|contributed by Mickey North Rizza, Research Director, (email@example.com) in collaboration with Lora Cecere, VP Research & John Fontanella, VP Research, AMR Research Inc.
It is a given that the economy is ill, so maintaining your company's health, as well as that of your trading partners, is vital to securing revenue, staying profitable and ensuring success.
As retailers have become more global their supply chains have become more complex. As a result, many companies are using business-to-business (B2B) connectivity strategies. This article looks at several recent studies by AMR Research Inc. that are focused on retailers and their B2B strategies, or more specifically the electronic integration across the trading partners in the retail supply chain.
Macro Trends Effecting Retail
In the past year, the retail sector has changed considerably in market share, segmentation, customer base and customer loyalty. U.S. retailers have become dominate global players while non-U.S. retailers have entered the U.S. market for the first time. Moreover, retail segments continue to blur -grocers are moving into general merchandise and general merchandise is moving into grocery. Retailers are becoming suppliers through the expansion of private labels, while suppliers are moving more and more into direct goods for resale to the consumer. And an overwhelming 70 percent of retailers are revamping their customer loyalty programs, from discount to intelligence programs.
With all of these trends, the information is still ubiquitous -true insight is rare from the overload of business intelligence that is collected because very little of it is actually used to take action and enhance the business. Considering we are in an age of technology, the latter begs the question of "why not?"
The Vital Element
B2B connectivity is a vital element in demand networks. Demand networks are customer facing and transmit store demand data, such as point of sale (POS), customer orders, inventory movement and price back to the retailer. As this retail data becomes more available and companies move to the management of customers at a store level from an account level, B2B -the sharing of electronic orders, POS data, price data, advance shipment notices, forecasts and inventory -is increasing in importance.
To help companies with their B2B strategies, the following offers insights from a recent AMR Research study of companies in the United States and the United Kingdom on the importance of B2B in demand networks. The respondents were 51 percent line-of-business (LOB) managers and 49 percent IT professionals from consumer electronics, food and beverage, consumer packaged goods (CPG) and retail apparel industries. The average planned spending increase on B2B projects for companies surveyed was 21 percent.
Twenty Five Percent Have Mature B2B Programs
The responses were characterized by mature and less mature programs, with 25 percent having mature B2B programs. For those with mature B2B programs, the companies surveyed had B2B initiatives in place for more than three years and were conducting e-commerce with at least 20 percent of their trading partners (by volume).
The study also showed that the maturity level varied by industry, geography and company size. For example, the most mature B2B programs were found in companies with more than $1 billion in revenue. When breaking the results down by industry sector, apparel retailers plan to spend more money in 2008 for B2B programs, at $7 million. The top five factors driving new projects include: changes to augment ERP applications; increases in new product introductions; changes in corporate structure; centralization of IT resources; and movement into global markets.
Most Important Benefits
Among the study participants, 61 percent saw improved revenue from their B2B initiatives, and companies with mature B2B programs saw even better returns: 68 percent vs. 59 percent for those rating themselves less mature. This clearly shows a network effect as companies mature in their B2B initiatives. By industry, 57 percent of apparel retailers found cash-to-cash efficiency as a main drive, while food and beverage companies noted reductions in costs as their main driver for B2B initiatives.
The More Mature the B2B Understanding, the Greater the Benefit
Companies with more mature programs see B2B as fundamental to improving shopper-driven supply chains (that is, supply networks that meet the changing needs of the shopper based on store demographics).
Mature companies rated themselves higher on two significant factors -strength and flexibility:
1. The strength of the B2B program is vital to the organization delivering a customized shopper experience.
2. The flexibility of the B2B program is important to show how easy it is to do business with the company.
Here is a more in-depth look at the importance of the customer experience in Figure 1.
Figure 1: The Importance of B2B to the customer experience.
Costs to Integrate Are High for the Entire Trading Community
Traditional methods of integration will not allow connectivity to the entire trading community; on average only 25 percent of trading communities are electronically connected. While this percentage is low, it also speaks to the disparities in cost to integrate just one process (which can range from $800 to $3,000). The same process implementation times also can vary from 10 days to two months. But the largest obstacle companies face is in the recruitment of partners to participate; lack of value is viewed as an additional cost of doing business.
Expediency vs. Strategy
The need for quick and decisive action generally sends companies down multiple paths to achieve their integration objectives, often with a combination of licensed software and third-party services. Once software-as-a-service (SaaS) providers enter into the mix, (offerings range from data translation and transformation to business applications), it's easy to see how the B2B portfolio of a company can expand rapidly.
With the myriad technology choices available, it's important to understand the unique role each can play when building an overall B2B e-business strategy. The evaluation of vendors and service providers should be done taking four different perspectives as outlined in Figure 2 below:
* The approach to integration
* Options for deployment
* Variety of offerings
* Managed services provided
And it is wise to note that B2B alternatives range from software to process management:
Figure 2: B2BAltenratives range from software to process management.
Expanding Trading Partner Integration Drives B2B
A combination of emerging technologies and the coming-of-age business models that were launched in the dot-com boom nearly 10 years ago are available today to meet the challenge of electronic communication in the trading community. These include:
* SaaS allows trading communities to interact and conduct commerce on a single, unified platform.
* Service-oriented architecture (SOA) provides new ways to access information and content as well as build workflows that support unique trading relationships between partners.
* The advent of managed services promises to relieve companies of the burden of connecting to and managing the communications with partners.
* The trading exchanges of the past have transformed into networks of companies working in mutual self-interest to achieve specific goals and objectives.
With the introduction and growing maturity of these new technologies and business models comes a heightened expectation from the user community, which is relentlessly pushing the industry toward pervasive electronic connectivity within and between enterprises.
The Bottom Line
Most companies recognize the value and strive to connect a much larger portion of trading partners electronically, but the building and ongoing management of a broader network often falls to a very low level of prioritization. ERP vendors that support the enterprise also fall far short in providing tools to grow B2B connectivity, instead concentrating on integration of internal applications.
Building the network for B2B e-business is a tedious, complex and costly undertaking. In today's enterprise environment, if technology can't deliver quantitative value in less than a year, the initiatives they support at best lose momentum and at worst are scaled back or ended. Unfortunately, many B2B projects fall victim to this phenomena. Time to value is critical, so the use of software and services has to be made a consideration for enterprises that don't have the skills, patience or focus to implement and manage a B2B e-business network in the supply chain.
The bottom line is that electronic integration improves visibility and collaboration and in theory assists in partner trust, but the numbers are the reason to invest. B2B integration is a revenue enhancer, assists in cost reduction and cash-to-cash efficiency. Regardless of economics, companies must understand that a solid B2B strategy is favored over expediency.
About Mickey North Rizza
Mickey North Rizza has 22 years of supply chain management and global sourcing experience. She is a research director in the supply management practice at AMR Research Inc. and a key member of the supply chain team, working to communicate effective supply chain, procurement and sourcing strategies to AMR Research's clients.
Prior to joining AMR Research, Mickey worked at Moduslink Corporation, where she held the positions of vice president of global supply base management and director of procurement and sourcing. At Moduslink, she was responsible for implementing strategic sourcing programs, driving strategic positioning of materials in Europe and the Americas, and introducing new procurement technology.
Mickey also worked as a materials manager at M/A-Com Inc., a division of Tyco International. While at M/A-Com, Mickey developed and implemented strategic plans and integrated roadmaps to accompany the strategic supply chain model. In addition she introduced a pilot manufacturing resource management system.
During her career, Mickey has aided many companies as they built their supply chain strategies including as a purchasing manager of Advanced Techcom Inc., Innova Corporation and Motorola.
Mickey earned a B.A. in Material Logistic Management from Michigan State University, is a member of Institute for Supply Management, a member of Cambridge Who's Who and serves as a Board of Trustee on the Delta Gamma Foundation.
About AMR Research Inc.
AMR Research Inc. is a Boston, MA-based company that advises manufacturers, retailers and technology executives on operational decisions. Visit AMR Research Inc. at AMRResearch.com.