Thursday, April 27, 2006

Use of B2B Extranets Is Up

April 27, 2006 (source: eMarketer and CompTIA)

B2B extranets are supposed to be more efficient and cost less. Do they?

According to new findings from Computing Technology Industry Association (CompTIA), business partners are relying more heavily on extranet websites to conduct e-commerce in order to cut costs. In fact they may be adding costs to the supply chain.
A CompTIA survey of business-to-business (B2B) e-commerce buyers and suppliers found that 74% of them are actively using websites for at least a portion of their B2B trading. 31% said their website trading has increased over the past year.

The move to B2B extranet trading is clear. Unfortunately, the result is not what companies hoped for. More than three-quarters of them (77%) said the shift is less beneficial than other B2B trading mechanisms. Many respondents reported it has had a negative impact on efficiency, accuracy, costs and partner relationships.

The obvious implication is that migrating from electronic data integration (EDI) to managing transactions on extranet websites is having a detrimental impact on both supplier and customer operations.

Looking deeper into the problem, however, the loss of efficiency may be only short term and due to the fact that — for many companies — the shift to e-commerce is not yet complete.
Because extranet applications are not fully integrated into other company systems, they often require companies to add staff to handle manual data entry. This reliance on manual dfata transfer from one system to another increases costs as well as the risk of error. Transactions, rather than being speeded up, are slowed down as the amount of time it takes for a supplier to manually enter information into their own systems and then manually enter the response on the buyer's website is likely also greater than the time it takes to complete the same transaction with an automated system.

"Extranets are a viable trading mechanism, especially when communicating with small and medium-sized trading partners that may not have the resources to support sophisticated e-commerce systems," said David Sommer of CompTIA. "But when transaction volume is substantial the use of manual extranets can become cumbersome and costly. In high-volume scenarios some electronic data interchange is necessary for the supply chain to be efficient."
The majority of companies (92%) said their preferred mechanism for B2B trading was system-to-system electronic trading. Their reasons included improved business processes and better integration with enterprise resource planning (ERP) systems.

"Buying companies who venture down the extranet path should establish a strategic, collaborative plan with their suppliers and discuss in detail the costs of data exchange," said Mr. Sommer. "Without such pro-active steps, the strategic sourcing initiatives instituted by buyers may eventually increase costs and errors, and reduce the amount of information shared between trading partners."

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