Electronic data interchange companies shifting their focus towards Web-based B2B solutions

Citation

(2001), "Electronic data interchange companies shifting their focus towards Web-based B2B solutions", Assembly Automation, Vol. 21 No. 2. https://doi.org/10.1108/aa.2001.03321bab.005

Electronic data interchange companies shifting their focus towards Web-based B2B solutions

Electronic data interchange companies shifting their focus towards Web-based B2B solutions

Keywords Internet, EDI

With the advent of Internet-enabled e-commerce, IT developers are acknowledging that business processes, not technological innovation, are driving e-commerce adoption, A new report from Datamonitor, "The future of IT in European manufacturing", examines the new wave of dedicated solutions that are gradually being developed to meet the requirements of each of the three core business processes – distribution channels on the sell-side and online procurement and supply chain management on the buy-side. (The term "procurement" refers to the purchase of indirect goods. Direct goods are those which form part of the actual products the company is manufacturing, e.g. steel for an automobile manufacturer. Indirect goods are those supporting the production, such as stationery, PCs and even automation. Indirect goods are hence less critical to the enterprise's operations.)

Key findings to emerge from the report reveal:

• •

  Electronic data interchange (EDI) companies are shifting their focus towards Web-based B2B solutions in response to the threat of market entry by Internet technology developers;

• •

  The online procurement market exploits a huge gap in the traditional supply chain solution; and

• •

  Internet-based developers are well positioned to enter the supply chain, despite the dominance of EDI in this process sector.

EDI companies are shifting their focus towards Web-based B2B solutions in response to the threat of market entry by Internet technology developers

Supply chain management is the most established of all e-commerce markets and has been dominated by traditional EDI software and service companies. Datamonitor believes that this dominance explains why most Internet-based B2B e-commerce solutions have thus far chosen to concentrate their efforts on the less densely populated B2C and B2B distribution markets.

However, the threat of entry to the market of Internet-technology developers has focused the attention of traditional EDI companies on the development of Web-based B2B solutions. These are often Web-EDI solutions that will allow expansion of EDI reach into the Internet, thereby supporting these companies' existing client bases.

The online procurement market is exploiting a huge gap in the traditional supply chain solution

Relationships between companies and the suppliers of indirect goods have not usually justified the investment in establishing proprietary EDI e-commerce infrastructures. Datamonitor's report observes that this area of cost has been relatively neglected by technology and as such a huge market opportunity is opening up for companies able to fill this gap on the buy-side of the enterprise. The introduction of cheaper, Web-based B2B e-commerce technologies has made online procurement more commercially feasible.

Window of opportunity for newcomers to e-commerce

The online procurement market is of great significance, since it offers opportunities to a different range of companies which provide auxiliary products and services, which facilitate production of goods and services. According to Datamonitor, the fact that a potentially new market is involved allows a window of opportunity for newcomers to e-commerce, since the trading communities of indirect goods providers are not as developed as the EDI communities of direct goods providers – the key competitive advantage of the leading EDI developers.

Online procurement solutions involve two distinct components, those being an enterprise-internal procurement management application and an external interoperable supplier community to operate alongside it. Online procurement solutions, then, centralize and automate the purchasing of indirect goods, a process which differs from the purchasing of direct goods in three ways. First, indirect goods are less important for the enterprise's core business. Second, in most cases, lower values of transactions are involved and finally purchasing is not as frequent.

Services and organizations to drive the growth of online procurement

Datamonitor believes that as a result of these factors, the growth of the online procurement market is likely to be more strongly driven by services and organizations than supply chain management solutions, for example, which focus on the purchasing of production goods. Such companies do not manufacture products, nor can they present a product catalogue as the vehicle to online sales. As a consequence, they rarely invest in supply chain management solutions, on the one hand, or distribution channel management, on the other. Organizations such as universities and governments, which spend significant sums on IT infrastructures, can now, through online procurement, join the e-commerce revolution.

Datamonitor states that, because indirect goods are less important to the core business processes, they are usually not acquired as frequently and, in most cases, account for a smaller share of enterprise costs. Investment in an online procurement solution can only be justified if a relatively large number of a company's suppliers will join the interoperable trading community. Accordingly, online procurement developers must create sizeable supplier communities to create the critical mass that will justify investing in their solutions.

Internet-based developers are well positioned to enter the supply chain, despite the dominance of EDI in this process sector

There is a question as to whether or not an opportunity exists for Internet-based developers to enter the supply chain, management market, given the dominance of EDI in this process sector. However. Datamonitor believes that there is a strong case for answering this question positively, for two main reasons:

1. 1.

   Internet technology allows much more than the limited and rigid formats of EDI forms and it enables application sharing, not just data sharing.

2. 2.

   Internet-based supply chain management solutions target a different market from EDI solutions. EDI implementing companies are, in most cases, extremely large enterprises with significant resources. Internet-based solutions are targeting those companies which could not afford EDI. Accordingly, newcomers to the market say that software developers will, just as much, need to develop a new client base.

Datamonitor's industrial consultant, Martin Atherton, commented, "One crucial factor is required for success – the ability to control and manage supplier communities. In the short term, it may not prove to be so significant which technology, be it EDI, Web-EDI or fully fledged Internet technology, the solution will offer. What is important is the solution developer's ability to convince clients that, when implementing the specific solution, they could achieve return on investment within a shorter period of time."

For further information, contact Datamonitor, Charles House, 108-110 Finchley Road, London NW3 5JJ, UK. Tel: +44 (0)20 7675 7000; Fax: +44 (0)20 7675 7500; e-mail: ukinfo@datamonitor.com; Web site: http://www.datamonitor.com