Working on the B2B & B2C chain gang - Part One

In this roundtable, supply chain software suppliers explain the hows and whys of change in business-to-business and business-to-consumer e-commerce.

By -- Modern Materials Handling, 6/1/2000

MMH: Let's start with an easy question. What's the Duh! in e-commerce?

Enslow: Once you sell it, you have to decide how are you actually going to get it picked and delivered to the customer.

Tonissen: I'll add another one: Profitability is coming into vogue in e-commerce. You've got to understand where you're making money and where you're losing money. We've been talking with a lot of 3PL's serving the dot com market, and they're not sure which customers they're making money off of and which customers they're losing money off of.

MMH: You mean within their own operation they don't know?

Tonissen: Absolutely. They're being asked to do certain value added services, and aren't sure how to price those. These are new models, and with new models you tend to throw traditional pricing decisions out the window.

Pulling: There's so much pressure on the Web front end to get started in e-commerce that people tend to forget about this fulfillment stuff. But business fundamentals still have to be there. Just because you're selling from a Web site doesn't absolve you of the responsibility of running a profitable business.

MMH: What strikes me as so interesting is that the New Yorker did a piece back in December that said it's not the Web site, it's the warehouse. Now, the New Yorker gets it. Shouldn't this be apparent to the people actually in the business?

Riggin: At the moment, there's still a warehouse at the center of every business-to-consumer proposition out there. And there will be until we figure out how to manage virtual inventory. Despite that, there is too much hype on the front end and too little emphasis on the Web fulfillment solutions that everyone at this table is providing. It's the feature-functionality that's going to make the bottom line. For instance, there's still a great need for best of breed and top quality, full-featured WMS providers out there to fill e-commerce orders.

Enslow: It's not only the dot coms that don't understand e-fulfillment. The traditional 3PLs don't understand it either. We've seen a number of large dot com accounts get transferred from 3PL to 3PL to 3PL because they couldn't provide accurate order status, inventory visibility, get it right the first time, and handle return processing. It's a paradox that not only do the dot coms have to do some soul searching, but many of the traditional businesses need to do some soul searching as well.

Hopkins: A lot of reality has set in since companies started to look at the cost of reverse logistics. How do I get stuff back to the places that I bought it from? They are just now realizing the cost involved in that. We're actually seeing a couple of new entitities spring up just to deal with that for the dot com world. So, the ugly side of e-commerce is starting to be seen.

Trew: The reality is that people who have not been in direct-to-consumer applications before are now realizing that their return rates are going to go from 2 to 3% to as much as 40%, especially in soft goods. They don't have the infrastructure in place to deal with it. For most companies, there's absolutely no infrastructure at this point in time on the back end to deal with the realities of doing business over the Internet.

Christensen: Our customers may not be ready for e-commerce, but at the same time, a lot of the software out there has also fallen short of the mark. Many of our competitors have simply put a Web browser on the front end of their applications without fundamentally changing the architecture to become a true e-commerce application. That won't work.

Tonissen: The other thing is that B2B and B2C are radically different. We tend to focus on B2C, but B2B is where the real action is going in terms of trade exchanges, supply chain visibility, and collaboration between trading partners. As we go into this e-commerce world, there are vendors to B2B that are very good at visibility, vendors very good at warehousing, and vendors very good at databases. What we have to do is make these systems work together. The good news is that with XML and others, we have the opportunity to do that for the first time. The infrastructure is now in place.

Pulling: That's true, but I think we have to be careful not to think that XML will solve all of the short-comings of EDI. Our products have to work in an environment where they can seamlessly integrate and share information with other systems, recognizing it's the customer's information-not ours-that we're sharing.

Linnen: We also have to recognize that B2B is totally separate from B2C in the e-commerce world. I know where warehouse management systems fit in to B2C. But B2B is another animal. And it's not clear yet where WMS fits into B2B. Obviously the integration and visibility of the data that all of us have in our systems is key. But how that plays and interacts with ERP systems and traditional EDI systems is yet to be seen.

Riggin: What's also going to happen is that the enterprise is going to become a B2B enterprise within itself. With 3PLs, 4PLs, and whatever else may be created there could be many, many separate companies running a virtual enterprise. B2B technologies are going to be employed to drive that enterprise. So when a company says to us: well we really don't care about B2B, they really should because their own enterprises are going to be dealing within that in the years to come.

Trew: B2B and B2C e-commerce applications are still being defined. The entire supply chain for B2B is going to get more complicated and we're going to have to be flexible enough to react to that.

Linnen: B2B e-commerce really involves a cultural change within companies. Technology has brought the cost down to allow visibility and sharing of information. But it really comes down to whether a company is willing to make the cultural changes to share that information with their partners. That's the biggest challenge to B2B. That would be the duh! in e-commerce. Traditional companies are saying they'll share their information, but when it comes down to implementing collaborative solutions, they become very selective about who they share that information with. In B2C, it's here today. Dot com companies don't have to over-come the political nature of traditional companies today and that can be helpful to them.

MMH: One of the precepts of B2C is that you have to tell the customer that yes, this can be delivered tomorrow. That requires a certain level of sharing of information. Now everybody's a consumer. So why will there be a slow reaction in B2B to share that same information.

Pulling: We see two kinds of organizations today. One type hoards their data as if it's a competitive advantage to them. The other type shares it and drives more value out of it. The classic is "I don't want my customers to see what I'm doing because I might screw it up," versus "we're so good that we'll show you everything." It's a customer service thing. People like to do business with people who are easy to do business with. The whole goal of supply chain visibility is to make it easy to do business with.

Enslow: It's not just visibility. It's also confidence in the systems. Even if I have visibility, can I trust that it will be there on time so that I don't have to order two of everything. Can I reduce my inventory and drive down cycle times. That drives bottom line profitability.

MMH: Is the barrier today to B2B technological or cultural?

Linnen: It's cultural. Everyone sees the benefit of collaboration, but when it gets down to companies actually wanting to implement it, that's when we get to the cultural barriers.

Riggin: The technology is capable and the standards are emerging. But the amount of collaboration that is actually going on with the standards that exist today is a lot less than some people want you to believe.

Trew: There are clearly defined shipment standards in an EDI world today that are slowly being replaced, or will ultimately be replaced, by XML. But that's not going to happen over night. There are going to be barriers to getting B2B standards established. In the way are the costly EDI standards that are so well entrenched.

Pulling: I don't think standards are the key. I think it's the flexibility of people being willing to play in a world where the semantic translation of data is reality and you just got to deal with it. In the software business, we have to figure out how to integrate with our customers and to make that easy.

White: It's more than that. If we just assume that EDI is going to be Internet-enabled as XML, we're missing a huge opportunity to re-engineer the way they do business. You shouldn't just do what you do now in an e-commerce model. We should throw everything out and ask: what do we need that's completely different? EDI automated the way we did things before but it didn't change the business process. Collaboration and collaborative transportation management are changing the way buyers, sellers, and carriers behave. It's a different way of doing business.

Christensen: I agree. Approaching XML as if it was just EDI over the Internet, really doesn't fundamentally change anything about the software applications.

Enslow: Right. We don't just want to do the same processes only faster. We really want to re-engineer the whole supply chain by looking at how we can restructure what's happening.

White: I agree very strongly with that. The big difference between B2C and B2B is the collaborative planning process. There is a mutual benefit that's being missed. When you tie your business processes together, whatever the B2C model is, whether it's a Web store front, bricks-and-mortar, doesn't matter.

Once you know what it is, you've got visibility, you've got demand, the promotion timing that's driving the whole value chain, the carriers, the movement of product, everything that's been done to date didn't give that visibility. EDI never did it. Just XML won't do it. We need new business processes between new people. And that's going to take time.

Pulling: I absolutely agree, and that's what's driving the whole B2B re-engineering. Hopefully B2C companies will bring that back into traditional companies and drive that process. The successful B2C companies are going to be the ones that collaboratively plan with traditional companies and manufacturers. Getting B2B functionality going is key to their success.

Hopkins: We have a customer that's recently recognized that they get a great deal of benefit from their larger suppliers that can handle electronic data interchange and provide information. They see the benefit there. But 80% of their suppliers are mom and pops that can't do that. They're looking for solutions that can help that 80% get up to speed. They're willing to go out and help those suppliers implement these systems because it reduces their overall costs.

MMH: When I talk to people about e-commerce, so much of what they talk about seems to be focused within the four walls of the warehouse. Which makes me wonder, how much is the supply chain a factor in e-commerce today, or is it all about what happens in the four walls of the DC? Have companies started to go to the next level?

Pulling: What happens within the four walls of the warehouse is certainly important. If people could figure out how not to have those four walls, they would. It's just sitting there costing them money. And so, clearly good warehousing practices are important. But the more you trust all that visibility, the less inventory you're carrying in the supply chain. I think it's definitely not just about what's happening within the four walls of a facility. That's a factor, but if you focus just on that, that's not really the whole story.

White: I think e-commerce, to be successful, has very little to do with the B in B2B. Success has everything to do with the 2 in B2B. Anyone who focuses only internally is missing the point. The way people communicate, collaborate, and share data-that's where the whole emphasis should be.

Christensen: The supply chain is e-commerce if properly done. And it's collaborative applications that are the defining factor of the supply chain in the e-commerce world. If I have the good fortune to establish a B2B relationship in an e-commerce world with my vendor, when I change something, it better change his system and not just pass him a message that he has to interpret and change. It should change his process. Either he's going to stop the thing he was going to provide me because I need to push out the dates or he needs to accelerate his picks so it starts to move upstream earlier than he had originally planned.

Enslow: I think what we're seeing in e-commerce is that it is going to become more complex. With e-commerce you're going to have a much more dynamic supply chain. You can source from new suppliers from around the world. And frankly, we don't have those technologies just yet. We're just beginning to see those come onto the market now.

White: The business model we've built over the last 30 years is to keep information secret and then not share it. That approach no longer works. It's worn out. Because you don't know what's happening, that's exactly the reason why you need to share information and then you jointly work on that information. It could be any sort of information. It could be a forecast. It could be a transportation load. And then both systems execute, receive the data, then actually move product against it. So, because you don't know what's happening in the value chain is exactly the reason why you should share it.

If you look at the way people compete in organizations today, what's collaboration's doing today is actually re-drawing the competitive boundaries. Instead of competing on a company by company level, they're actually building a competitive boundary between buyer and seller. So that becomes what some people call a value chain. You're actually sharing each others' assets and knowledge and information instead of just making the best deal of the day. They're actually competing across value chains.

Tonissen: You've got to optimize within the four walls, but then the four walls have to provide visibility into what they're doing and collaborate and adapt to what other people are doing. The adoption though that they do can't be automatic. In other words, the minute this happens, a set of rules that apply and you have to do this because guess what, the next thing that's going to happen is that those rules aren't going to apply.

Pulling: That's a valid point. You can't build rules for every eventuality. You can for the routine stuff. But work flow and all of the things that go with this data, somewhere somebody's got to be able to make a decision based on this stuff. The point of visibility is to give you enough information that you can make an intelligent choice, not necessarily an automatic choice that's made for you.

Next month, we will conclude the second half of the roundtable.

Roundtable participants:

Steve Christensen, vice president sales, Renaissance Software

Beth Enslow, vice president strategic initiatives, Descartes Systems Group

Gary Forger, executive editor, Modern Materials Handling

Ed Hopkins, vice president sales & marketing, Kewill Logistics

Dave Linnen, vice president of product strategy, Intrepa

John Pulling, vice president and chief operating officer, Provia Software

Ron Riggin, vice president & chief technology officer, TRW's Marc Systems

Steve Tonissen, executive vice president of sales and marketing, McHugh Software International

Dan Trew, vice president product strategy, Catalyst International

Andrew White, vice president product strategy, Logility