Business-to-Business E-commerce And Enterprise Resource Planning: Increasing

Value In Supply Chain Management

Zinovy Radovilsky, Professor
California State University, Hayward, CA 94542, 510/885-3302
[email protected]
Abstract. The modern ERP systems are fully integrated with e-commerce supply chain
solutions like e-procurement, seller-oriented marketplaces, exchanges and auctions, etc.
However, these integrated ERP systems still have substantial implementation and utilization
issues including complexity, high cost of ownership, long time to recover investments, and
being unaffordable for small- and middle-size companies. The paper presents the framework
of overcoming these issues and increasing value in supply chain e-commerce development
and ERP.
Introduction. In 2000, more than 35,000 firms worldwide paid around $20 billion to enterprise
resource 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 solutions
well into the new millennium. According to several forecasts, the industry will grow to
approximately $70 billion in 2003. One of the main trends in developing the ERP systems is
their 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 research
literature about the future trends in ERP in relation to B2B e-commerce supply chain
management. 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 to
be developed to run the business. Merely automating systems is no longer the cure. The major
bottleneck 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 takes
place, the company is able to adjust to it immediately and effectively. This proactive
adaptability of an enterprise around redefined business objectives is called enterprise-wide
integration. The trend today is that many organizations are changing from function-oriented
businesses to process-driven entities. ERP systems enable this to happen, not only at the
information systems level but also at the applications level.
Having evolved from the Manufacturing Resource Planning (MRP II) system, ERP is an
applications and software architecture that facilitates the flow of information between
operations, finance, accounting, marketing, and human resources functions within a company
and, as such, is an enterprise-wide information system. Using a centralized database
operating on a common computing platform, ERP system components interact with an
integrated set of commonly designed applications, consolidating all business operations into a
uniform system environment.
Originally, ERP gave companies two major benefits that did not exist in the days of nonintegrated (although interfaced) systems: a unified enterprise view of the business common to
all functions and departments (integration); and an enterprise database where all significant
business transactions are entered, recorded, processed, monitored, and reported (data

automation). Other benefits described in the literature sources and observed by practitioners
were: easier access to reliable information; elimination of redundant data and operations;
reduction of inventory and production cycle times; and easier adaptability in a changing
business 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 many
failed and extraordinarily over budget ERP projects. Implementation of ERP was usually a
time-consuming, expensive and arduous task. ERP systems forced firms to re-design current
practices to fit within the processes described by the ERP modules. The integration of the
system was still not complete, because ERP usually represented the back-end of the
enterprise. ERP did not incorporate an evolving set of the front-end applications of B2B ecommerce like storefronts (seller-oriented marketplaces), e-procurement solutions, exchanges,
and others.
Selecting the wrong software could result in an unwilling commitment to architecture and
applications that do not fit with the organization's strategic goals. Expectations of a company
might exceed the capabilities of the system. An ERP system was not all-powerful, it could not
change 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 enormity
of an ERP project was regularly underestimated; sustaining the system requires a continued
long-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 phase
of the ERP evolution. Comparative analysis of the modern ERP systems and evaluation of the
literature sources allowed concluding that the second phase is characterized by the new trends
in 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 selleroriented 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 in
the ERP development in the past two-three years. Today, ERP systems have direct relations
with the evolving applications of e-commerce, specifically its B2B supply chain applications. It
is interesting to point out that major enterprise software vendors do not call their software
ERP any more, but use the software titles related to e-commerce solutions. For example, the
Oracles recent set of ERP applications is titled E-business Suite. SAP is claming the
development of E-business Platform.

B2B E-commerce Solutions in ERP. The idea of combining B2B e-commerce applications
and ERP systems is deeply rooted into the needs of fully integrating and automating the
electronic enterprises flows, making them more quick and efficient. For example, a B2B
storefront, where the company sells its products online, represents a front-office of the
company. However, the needs of timely fulfillment of the sales orders require their prompt
processing into the master scheduling, material requirements planning, distribution resource
planning, and, eventually, quick passage of information to the companys suppliers. This
necessitates an integration of the front-office and the ERP back-office of the company. On
the other side, the modern e-commerce solutions for purchasing and outsourcing (buyeroriented or e-procurement solutions) provide online supplier catalogs, quick RFQ bidding, and
simplified supplier-customer relationships. However, the e-procurement decisions are tightly
related to the overall purchasing systems in the company, supplier selection and scheduling
processes, which are parts of ERP.
The integration of B2B e-commerce and ERP takes place in various areas of supply chain
management including its networking, coordination, planning, and execution. The modern ERP
systems (SAP, for example) could provide the following e-commerce supply chain
management solutions:

Private Exchanges--e-marketplace infrastructure that enables to extend the supply chain

processes across enterprise boundaries by linking suppliers, partners, and customers
Supply Chain Portals allow users collaborate with colleagues down the hall or across the
globe, both inside and outside the enterprise
Mobile Business--extends the efficiencies and benefits of networked supply chain
management to every member of the network
Collaborative Demand and Supply Planning -- enables buyers and sellers to collaborate on
demand and order forecasting, synchronizing plans based on the dynamic exchange of
information
Supply Chain Design -- allows to align supply chain infrastructures to changing market
conditions, such as new product launches and new customer segments, that enable to
reduce time to value
Supply Chain Event Management -- monitors every stage in the supply chain process, from
price quotation to the moment the product arrives at the customer site -- including alerts
when things go wrong
Supply Chain Performance Management -- monitors and reports on key indicators and
objectives of supply chain performance, including costs and assets across the supply chain
network
Collaborative Procurement -- integrates Web-based buying processes, including rule-based
procurement, automated replenishment, and multiple supplier support
Collaborative Manufacturing -- manages supply chains throughout all stages of the
manufacturing process -- even across enterprise boundaries
Collaborative Fulfillment -- enables to quickly determine where and when to obtain a
product, and handles order management, availability checks, and transportation
management.

The described solutions that integrate ERP and e-commerce supply chain management are
designed to provide the benefits to all elements of supply chain. For the customers, this
integration 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 ERP
systems 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 chain
could 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 and
potential 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 the
majority of companies. Statistics show that only 5 to 8% of companies, that originally utilized
ERP systems, have already implemented or are implementing integrated ERP and ecommerce solutions. Most of the companies with ERP systems still either do not have any ecommerce supply chain applications, or prefer to utilize a non-ERP vendor company for their
e-commerce solutions. The analysis of the ERP and e-commerce integration allowed to cluster
the issues related to this implementation into three main groups: ERP-related issues, ecommerce related issues, and infrastructure related issues.
Web-enabled ERP systems and their implementation still remain very complex, time- and costconsuming. These systems require substantial testing, parallel implementation, and trained
professionals. The cost of upgrading an existing (old technology) ERP system to a web-

enabled one could be, depending of the company size, from 0.4 to up to $300 mln. Hence, in
many cases the companies seek less expensive e-commerce solutions for their B2B selleroriented or buyer-oriented marketplaces, and then apply other system integration software to
bridge the e-commerce applications with the existing back-office systems. This scenario, being
usually less costly, does not provide really one-system integration of supply chain
management solutions and leads to the continuation of the old practice of managing
customers, manufacturing, and suppliers separately. Moreover, the existing ERP systems are
still 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 hosting
company-applications service provider (ASP). These companies develop and host ERP related
software themselves or host software developed by others. ASPs rent the use of the software
to companies and are responsible for running the applications the customers rent. The
customers usually pay a monthly fee to get access to the software capabilities. However, the
utilization of ASP poses potential problems related to: the ability of a hosting company to
provide 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 also
related 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 chain
management, 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 or
other e-commerce companies; creating consortia (joint venture) e-commerce corporations; and
adding services and capabilities to the existing e-commerce vendors. This all increases the
role and market share of the newly developed e-commerce vendors in selling and supporting
their own applications in various production and service organizations. At the same time, the
role of integrated ERP and e-commerce solutions may be diminished.
Many businesses still feel the psychological effect of the massive crashes of e-commerce
companies in 2000-2001. Thus, they remain very cautious in terms of implementing ecommerce supply chain management solutions. Besides, the Internet-enabled applications are
still lacking security level necessary for data and records protection. There are also potential
cost disadvantages in the e-commerce solutions including: increased transportation cost due
to 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 the
bandwidth limitations of the web-enabled systems, reliability and security of the Internet
service providers, and incompatibility with some operating systems and hardware. These
reduce the level of applicability of various scenarios if the ERP and e-commerce integration.
Improving Implementation of Integrated Solutions. The analysis of the implementation of
web-enabled ERP systems and their integration with B2B e-commerce solutions allowed
recommending several directions that would positively affect the future growth and proliferation
of that integration. The main idea of the proposed improvement is the simplification of the
integrated solutions, their cost reduction, and future increase of hosting applications. The main
highlights of these improvements are as following:

Development and implementation of simplified web-enabled and e-commerce integrated

systems for small- and middle-size companiesLower applications and implementation costs
by selling individual ERP modules integrated with e-commerce solutions Enhancing
existing ERP and e-commerce hosting solutions with more variety and flexibility for
accommodating various customer needs.

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