January 2005 | Commentary | IT Matters

Multi-Enterprise Computing: Competitive Advantage for Those Who Do it Well

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Logistics managers know how vital it is to keep things moving. Failure to deliver products on time, in the proper quantities, and to the right place carries very real consequences: assembly lines halt, shelves lie empty, perishable goods grow stale, and the window of business opportunity slams shut.

Tangible, bottom-line metrics back up these anecdotal observations. A 3-percent improvement in a company's order-fulfillment rating produces a 1- percent increase in profit margin, according to AMR Research. No wonder everyone is searching for ways to control these variables and squeeze more efficiency out of their supply chain.

In response to these demands, a number of logistics management software systems have emerged in recent years—some homegrown and riddled with disconnects, others cumbersome and costly "enterprise" applications. These diverse and heavily customized solutions have held things together so far. But they are rapidly reaching their limits, and their exhaustion is showing.

Earnest and endless efforts to fine-tune applications and execute one-off integrations continue to produce marginal improvements in efficiency. But the returns are rapidly diminishing.

"Monolithic" applications for enterprise resource planning (ERP) and customer relationship management (CRM) systems, on the other hand, seek to consolidate and integrate all functions and systems within the enterprise. But even those systems often are barely on speaking terms with one another. Back-office ERP and customer-facing CRM systems sit in their own silos that may as well be in different, even competing, companies.

Such systems place data under a single umbrella, and manage to consolidate the lion's share of application logic. But after years of investment in internal consolidation, many businesses find they still enjoy no real competitive advantage with these systems. When everyone has the same tools, the playing field is level.

Expenditures for incremental improvements in application performance and internal integration, coupled with diminishing returns from those same efforts, strain already limited IT budgets and staff.

The problem isn't limited to improvements. Maintaining these vast in-house architectures is costly. Some IT departments spend up to 90 percent of their time slapping on patches and putting out fires.

Most tellingly, despite the time and money spent on application improvement and automation, re-keying and other kinds of manual data transfer remain sad facts of business life. Workers must still waste time shepherding data between disparate internal systems, as well as between internal and external systems.

It's quite a litany of woes. Wayward internal systems. A playing field leveled by the availability of solutions that grow exponentially in complexity and cost, while yielding only marginal performance improvements. Attritional maintenance battles that end in stalemate.

Despite tormenting IT departments, impeding the free flow of information, and eroding the bottom line, these woes may seem unrelated. But the common feature—and the factor that hamstrings further advances in integration—is that current methods for bridging gaps and improving efficiency focus on activities and systems within the enterprise.

A Holistic Approach

Needs have grown beyond this provincial view. The next step requires a more holistic supply chain integration approach. By definition, all true supply chain management crosses organizational boundaries. One company's customer is another's supplier.

In such a blurred and interconnected world, it makes sense that sharing—of application logic, business processes, and data—should likewise transcend organizational boundaries. Soon, multi-enterprise computing will be necessary for companies to remain viable competitors.

"Collaborate to survive" is the common theme in current retail and consumer products initiatives, according to META Group, a Stamford, Conn., consultancy. The key to such collaboration is the ability to move integration efforts outside the firewall—to reach out to suppliers, customers, banks, and logistics providers, and share information vital to the common business fabric.

In The Agenda: What Every Business Must Do to Dominate the Decade, business expert Michael Hammer terms this extended business entity "the virtually extended enterprise." In some ways this new paradigm—also called "multi-enterprise computing"—will simply expand on current trends, and draw on the strengths of recently developed tools and resources.

The second-generation Internet, for instance, with higher bandwidth and more robust security, is already proving useful for exchanging mission-critical business information.

Multi-enterprise computing opens the door to the vast number of smaller trading partners who were bypassed in the rush to monolithic solutions such as ERP applications. With a broader and less application-centric view, multi-enterprise computing will provide better visibility into the supply chain. And it will facilitate the sharing of business knowledge throughout the trading community, extending business processes developed by one trading partner to everyone.

More importantly, the multi-enterprise computing framework preserves and works with existing enterprise infrastructures, unlike current integration approaches, which are predicated on displacing and disrupting internal applications and systems.

In addition, multi-enterprise computing sets the stage for more ambitious supply chain initiatives—such as global data synchronization—in preparation for the widespread deployment of Radio Frequency Identification (RFID) and Electronic Product Codes (EPC).

The only real way to align with these plans is to begin pooling and synchronizing data now. Because supply chain management is only as good as the product and location data put into it, those who fail to embrace the movement to a truly transparent and coherent trading community are doomed to wallow in the backwaters of the global economy—where erroneous data, endless manual corrections, duplication of effort, and inefficient inventory management abound. The future is moving inevitably toward us. We have a choice to make. We can hunker down and continue doing what we've been doing. Or we can adapt to the changing nature of the marketplace—welcome it, even—with intelligent responses such as integration with partners and systems outside the firewall.

One way leads to stagnation; the other to improved efficiency, greater customer value, new market opportunities, and, for those who do it well, a new competitive advantage.

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