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November 26, 2012

Guest blog: Maintaining the chain

Analysts Clive Longbottom and Rob Bamforth of Quocirca discuss integrating and monitoring business-to-business (B2B) value chains through the use of external services

By Cbr Rolling Blog

B2B supply chains are becoming evermore complex. As the internet has enabled even the smallest organisations to participate in the globalisation of services and product delivery, many now have to deal with thousands of business suppliers and customers regularly, with the processes involved encompassing many different business functions.

Maintaining capabilities across broad functions requires systems that are well integrated, audited, secure and capable of being reported on at a granular level. Cloud-based approaches introduce new opportunities to gain access to advanced functionality, but also introduce issues around B2B integration for organisations.

Historically, much of the communication and collaboration has been carried out via manual paper/telephone processes, or using manual electronic means such as email.

Some organisations have used more automated means, employing standardised electronic data interchange (EDI) such as UN/EDIFACT, but even then the variability in adoption of the standards, along with the multiple different versions and global/ local dialects of such standards, can still lead to issues

However, even an automated approach covers but one facet of a supply chain.

Physical goods need to be catalogued in a way that makes them easy for prospective customers to see. Invoices need to be created, stored and exchanged. Cross-border logistics, tax and duty issues, funds transfers and payment reconciliation are all a core part of pulling together a cohesive and coherent system.

Queries are raised on delivery timescales; changes need to be made to product specifications. Skills from external individuals need to be brought in, using communication and collaboration capabilities that need to be linked with the overall process of managing governance, risk and compliance (GRC) issues.

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Many organisations have each of these areas covered in different silos, with in-house enterprise resource planning (ERP) systems, dedicated purchasing systems, internal document management and web-based content management systems all dealing with different aspects.

In addition they will have point solutions, such as email, instant messaging (IM) and voice over IP (VoIP), etc. Somehow an organisation needs to connect together all of this critical information to get a clear picture and respond effectively.

This extended chain of interactions – the B2B value chain – means organisations are starting to consider how they deal with the problems it presents.

The lack of integration between key aspects of value chains inevitably leads to problems in the use of multiple different data stores and transcription or data transfer errors between systems.

With increasing requirements to be able to demonstrate compliance with local, central and global legal governance, as well as the need to demonstrate adherence to standards such as ISO 17799, fully integrated processes are required.

Many companies are starting to restructure their IT infrastructure and evaluate cloud-based services as a way of updating some legacy systems. The aim is to develop more flexible B2B capabilities with less dependency on specific hardware and software aspects in a given business function so that, as the needs of the business change, the B2B infrastructure system can change too.

As cloud computing matures and more services are sourced from both private and public cloud platforms, it becomes even more important that systems are well integrated, audited and controlled.

The main approaches currently being used for dealing with interactions between organisations in a value chain are:

  • Manual – Paper-based catalogues, orders and invoices, combined with phone calls and emails. Even where electronic documents are used, Quocirca’s research shows that many firms regard .pdf files as providing a degree of automation, when all they do is to provide a means of ‘locking down’ the details in a document.
  • Semi-automated – Enterprise software, such as ERP packages, may automate some aspects, but overall it remains fragmented across different semi-automated and paper-based systems.
  • Proprietary or semi-proprietary silos – Using bespoke applications with more standardised technologies such as file transfer protocol (FTP), which in most cases just replaces email.
  • Point integration – Some companies have taken steps to aggregate functionality, using integration between specific systems such as ERP to trigger standardised emails or data packets that can be sent to suppliers and/or customers.
  • Single standard – Some organisations have embraced a specific EDI or XML standard, but may struggle as they grow and need to deal with new geographies or different industries where their preferred approach is not used by target customers or suppliers.
  • Prescriptive web-based portals – Smaller firms may have been forced into using proprietary web-based portals to interact with their larger customers, having to access these systems and then manually transcribe information from their own systems into the web forms presented to them.

All of this leads to issues. Incoming and outgoing information may increasingly have to be dealt with as exceptions, using human interventions to take what should be a standard EDI exchange of information and turning it into a manual exercise due to the incompatibilities of the systems involved.

Along with these interventions, other activities will need to be included; for example, a call to let the customer or supplier know there will be a different requirement for this particular transaction.

Transcription errors can easily creep in with manual interventions. Increasingly, there is a need for complete end-to-end B2B processes to be looked at, and systems implemented that enable an open, flexible and secure means of automating all of the various aspects of the process.

There are many options available to an organisation considering their position when it comes to B2B integration. Most will already have some tools in place, whether these are stand-alone systems that automate certain aspects of the B2B value chain, and/or some hosted or cloud-based systems that cover certain areas.

Quocirca recommends that an approach similar to the following is used.

Firstly, figure out exactly where a given business is today – the main B2B processes will need to be mapped out and a gap analysis carried out between the current and desired approach.

For example, a current purchasing process may involve searching through a mix of paper- and web-based catalogues, followed by a series of email and phone-based discussions with possible suppliers.

Each area should then be reviewed as to its effectiveness:

  • Paper-based catalogues could be out of date – The items being viewed may no longer be available, may have been superseded or priced incorrectly.
  • Email or phone calls cannot be easily associated with the overall process, so some of the audit trail will be stored in different places (or may not even exist), and pulling everything together again, should there be an issue, will prove problematic.
  • Any legal agreements may be created through the legal department using templates and tools that are removed from the purchasing or ERP system; again, another silo of information that may not be easy to integrate.
  • Ordering of goods may be carried out electronically, but the delivery may be acknowledged purely through a signature on a piece of paper, and payment could well be made on the basic premise that this signature acknowledges a delivery, even though no physical checks have been made.
  • Even where warehouses use advanced ship notifications (ASNs), unless they are fully integrated into the B2B process they can be useless, without any action being taken where needed.

An organisation can then choose to integrate what they already have in place, creating ‘glue’ between systems that minimises the need for manual interventions and reduces the number of places where errors may occur. However, this still leaves a need for domain expertise in areas such as cross-border logistics.

Indeed, as the complexity of supply chains increases, this kind of integration is the only real option available to firms.

The question then is – how best to create such a system? A totally in-house system may be possible, but will struggle to provide and maintain the flexibility required as new compliance and standards needs emerge.

It is far better to consider how to choose a platform that can underpin the B2B supply chain, and then how existing core systems can be integrated in a way that provides additional business value.

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