RadovilskyBA ERP

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

Zinovy Radovilsky, ProfessorCalifornia State University, Hayward, CA 94542, 510/885-3302

[email protected]

Abstract.The modern ERP systems are fully integrated with e-commerce supply chainsolutions like e-procurement, seller-oriented marketplaces, exchanges and auctions, etc.However, these integrated ERP systems still have substantial implementation and utilizationissues including complexity, high cost of ownership, long time to recover investments, andbeing unaffordable for small- and middle-size companies. The paper presents the frameworkof overcoming these issues and increasing value in supply chain e-commerce developmentand ERP.

Introduction.In 2000, more than 35,000 firms worldwide paid around $20 billion to enterpriseresource 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 solutionswell into the new millennium. According to several forecasts, the industry will grow toapproximately $70 billion in 2003. One of the main trends in developing the ERP systems istheir 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 researchliterature about the future trends in ERP in relation to B2B e-commerce supply chainmanagement. 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 tobe developed to run the business. Merely automating systems is no longer the cure. The majorbottleneck 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 takesplace, the company is able to adjust to it immediately and effectively. This proactiveadaptability of an enterprise around redefined business objectives is called enterprise-wideintegration. The trend today is that many organizations are changing from function-orientedbusinesses to process-driven entities. ERP systems enable this to happen, not only at theinformation systems level but also at the applications level.

Having evolved from the Manufacturing Resource Planning (MRP II) system, ERP is anapplications and software architecture that facilitates the flow of information betweenoperations, finance, accounting, marketing, and human resources functions within a companyand, as such, is an enterprise-wide information system. Using a centralized databaseoperating on a common computing platform, ERP system components interact with anintegrated set of commonly designed applications, consolidating all business operations into auniform system environment.

Originally, ERP gave companies two major benefits that did not exist in the days of non-integrated (although interfaced) systems: a unified enterprise view of the business common toall functions and departments (integration); and an enterprise database where all significantbusiness transactions are entered, recorded, processed, monitored, and reported (data
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automation). Other benefits described in the literature sources and observed by practitionerswere: easier access to reliable information; elimination of redundant data and operations;reduction of inventory and production cycle times; and easier adaptability in a changingbusiness 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 manyfailed and extraordinarily over budget ERP projects. Implementation of ERP was usually atime-consuming, expensive and arduous task. ERP systems forced firms to re-design currentpractices to fit within the processes described by the ERP modules. The integration of thesystem was still not complete, because ERP usually represented the back-end of theenterprise. 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 andapplications that do not fit with the organization's strategic goals. Expectations of a companymight exceed the capabilities of the system. An ERP system was not all-powerful, it could notchange 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 enormityof an ERP project was regularly underestimated; sustaining the system requires a continuedlong-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 phaseof the ERP evolution. Comparative analysis of the modern ERP systems and evaluation of theliterature sources allowed concluding that the second phase is characterized by the new trendsin 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 seller-

oriented 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 inthe ERP development in the past two-three years. Today, ERP systems have direct relationswith the evolving applications of e-commerce, specifically its B2B supply chain applications. Itis interesting to point out that major enterprise software vendors do not call their softwareERP any more, but use the software titles related to e-commerce solutions. For example, theOracles recent set of ERP applications is titled E-business Suite. SAP is claming thedevelopment of E-business Platform.


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B2B E-commerce Solutions in ERP. The idea of combining B2B e-commerce applicationsand ERP systems is deeply rooted into the needs of fully integrating and automating theelectronic enterprises flows, making them more quick and efficient. For example, a B2Bstorefront, where the company sells its products online, represents a front-office of thecompany. However, the needs of timely fulfillment of the sales orders require their promptprocessing into the master scheduling, material requirements planning, distribution resource

planning, and, eventually, quick passage of information to the companys suppliers. Thisnecessitates an integration of the front-office and the ERP back-office of the company. Onthe other side, the modern e-commerce solutions for purchasing and outsourcing (buyer-oriented or e-procurement solutions) provide online supplier catalogs, quick RFQ bidding, andsimplified supplier-customer relationships. However, the e-procurement decisions are tightlyrelated to the overall purchasing systems in the company, supplier selection and schedulingprocesses, which are parts of ERP.

The integration of B2B e-commerce and ERP takes place in various areas of supply chainmanagement including its networking, coordination, planning, and execution. The modern ERPsystems (SAP, for example) could provide the following e-commerce supply chainmanagement solutions:

Private Exchanges--e-marketplace infrastructure that enables to extend the supply chainprocesses across enterprise boundaries by linking suppliers, partners, and customers

Supply Chain Portals allow users collaborate with colleagues down the hall or across theglobe, both inside and outside the enterprise

Mobile Business--extends the efficiencies and benefits of networked supply chainmanagement to every member of the network

Collaborative Demand and Supply Planning -- enables buyers and sellers to collaborate ondemand and order forecasting, synchronizing plans based on the dynamic exchange ofinformation

Supply Chain Design -- allows to align supply chain infrastructures to changing marketconditions, such as new product launches and new customer segments, that enable toreduce time to value

Supply Chain Event Management -- monitors every stage in the supply chain process, fromprice quotation to the moment the product arrives at the customer site -- including alertswhen things go wrong

Supply Chain Performance Management -- monitors and reports on key indicators andobjectives of supply chain performance, including costs and assets across the supply chainnetwork

Collaborative Procurement -- integrates Web-based buying processes, including rule-basedprocurement, automated replenishment, and multiple supplier support

Collaborative Manufacturing -- manages supply chains throughout all stages of themanufacturing process -- even across enterprise boundaries

Collaborative Fulfillment -- enables to quickly determine where and when to obtain aproduct, and handles order management, availability checks, and transportationmanagement.


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The described solutions that integrate ERP and e-commerce supply chain management aredesigned to provide the benefits to all elements of supply chain. For the customers, thisintegration 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 ERPsystems 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 chaincould 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 andpotential 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 themajority of companies. Statistics show that only 5 to 8% of companies, that originally utilizedERP 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 theire-commerce solutions. The analysis of the ERP and e-commerce integration allowed to clusterthe 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 cost-consuming. These systems require substantial testing, parallel implementation, and trainedprofessionals. The cost of upgrading an existing (old technology) ERP system to a web-


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enabled one could be, depending of the company size, from 0.4 to up to $300 mln. Hence, inmany cases the companies seek less expensive e-commerce solutions for their B2B seller-oriented or buyer-oriented marketplaces, and then apply other system integration software tobridge the e-commerce applications with the existing back-office systems. This scenario, beingusually less costly, does not provide really one-system integration of supply chainmanagement solutions and leads to the continuation of the old practice of managing

customers, manufacturing, and suppliers separately. Moreover, the existing ERP systems arestill 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 hostingcompany-applications service provider (ASP). These companies develop and host ERP relatedsoftware themselves or host software developed by others. ASPs rent the use of the softwareto companies and are responsible for running the applications the customers rent. Thecustomers usually pay a monthly fee to get access to the software capabilities. However, theutilization of ASP poses potential problems related to: the ability of a hosting company toprovide 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 alsorelated 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 chainmanagement, 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 orother e-commerce companies; creating consortia (joint venture) e-commerce corporations; andadding services and capabilities to the existing e-commerce vendors. This all increases therole and market share of the newly developed e-commerce vendors in selling and supportingtheir own applications in various production and service organizations. At the same time, therole of integrated ERP and e-commerce solutions may be diminished.

Many businesses still feel the psychological effect of the massive crashes of e-commercecompanies in 2000-2001. Thus, they remain very cautious in terms of implementing e-commerce supply chain management solutions. Besides, the Internet-enabled applications arestill lacking security level necessary for data and records protection. There are also potentialcost disadvantages in the e-commerce solutions including: increased transportation cost dueto 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 thebandwidth limitations of the web-enabled systems, reliability and security of the Internetservice providers, and incompatibility with some operating systems and hardware. Thesereduce the level of applicability of various scenarios if the ERP and e-commerce integration.Improving Implementation of Integrated Solutions. The analysis of the implementation ofweb-enabled ERP systems and their integration with B2B e-commerce solutions allowedrecommending several directions that would positively affect the future growth and proliferationof that integration. The main idea of the proposed improvement is the simplification of theintegrated solutions, their cost reduction, and future increase of hosting applications. The mainhighlights of these improvements are as following:


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Development and implementation of simplified web-enabled and e-commerce integratedsystems for small- and middle-size companiesLower applications and implementation costsby selling individual ERP modules integrated with e-commerce solutions Enhancingexisting ERP and e-commerce hosting solutions with more variety and flexibility foraccommodating various customer needs.

REFERENCES

Book references:Buck-Emden, Rudiger. The SAP R/3 System: An Introduction to ERP and Business SoftwareTechnology, Addison-Wesley, 2000.Curran Thomas & Gerald Keller. SAP R/3: Business Blueprint, Prentice Hall, 1998.Norris, Grant at al. E-Business and ERP: Transforming the Enterprise,John Wiley and Sons,Inc., 2000.Langenwalter, Gary. Enterprise Resource Planning and Beyond: Integrating Your EntireOrganization, The St. Lucie Press, 2000.Ptak, Carol A. ERP: Tools, Techniques and Applications for Integrating the Supply Chain,The

St. Lucie Press, 2000.

Journal or magazine article references:Anderson, Michael and Hau Lee, The Web-Enabled Supply Chain: From the First Click to theLast Mile, Supply Chain Management Review, January-February 2001.Dillon, Craig, Stretching Toward Enterprise Flexibility, APICS-The Performance Advantage,October 1999.Fleischaker, Celia, ERP Options Expand for the Middle Market, APICS-The Performance

Advantage, October 1999.Hicks, Donald A., The Manager's Guide to Supply Chain and Logistics Problem-Solving Toolsand Techniques, IIE Solutions,Vol. 29, No. 10, 1997.Lange, Ed, ERPs Future Focus,APICS-The Performance Advantage, June 1999.Martin, Michael, An ERP Strategy, Fortune,Vol. 137, February 2, 1998.Michel, Roberto, Reinvention Reigns: ERP Vendors Redefine Value, Planning and ElevateCustomer Service, Manufacturing Systems,Vol. 15, No. 7, 1997.Robinson, Ann & David Dits, OR & ERP: AMatch for the New Millennium, OR-MS Today,June, 1999.

Web site references:Michael, Totty, The Next Phase,http://interactive.wsj.com/public/current/summaries/ecommerce2001-4.htm, May 21, 2001SAP Applications, http://www.mySAP.com, 2001.Oracle Applications, http://www.oracle.com, 2001.
http://interactive.wsj.com/public/current/summaries/ecommerce2001-4.htmhttp://interactive.wsj.com/public/current/summaries/ecommerce2001-4.htmhttp://interactive.wsj.com/public/current/summaries/ecommerce2001-4.htmhttp://www.mysap.com/http://www.oracle.com/http://www.mysap.com/http://interactive.wsj.com/public/current/summaries/ecommerce2001-4.htm

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RadovilskyBA ERP