Extending the Supply Chain, Part 2: SOA

Web services are improving supply chain and business-to-business-to-consumer (B2B2C) network management. As companies such as IBM and Ariba develop better service-oriented architecture (SOA)-based Web services at the partner and customer end, providers such asArch Rock are pushing wireless Web services-enabled networking onto the shop floor and to previously inaccessible production locations, as noted inPart 1 of this two-part series.

Technological development is fueling the transformation of economies and production processes around the world. Just-in-time (JIT) manufacturing — an industry-shaking innovation when Japanese manufacturers applied the methodology on a wholesale basis back in the early 1980s — is now a best practice across almost every sector of economic activity.

Making cross-border supply chain and JIT manufacturing work has meant developing ways to manage business processes that are spread across multiple countries and regions; a range of suppliers, distributors, retail networks and sales agents; and disparate IT environments.

This would not have been possible but for the development of new telecommunications and computing platforms, as well as software development methods. Today, the rapid standardization of SOA and Web services is transforming the way managers oversee and coordinate the production, distribution and sales of goods and services.

“When enterprises deploy applications designed with SOA and Web services, they take the first step on a three-step journey to SOA,” Forrester Research Principal Analyst Ray Wang told CRM Buyer.

“In this first phase, SOA improves integration among heterogeneous applications across multiple platforms. In the second phase, they will be able to apply modular components within suites. The final phase takes them to process-based and Web service-based standards for interoperability at the service level,” he explained.

“SaaS (Software as a Service) brings rapid deployment options with zero hardware and minor admin footprints to organizations strapped [for] IT resources or seeking better use of capital,” Wang pointed out. “As enterprises open up their systems to suppliers, partners and customers, a combination of SOA and SaaS will increase enterprise agility while lowering overall IT costs.”

Encouraging Forecasts

Signs show SOA and related forms of distributed computing are rapidly accumulating critical mass in leading organizations across the economy. In 2007, North American enterprises will significantly increase software spending for new software initiatives.

“Improving integration between applications will be the top priority (27 percent), followed by upgrading security environments (21 percent) and adopting service-oriented architecture (12 percent),” Forrester researchers, led by Wang, stated in a recent report.

“The adoption of service-oriented architecture is another growing area of interest in enterprise software — 38 percent of enterprises name its adoption to be a priority or critical priority for 2007,” they observed.

Digging a little deeper into participants’ software plans for the coming year, Forrester discovered that “SOA adoption continues to grow, driven primarily by internal integration. For 2006, 22 percent of firms report that they have an enterprise-level strategy for SOA, up 6 percentage points from 2005; an additional 18 percent use the technology selectively, down from 21 percent last year.”

An application of distributed SOA, SaaS, is also attracting greater interest among Forrester’s survey participants, particularly very large companies. “Enterprises are using SaaS for a variety of different software applications, with human resources (54 percent), enterprise resource planning (40 percent) and customer relationship management (38 percent) being the most common.

“For the time being, the biggest growth opportunity for SaaS is the enterprise market as opposed to the small and medium-sized (SMB) market. Forty-seven percent of Global 2000 companies are at least somewhat interested in adopting SaaS, compared with 28 percent of small companies,” noted Forrester.

IBM is using SOA and associated Web services to re-engineer its enterprise software product line, which includes WebSphere, Tivoli, Rational and Lotus Notes. The potential to use SOA to drive software development productivity gains is one of its key attractions, according to Sandy Carter, IBM’s vice president, WebSphere strategy, channels and marketing.

“Recent studies have shown that it is five times less expensive to use existing services and applications [than to rewrite] them from scratch,” Carter told CRM Buyer. “To date, there are now more than 2,400 IBM and business partner-developed ‘services’ of software code, intellectual property and best practices for solving specific business problems. Seventy percent of these reusable services were contributed by IBM business partners.”

Linking the Chain

“As today’s marketplace globalizes, new marketplaces, new workforces and new competitors drive companies to look for new ways to adapt to change more quickly,” said Carter.

“In the past, organizations might have needed to make significant changes on a yearly basis. Now, market forces require businesses to make these same levels of changes on a monthly, weekly or even daily basis,” continued Carter. “Business leaders who have been focused on cost containment must now focus on growth. At the same time, companies still want to control costs by making better use of the investments that they already have. These goals can be achieved through an IBM-based SOA that ensures easy integration of applications throughout the entire supply chain.”

Carter summarized the experience ofGrohe to illustrate how IBM is using SOA to help clients improve supply-chain management. The world’s largest exporter of bathroom fixtures, Hemer, Germany-based Grohe manages a B2B supply chain that depends upon distributors operating in countries spread around the globe to deliver its products to customers.

Generating sales of 865 million euros (US$1.14 billion) in 2005, 80 percent of which were exports, the organization employs 5,600 individuals and encompasses 20 subsidiaries and 12 sales offices across more than 130 countries.

“Grohe AG’s SOA strategy was driven by the need to more immediately respond to changing market conditions, control costs and gain a global view of operations,” Carter explained.

According to an IBM-Grohe case study, “when we stepped back and realized how much time it would take to migrate our existing SAP system and fully integrate it with various homegrown and legacy applications, we knew that we would not have enough manpower to achieve our larger business goals in the most timely and cost-efficient manner,” said Armin von Dolenga, Grohe software manager.

More specifically, Grohe decided to make use of IBM WebSphere adapters for its SAP and Java database connectivity “to provide a standard interface to [its] existing proprietary applications, and accelerate the time previously allocated to point-to-point integration of its SAP system throughout its European and U.S. operation,” said Carter.

“The company needed to quickly and efficiently link 40 interfaces consisting of homegrown and various SAP-based applications, including supply chain management, human resources, finance, production planning and materials management,” Carter continued. Grohe also relies on WebSphere MQ for guaranteed delivery of more than 4,000 daily messages routed throughout the company.

Ariba, Ariba

With its Ariba Supplier Network (ASN) growing at around 20 percent per year, Sunnyvale, Calif.-based Ariba lays claim to building and managing one of the world’s largest business transaction networks. More than 140,000 registered suppliers in 115 countries use the ASN to transact more than $95 billion worth of business per year across a wide range of products and services, from raw materials to finished goods, according to Craig Federighi, Ariba’s chief technology officer.

After a five-month development process, Ariba in early November released the latest 9s3 version of its ASN and on-demand B2B solutions, which have been built on an SOA. Complete with more than 140 new features, the new release focuses on improving supply chain and B2B e-commerce network management in three broad areas: spend visibility, supplier enablement and active compliance.

“The spend visibility enhancements are particularly directed at direct materials spend for manufacturers where item-proper classification is a key determinant in effectively targeting sourcing and supplier performance improvement initiatives,” Bob Shecterle, Ariba’s vice president of solutions marketing, told CRM Buyer. “In addition, Ariba’s new Quick Supplier Enablement speeds the on-boarding of suppliers, driving greater supply chain automation and driving down supply chain costs.”

Embedded SOA

Meanwhile, the new SOA-based features and capabilities embedded in Ariba Buyer, Ariba Procure-to-Pay, Ariba Supplier Connectivity and Ariba Electronic Invoice Presentment and Payment are designed to “spur rapid and broad enablement … [and] facilitate the electronic enablement of their suppliers around the globe more quickly and efficiently than ever before,” Shecterle observed. “Ariba Quick Enablement allows companies to initiate electronic supplier enablement by sending purchase order transactions directly and immediately to suppliers over the Ariba Supplier Network, dramatically reducing the time to get them on board.”

Building its network platform on SOA and Web services standards is the key to Ariba’s ability to provide ASN and on-demand solution clients with the portability and integration necessary to carry out complicated and information-intensive supply chain transactions between parties using various Internet connections and disparate IT platforms.

“Ariba on-demand solutions allow customers to use industry-standard browsers to access the solution capabilities simply and securely from any location that can support an Internet connection,” said Shecterle. “As a result, no special IT or telecommunications infrastructure is required.”

Ariba’s solutions comprise a variety of deployment and maintenance options. The latest 9s3 release “is an on-demand release that is deployed in a multitenant environment hosted by Ariba,” Shecterle noted. “Our customers may also elect to deploy in a single-tenant ASP (application service provider) model hosted either by Ariba or a partner, or may deploy a traditional behind-the-firewall solution on their own IT infrastructure.”

Extending the Supply Chain, Part 1: From Floor to Fulfillment