When e-commerce is all business.
By now you might have heard the numbers: New York-based eMarketer Inc. says the worldwide use of business-to-business systems will grow by 70 to 85 percent annually through 2003, and companies' spending on B2B Web sites will hit $366 billion in 2001, then leap to $1.26 trillion by 2003. Jupiter Research expects U.S. B2B revenues to reach $6.3 trillion by 2005, with online B2B commerce growing from today's 3 percent of the U.S. total to 42 percent by 2005. Any company that wants to remain a player, no matter its industry, had better log on. In the coming year, e-commerce will shift from experiment to mainstream. In the following two years, it will become the foundation of business administration.
B2B is fundamentally different from having a Web site that allows your customers to get information about your company or to buy your products. In that situation, you control the rules of engagement. Add partners and suppliers to the equation, and things get more complicated.
Issues jump out, from application and data integration to security and business processes/policies. Linking networks -- no two are ever alike -- becomes a problem, especially in a day when many companies are just figuring out how to get their internal applications to work with each other.
Expect some growing pains as you figure out exactly how to make this new form of trade work. Getting computers to work together remains a sticky point, despite new Internet technologies created to address the problem. Moreover, areas like managing complex databases that span thousands of vendors and tens of thousands of products will trip up many a B2B site, as will issues like password management.
So how do you turn your bricks-and-mortar business -- or even your B2C (business-to-consumer) Web site -- into a successful B2B operation? You start from the beginning. Companies must understand the choice between the two basic models now emerging: e-marketplaces and extranets. That decision is the first of many you'll make, and it is a key one. Extranets are usually private, custom-built and maintained by one of the involved parties; e-marketplaces are generally public, pre-fabricated and owned by a third party, usually a for-profit company.
Extranets allow companies to use the Internet to complete a range of transactions. They allow you to sell to customers, dealers and distributors, buy from suppliers and manage contract laborers. Larger companies tend to build their own extranets while others tap into those built by business partners. Generally, an extranet is built for a large company, and its suppliers and customers are granted access to it through passwords.
"[Most companies] get 70 to 80 percent of the benefits by going to the cookie-cutter implementation," said David Gold, CEO of Englewood-based ProSavvy, a Web-based e-procurement firm that offers both e-marketplace and extranet solutions. "But large companies end up having a lot more unique requirements."
Often, large companies have particular criteria that must be addressed with their Web-based B2B system. Procurement systems must include the vendors they already use, reflect standard pricing, and provide security to make sure that those ordering products or services are those who are authorized to do so.
The underlying issue is integration. Certainly the extranet must work with all trading partners' accounting systems, but typically it must also integrate with many other computer systems, such as databases. Unfortunately, that can be both time-consuming and difficult. If you have ever received an e-mail attachment that your computer couldn't open, you understand that getting two or more computers -- especially from two different companies -- to communicate flawlessly is difficult. Systems must be able to connect to each other securely, upload data to the right file, process that data correctly and have fail-safes built in that identify and correct errors.
A PIPELINE TO PROFITS
Denver-based Duke Energy Field Services, a natural gas transporter and processor, admits it was slow to warm up to the Internet. But now that it has two extranets in place, the company sees big benefits ahead. Duke uses a 57,000-mile network of pipe in the U.S. and Canada to ship natural gas from its customers wells to more than 80 processing plants it owns. "We see a lot more opportunity on process improvement, cost-reduction, revenue generation -- it's the whole self-service concept," said Jeffrey Goodman, vice president of producer services.
Duke operates its two extranets to support well owners, known as producers. One, called Field Information & Technology Services (FITS), was acquired in April with the purchase of GPM Gas Corp. The second became accessible in October via the Duke homepage.
FITS is a subscription service that feeds Duke incremental revenues from data it was already collecting for billing purposes. Using a series of meters and radio transmitters, Duke collects data on the volume of each of its customer-owned natural gas wells and how much gas is transported through Duke pipelines. FITS subscribers can tap in with a Web browser to get the latest information on their well production, or receive it via email or fax. The second extranet is a new site called the Nomination and Confirmation Service, through which Duke customers in certain regions can buy and schedule Duke capacity and services. "We were slow to get involved with the Internet but now that we're into it our focus has transferred to trying to get people to do this," Goodman said.
An e-marketplace is an online B2B trading hub operated by a neutral third-party company. This option enables companies to do everything, from hiring consultants and selling off excess inventory to purchasing office supplies and ordering equipment. Companies are tying into ever-more e-marketplaces to find the necessities specific to their industries, be that energy, auto parts or landscaping. Most small to mid-sized companies incur lower costs by joining an e-marketplace rather than building an extranet, Gold said.
Although e-marketplaces are less expensive in the short term for small businesses, they are riskier than extranets in other respects. Few of today's e-marketplaces are expected to be around for the long run, as most are surviving on venture funding, not revenue. Although analysts assert that e-marketplaces will thrive over time, that's no guarantee that the one you join today will be among the winners. That might be an issue if you have to spend time and money to tightly couple your computer systems with an e-marketplace, or if you rely on it for long-term needs such as tracking payments on a contract. If so, make sure the e-marketplace includes large, big-volume buyers as anchors.
USING AN E-MARKETPLACE
ProSavvy matches clients with consultants in every major business practice, from computers to business management. Businesses can search the ProSavvy site for free. If they want detailed reports on the performance of the consultants they are interested in, there is no charge for the first report while additional ones cost $65 apiece. Or, for $995, customers can hire a ProSavvy expert to create a request for proposal and perform a personalized search. ProSavvy boasts that it has more than 160,000 people who have registered to use its e-marketplace. Consultants pay a fee to be part of the ProSavvy network, which currently includes about 17,000 firms. Those consultants also pay a percentage of the project fee for contracts closed via ProSavvy, a fee that is then built into the consultant's price. The fee is generally offset by the money companies save by having ProSavvy help write the RFP and by the background information customers receive on consultants, Gold said.
ProSavvy, which lists companies such as Hasbro, Texaco, and Sterling Chemicals among its customers, accommodates the need for customization by licensing a customized version of its Web site. The site remains hosted by ProSavvy and taps into the same, up-to-date database as the e-marketplace. But the licensee can tailor the site to its own purchasing needs, maybe integrating its favorite consultants, ensuring standing pricing deals, verifying that those ordering the service are authorized to do so and so on. While Gold wouldn't comment on specific costs, he did say that customers who build ProSavvy extranets will pay more overall than e-marketplace users. Extranet customers pay a software licensing charge, plus a maintenance fee. Or they can opt to pay a percentage of each transaction to ProSavvy, which rolls its fees into individual project budgets.
PUTTING THE PARTS TOGETHER
The United Recyclers Group LLC spent a year developing its extranet, the Pinnacle Auto Recycler Trading System (PARTS), said Sharon Kellum, general manager. URG is a for-profit industry group based in Denver that serves the used auto-parts industry PARTS allows members to share inventory data, so that a consumer can use the site to shop for parts across the stock of all URG members. This is possible thanks to accounting and inventory control software developed by URG called Pinnacle, which deals with the unique requirements of the used auto-parts business, such as accounting for damage to a part. The industry also relies on a software program called Interchange from Plymouth, Minn. based ADP Hollander. Interchange is a database that lists which auto part fits which make and model of car. For instance, the door of a 1994 model may also fit the 1995 model. This allows parts shops to better match parts with customer's needs.
PARTS needed to draw data from both Pinnacle and Interchange. Getting the Web site to work with Interchange proved a hurdle. Interchange is an electronic version of ADP Hollander's printed manuals -- a Windows-based electronic book, so to speak, complete with images. It was never designed to function as a back-end database. Kellum said the hardest part of the yearlong development cycle was getting Interchange searches to work flawlessly.
Yet now, PARTS is up and running and URG is looking to integrate the extranet with e-marketplaces. At press time, it was working on an agreement to join iSalvage, an online marketplace for recycled and remanufactured auto parts which serves repair shops and insurance companies. "The same thing will show up on our site as iSalvage's," Kellum said. "By using them, we get into B2B much quicker."
ISSUES OF INTEGRATION
In the e-marketplace space, many think Extensible Markup Language (XML) will solve the integration problem, but it's not quite that simple. XML allows Web programmers to create highly customized documents, but that flexibility is also its weakness. The rigidity of HTML allows every browser to understand it innately. With XML, the sender and receiver must agree on the meaning of the XML computer code. Is the data contained in an XML field a dollar amount? An SKU? A birthday? Hence, numerous groups have developed their own "standardized" XML documents, known as frameworks. B2B e-marketplace software vendors, such as Ariba, Inc. of Mountain View, Calif., and Commerce One, Inc., of Pleasanton, Calif., have developed their own frameworks, as have consortiums such as the computer industry's RosettaNet.
But one site can't tie into another simply by supporting XML; it must support a particular form of XML. Moreover, XML is not the only way to share B2B data between applications. Many companies still use Electronic Data Interchange, developed when the mainframe was the standard computing platform. Other more obscure standards exist, like Open Buying on the Internet (OBI), supported primarily by the office supply industry. Many successful e-marketplaces use more than one framework. ProSavvy, for instance, supports the XML frameworks from Ariba and Commerce One as well as OBI, Gold said.
While XML won't eliminate integration issues, it does work well when all parties play by the same set of rules, said John Cochran, CEO of e-Greenbiz.com, Inc. of Longmont. E-Greenbiz.com is an e-marketplace for the wholesale gardening and nursery industry that relies on XML to customize its database. It uses e-commerce software from BroadVision, Inc. of Redwood City, Calif., software that supports the use of bits of XML code called tags to identify different plants. The tags define detailed scientific taxonomies, such as a tree's species and climate zone. A plant supplier fills out a Web form created with XML, using the tags appropriate for the plants it wants to sell. Once the forms are uploaded to the e-Greenbiz.com site, Broadvision's software reads the tags to determine how to appropriately list each plant on the site. Suppliers say the system works well and that it gives them a chance to try B2B ecommerce without a heavy investment.
"I sold excess material through [e-Greenbiz.com] that I was going to have to burn," said Gene Atterberry, a retired computer programmer and owner of Atterberry Nursery, a small business in Boring, Ore. "Before I put money into an e-commerce site, I wanted to see if the nursery industry is ready. I think it is."
Julie Bort is a senior editor for the weekly trade newspaper Network World and co-author of the book, Building an Extranet [Wiley, 1997].
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|Author:||BORT, JULIE; CORRAL, KEN|
|Date:||Jan 1, 2001|
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