Staff Liberation Through Hosting
Along with reducing costs (which all CIOs are under pressure to do) and increasing the accuracy of forecasting and tracking (which all business users depend upon), CIOs also want to expend fewer internal IT resources on customization and troubleshooting in order to free up their staffers to work on more strategic projects, says Aberdeen's Enslow.
At Imperial Sugar, an $US800 million sugar processor and refinery, VP and CIO George Muller is running Sterling Commerce's services for order management and inventory. Since going live with Sterling's services in 2004, he's found that his IS staffers are "managing exceptions rather than every transaction". "They can," he says, "focus instead on higher-value activities."
For example, whereas Muller's team previously had to find and fix exception transactions that wound up in what Muller calls an "edit and correction bucket", now, because these exceptions are fewer and more easily identified, his team can focus on development and system enhancement requests that "drive business value versus day-to-day maintenance".
There's another advantage of using an outsourced integration service provider: The hosted front end of an enterprise's supply chain system has the ability to communicate with the different communications protocols found in today's supply chain. Jayaraman says that E2open's ability to translate from one language to another is hugely significant for Hitachi. For example, say a company's systems can communicate only in the "language" of RosettaNet but the company's partners speak in EDI, XML or iDoc. E2open enables the front-end translation from one language to another and updates the back-end systems as well - which is where current enterprise SCM systems really fall down. As Muller says, "If you're a customer of ours, you can have it your way."
Of Course, Nothing Is Ever That Simple
Gartner's Lheureux says that right now he's tracking more than 85 vendors that claim to offer some sort of integration services for all forms of multi-enterprise integration, including the supply chain. (For a menu of the services available, see "The Hosted Supply Chain Menu", page 100.) Market leaders currently include GXS, Sterling Commerce, Inovis and E2open, and Lheureux estimates the market right now to be worth around $US1 billion.
The first challenge for these vendors will be overcoming resistance from CIOs. According to an Aberdeen Group survey, CIOs worry about data security, integrating on-demand solutions with internal systems and downtime problems; in addition, they're concerned that outsourcing their supply chain applications will compromise their ability to tweak these applications for individual customers. "As a CIO, I believe I can do things internally as well as turning the keys over to an outsourcer," says Imperial Sugar's Muller. But as he investigated what Sterling Commerce offered, Muller was forced to confront his staff's limitations: "With EDI and VANs, that's just not something I can do. Just like I wouldn't go out and build a general ledger system or a data centre."
Another challenge for the integration vendors is signing on enough enterprises to bring on what analysts call a critical mass of suppliers into each vendor's systems and trading hubs. Without that critical mass, CIOs wonder what will become of those vendors and, more important, what would become of their clients if they go under. "If [E2open] can't get that [critical mass], I don't know how they're going to remain in business," Agere's Morris says.
Ironically, the flexibility and ease of integration these vendors provide could also be their downfall because the costs of switching between them become much lower than with traditional packaged application vendors. For Tyco Electronics' Vance, going with E2open wasn't "a bet the ranch proposition. I wouldn't be hard-pressed to bring in another tool to do the same kind of process," he says. "It's a tool; we're not locked in."
While CIOs may not be locked in, many are locking on to this new and more efficient way of doing business with their suppliers and customers. And, given the results so far, no one wants to go back to the bad old days. "It is inconvenient for us to do business in a different way," says Hitachi's Jayaraman. "If we should start faxing things, [our employees] would quit.
"We don't have very many fax machines left."
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