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Can Your Company's Systems Keep Pace?

Managing this quickly growing, increasingly complex, and highly valuable marketplace has put an enormous strain on company information systems. These profound changes hit a company's information systems with greater intensity, since the demands simultaneously raise expectations of both management and end users. In a cruel irony, companies often find that their internal information systems—designed and working fine for previous eras and business models—are not flexible or adaptable.

Figure 1.1 shows how corporate systems have evolved over the last 40 years. The first corporate systems, installed in the 1960s and 1970s, focused on basic administrative systems such as accounting for management control, and in some industries manufacturing. These systems normally served a few end users, at most a few hundred. Computer storage came with a high price tag—so high, in fact, that data files abbreviated years to the last two digits, a decision that would come back to haunt business in the year 1999. The systems were called mainframes or heavy iron by the engineers of that time.

By the 1980s, the heavy iron became a little lighter. Minicomputers by companies such as DEC, Wang, Data General, and Prime emerged to claim a large piece of the corporate computer market. These smaller machines took on additional management tasks, such as distribution, human resources, and planning functions. During this time Electronic Data Interchange (EDI) emerged as well. Despite the introduction of EDI, however, sharing of data with other companies in the supply chain remained the exception. (We discuss EDI later in the article.)

By the early 1990s, client/server architectures emerged, adding personal computers (PCs) and sometimes Apple Macintoshes to the networks supported by corporate systems. The number of users grew dramatically, into the thousands, but the focus of the systems remained internal to the enterprise.

The second half of the 1990s brought web architectures that reached outside the enterprise and brought in customers and suppliers, making the supply chain more accessible to the corporate system. Intranets enabled the sales force to keep in better touch with inventory and production, and remote call centers could now capture more sales or give real-time responses to customer inquiries. The number of system users, either direct or indirect, rose to the tens of thousands.

But the new (for the 1990s) web architectures still didn't solve the problem of integrating the systems of supply-chain partners. Suppliers either used the customer's systems or designed their own systems around the needs of the customers, whether or not they served the other needs of the supplier company.35

During the 1990s, several paper companies provided their better printing company customers with remote terminals to access the paper companies' order-entry systems. Since few printers wanted to confine themselves to one paper company supplier, it was not unusual to find in some purchasing offices several different makes and models of remote terminals that the printers used to buy paper. The question remained, how can independent systems of trading partners relate closely with each other?

It turns out that companies can relate with their trading partners in several ways, and companies now need to be prepared to support most, if not all of the arrangements described in the following sections.

Direct to Consumer

This is the most visible web approach, exemplified by the Gateway Computers model, but now practiced by many companies in imitation. You give the consumer direct access to order-entry and customer service. The customer likes the idea of buying direct from the manufacturer, and, in principle at least, this should result in lower prices for the goods. Customers also interact with other customers online through questionnaires and forms, offering ratings and reviewing goods and services. A further model is the clicks-and-mortar approach that takes advantage of well-known retailers' brand names to offer more service and follow-on sales.

One potential problem in this arrangement is that customer service can become a nightmare. Customers demand one-on-one service, even as the number of parties served expands to the tens or hundreds of thousands. By 1999, an idea called customer relationship management emerged to plan for this type of mass customization, yet remain self-maintaining systems.36

Disintermediation

In this approach, the supply chain disappears completely, and the customer goes directly to the manufacturer's inventory. Farmers' markets offer an example of this approach, wherein the consumer buys from the people who produce the goods. While disintermediation may seem like a worthy goal, it becomes clear that in many industries, intermediaries serve useful purposes and add considerable value to the consumer.37 As noted earlier in this article, e-business puts the onus on intermediaries to add value to the business process, and those that succeed will likely thrive as a result.

Business to Business

As shown earlier, trade between businesses dwarfs the commerce between consumers and businesses. But business-to-business trade comes with its own set of rules and protocols, often varying from one industry to another. In some cases, business must learn the language and requirements of their suppliers, as in the case of small package-delivery services or healthcare claims. However, this arena has proven to be the one that lends itself most to integration through the supply chain; up to now, at least, providing much of the productivity and business process improvements, such as the vertical exchanges discussed previously.

Distributors

Another kind of business-to-business arrangement includes the use of distributors, either for marketing or customer support. Many industries still find it economical to serve end users through a dealer or distributor network. Suppliers may be too small to serve customers in remote locations, or a product may require fast deliveries, as in the case of perishable foods. Using distributors may add to the price, but they add value to the product or service for the end user. Adding another tier to the channel adds more complexity and requires more sophisticated systems in the supply chain; therefore, the services provided by the distributors need to justify these resources needed by the business partners.

References and Affiliates

The web has generated an entire new class of trading partner, the affiliate. This kind of "infomediary" adds a button or logo of the trading partner to the company web site, and then receives a nominal reward for each sale generated through that link.

Multi-Vendor Malls

Taking the modern shopping plaza as its analog, the web has generated another new form of business relationship, the mall. As with the retail Galleria, the multi-vendor mall is a collection of vendors addressing a specific market, although the electronic variety is aimed more often at business than retail customers. A good example of the multi-vendor mall is the E-Mall developed for the U.S. Defense Logistics Agency, which provides Department of Defense procurement offices a literal one-stop shop for non-weapons logistics goods.38

One can begin to understand how a company's information systems can come under considerable strain, particularly if designed and sized in a previous era. Information systems directors cannot just toss out the older legacy systems however. They need to make them work under these new conditions. Therefore, any solutions that address e-business need to be prepared to interface to systems created for simpler times.

Here is where trading partners can help. In some industries, notably retail, all parties in the supply chain have agreed to use the manufacturer's item number for tracking inventory or usage throughout the item's lifecycle. In the case of grocery stores, manufacturers, distributors, and retailers use the Universal Product Code (UPC) number to track sales and inventory of products. The manufacturer assigns the number to the product, and it gets bar-coded on the product label, as well as used in master carton and case bar codes.39 The grocery industry's success shows the possibilities of standardization in an industry and the benefits that can result.

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