain automation technology, with a membership fee so low that the smallest suppliers can join, has concentrated on Extensible Markup Language (XML). More recently, technology evangelists have been preaching salvation through Web services, although there is more Powerpoint than witness in their gospels.
Various XML initiatives have sprung up, some founded by opposing technology camps, some by suppliers impatient with the progress of the traditional standards bodies, and some by particular industries. Of the third kind, the most successful is RosettaNet, a consortium of 400 IT, electronic component and semiconductor manufacturing companies. IBM, Compaq, Dell, Intel and Motorola are members, committed to implementing the standards they create, and introducing them to trading partners.
Compared to most technical standards bodies, RosettaNet's output has been astonishing. It includes an implementation framework, and XML-based business message schemas and process specifications, all defined, delivered and put into production through supplier-sold products to an extremely demanding timetable. Possibly only the Object Management Group, which boasts an average 10 months from requests for proposals to commercially available implementations, can match it.
RosettaNet defines all the interfaces needed to link businesses in the supply Web, from trading partner identification to aftersales service, and from demand creation to demand fulfilment. The Partner Interface Process (Pip) for order management, for example, covers requests for quotations, the exchange of information and placing of orders, and transport and distribution. Business partners can share inventory data, so as to minimise inventory throughout the supply Web, and carry out collaborative forecasting.
A Pip specification includes a business document with the vocabulary, and a business process with the "choreography" of the XML dialogue. Each Pip, like all RosettaNet standards, is validated by a group of consortium members, who run it in production in the real world, and provide feedback ensuring the standard meets requirements before it is released to the public.
In August, RosettaNet agreed to merge - effectively to become an independent subsidiary - of the Uniform Code Council. The council, with its peer organisation the European Association of Numbers International, has a history long predating e-commerce. They have been involved in devising common languages for international trade, using, for example, barcodes and electronic data interchange (EDI) messages, for 25 years. The codes they have devised provide identification for items, trade and logistics units, services and locations. The two organisations have shifted their attention to XML, but kept links with legacy EDI systems, ensuring that the Internet and EDI can trade electronically.
Where RosettaNet concentrated on high-tech and electronics, the Uniform Code Council addresses 23 industry sectors, including utilities and pharmaceuticals, although most users are in retail. The merger is intended to produce a supply chain automation architecture which businesses in every sector - and of all sizes - will be able to use. It will also give software suppliers more incentive to design products to support the standards, by providing a much larger customer base. The price of the technology should come down, increasing penetration, and reducing the time taken to develop and implement solutions.
Jennifer Hamilton, chief executive of RosettaNet, says, "Our goal is to create this common collaboration architecture which would support commonality whenever possible, but at the same time support the individuality of different industries."
The merger has been generally welcomed, if only because it reduces the number of competing standards bodies. Among the factors holding back investment in supply chain and procurement automation, has been fear of backing the wrong horse. A year ago, Martin Emery, co-chair of the E-tail Forum ( www.etailforum.org) told ComputerWeekly, "[Small- and medium-sized enterprises] are likely to be part of more than one supply chain, and they don't know at what rate they need to move. You shouldn't be hard-wiring your systems into anything at the moment. A lot of [business-to-business] infrastructure companies could go under in the next six to 12 months."
PeopleSoft technical consultant Matt Kummell thinks the fewer standards bodies there are, the better. "Previous integration technologies were hampered by competing standards and templates," he says.
"Since industries themselves are cross-connected, such as Hewlett-Packard doing business with retailer Best-Buy, it makes sense to develop common standards," says Rahul Singh, solutions marketing manager at supply chain management (SCM) application supplier i2. "The Uniform Code Council and RosettaNet are trying to develop standards that are business process-rich, and avoid the pitfalls of earlier standards such as EDI."
There is a considerable overlap between the offerings of SCM suppliers, and providers of enterprise application integration (EAI) solutions, which have the frameworks and adapters needed to make applications talk to one another. Seebeyond (formerly STC), for example, has the EXchange EBI Suite for RosettaNet, which includes pre-packaged support for Pips. Seebeyond claims businesses can use EXchange for full integration of RosettaNet processes with traditional supply chain transactions based on EDI, and connect any legacy system to a RosettaNet process.
EAI supplier webMethods was an early supporter of RosettaNet, contributing to its implementation framework, and providing the integration platform for many Pip implementations. Its Connect Express for RosettaNet is a limited-use version of webMethods' integration platform, designed for companies participating in the RosettaNet basics programme for small- and medium-sized high-tech suppliers.
"To date the industry has focused on defining an approach to Web services that requires low-level development tools and extensive coding," says Jim Green, chief technology officer of webMethods. "Our customers want a low-risk solution that allows them to use their existing applications and business processes, rather than requiring new development. They can use the latest version of the webMethods integration platform to create enterprise Web services from any existing application including SAP, Siebel, i2 and Oracle, and custom-built applications."
The approach used by webMethods combines support for standards such as Simple Object Access Protocol, Web Services Description Language and Universal Description, Discovery and Integration, with the management capabilities, transactional integrity and security features required for enterprise-level functionality. But this illustrates one problem with the available solutions. While the interfaces and business documents may be standardised, the features needed for enterprise-strength systems come from individual suppliers, and are proprietary.
Jon Newlyn, business development manager at Attachmate, feels strongly that businesses lured by the promise of open standards will find themselves locked in by suppliers. "Rather than using a standard to promote universality across the software divide, suppliers with the strongest financial power hijack standards and then develop applications to ensure that companies can't benefit from them unless they buy the latest version of their software. In future, companies will be faced with severe integration difficulties, unable to integrate best-of-breed systems and handcuffed to one supplier. It will cost millions of pounds in system re-development."
Another long-established EAI supplier Axway, which supplies solutions to financial users, points out that information cannot be transmitted securely over the Internet without encryption. "This adds complication to already complicated and bandwidth-heavy code, and defeats some of the ideals of having open standards. Also related to security is the need to know that information sent has been received. Providing an audit trail is especially important for supply chain applications. Reliance on Web standards without these measures leaves businesses vulnerable."
Web services rich enough in features for supply chain automation are a long way off. Neil Ward-Dutton, research director at analyst firm Ovum, questions the viability and readiness of some standards proposed for Web services. "The J2EE Connector Architecture (JCA) specifies a way of linking adapters to the integration framework. In practice, the standard is so rudimentary that even suppliers which support it are being forced to add proprietary functionality. A good adapter does not simply translate between for example, SAP's BAPI and other APIs [application programming interfaces], but also exposes the data structure and development environment of the applications concerned, and offers services such as as error handling and transaction control. It will be a long time before JCA creates a truly open market."
And while XML is important in B2B integration, Ward-Dutton says, the fact that it is designed to be human readable makes it far too code-heavy for high transaction throughput applications.
The EAI and SCM markets have traditionally been dominated by suppliers selling large, expensive solutions to a small number of corporations. Ward-Dutton says this model will be turned on its head, with important repercussions for the application integration behind supply chain automation. "The really big opportunity is serving the more modest integration needs of smaller companies. Traditional suppliers must scale down their products to address this market. The major competitive force will almost certainly be Microsoft, whose Biztalk technology, based on XML and Web services, will be offered through their normal sales channels at very low prices."
Microsoft is a founder member of RosettaNet. In July, it announced the Biztalk Accelerator for RosettaNet version 2.0, an add-on to the Biztalk Server which combines pre-built support for all current Pips with an improved suite of development, management and deployment tools.
Vinay Asgekar, research director at AMR, points out that relationships in high-tech manufacturing are based on product lifecycles, and therefore short-lived. "Platforms such as Microsoft's provide the essential characteristics for rapid set-up and dismantling of relationships: flexible, manageable, cost-effective, scalable, all on a rapidly deployable platform."
Yet this goes against one of the findings of RosettaNet user ST MicroElectronics. Through the collaborative planning made possible through RosettaNet Pips, ST and its customers were able to reduce inventory by as much as four weeks - from six weeks to two. But along the way, ST found greater "intimacy" with customers led to longer term relationships. As ST's IT director, Jean-Claude Monney, says, "We have become an integral part of our customer's internal planning systems, and view this as a distinct competitive advantage."
Benefits of shared standards
- Reduced administration costs through elimination of phone, fax, paperwork and manual operations
- Collaborative forecasting, and shared inventory information, leading to reduced inventory
- Shorter planning cycles, and reduced time to market, through sharing design, product and marketing information
- Ability to create new relationships on the fly, through build-once, use-many-times technologies
- Platforms suitable for cost-effective short-term relationships based on a single product lifecycle. However, the real benefit may be that greater intimacy made possible by sharing planning and other data results in stable, long-term partnerships.
RosettaNet at IBM Global Procurement
Craig Cornell, RosettaNet programme manager at IBM Global Procurement, confirms that RosettaNet has reduced transaction costs, and provides information transparency across the supply chain. It helps with trading partner profile set-up, exchanging product, marketing and design information, and automates collaborative forecasting, order management, shipping and receiving, invoicing and payment.
IBM uses it alongside electronic data interchange (EDI) and Forms Exchange. RosettaNet tends to be used by medium- to high- value and volume suppliers. "We expect to support all three interoperability enablers due to varying levels of interoperability capability within the supplier community," he says.
"RosettaNet's value is to reduce transaction costs by reducing manual touch-points. It increases supply chain visibility and automated, prompt information exchange across the supply chain in order to support decision-making."
However, he says implementing RosettaNet partner interface processes requires complex and deep business and systems integration between trading partners. "The business case for justifying investments in RosettaNet rather than additional EDI implementations is challenging, and building a RosettaNet capability and conducting implementations requires substantial investment. It requires thorough project management with deep business and technical knowledge - and strong executive support."