Long before a business of any nature starts selling, transacting and doing business with customers, it must buy from, sell to, transact and do business with other businesses. Establishing trusted business relationships is indeed imperative when it comes to starting a company of any kind. But those business relationships, once established, must be managed effectively – and in the digital world, this means forming digital connections between the suppliers, partners, manufacturers, resellers, and all other organizations a company relies upon and does business with in the supply chain. And this is precisely why a robust business integration strategy is crucial.
What Is Business Integration?
The shape of business is changing, and this change is being driven by digitization. Today’s global business ecosystem both requires and enables companies to digitally connect, communicate and collaborate with customers, suppliers, partners, service vendors, and all other players in the supply chain. Indeed, the modern supply chain has become a digital ecosystem in itself, through which closer collaboration and new joint work practices are made possible.
The digitization of supply chains has potentially huge benefits for businesses. Research has shown that greater levels of digitization can boost fill rates (i.e. the amount of customer demand that is met through stock availability) by up to 80%, and shorten cash-to-cash (C2C) cycle times (i.e. the time between when a company sends cash to suppliers and receives cash from customers), which is shown to lead to greater profitability in 75% of cases. Further research from McKinsey estimates that, on average, companies with highly-digitized supply chains can expect to boost their annual growth of EBIT (earnings before interest and taxes) by 3.2% – the largest increase from digitizing any area of business – and annual revenue growth by 2.3%.
The benefits are indeed clear – but how do companies go about realizing them? The answer is business integration.
Put simply, business integration (also known as B2B integration, or just B2Bi) refers to the comprehensive digital strategy that enables the integration, automation and optimization of key business processes that connect an organization with its trading partners – customers, suppliers, logistics companies, and financial institutions. It is the collaboration by an organization across a business network of external partners, where all parties exchange and integrate electronic messages, files and transactions via inter-company business processes.
Naturally, business integration relies upon technology solutions to facilitate these exchanges, and in this sense business integration also refers to the technology architecture that enables the collaborative relationships that drive modern supply chains.
Why Do We Need Business Integration?
The foundations of business integration stem from companies needing a way to exchange information quickly and efficiently. The simple fact of the matter is that in the digital world, faxes and emails don’t cut the mustard anymore. But of course, as organizations have moved along their own digital transformation journeys, they each have taken their own approach to exchanging messages and files with trading partners. However, this results in each business in a supply chain using its own distinct blend of applications, cloud resources, and various other systems, all of which rely on differing formats and platforms, and are subject to different security, compliance and governance considerations. These disparate systems don’t necessarily communicate with one another, and it is simply too inefficient and costly to deploy a multitude of solutions to contend with the sheer diversity of communication standards, data formats and security frameworks each business deals with. And so, business integration solutions, strategies and technologies are required to manage the chaos, and enable separate companies to seamlessly communicate and exchange business-critical information between each other quickly and efficiently.
The ultimate goal of business integration, then, is to improve upon the speed and productivity of conducting digital transactions across the supply chain and value chain. In addition, business integration reduces the need for error-prone, costly, and time-consuming manual processes.
For example, most companies now receive purchase orders from other businesses electronically, often via email. In the past, processing these purchase orders was a manual affair – an employee had to conduct a review, and then manually enter the information into an order fulfilment system of some kind. But with a business integration solution, when the company receives a purchase order, it is automatically reviewed and passed along into the order fulfillment system, minimizing delays for orders being fulfilled.
What’s more, for the company that submitted the purchase order, there is no more uncertainty as to whether or not the order was received, as the business integration system allows the submitting company to view this information and confirm that the order is being processed.
The Benefits of Business Integration
Such transparency offers great benefits to businesses. From business process management (BPM) to supply chain visibility and global community management, business integration gives companies comprehensive control, ensuring its trading partner operations flow smoothly and efficiently. With business integration, organizations can reduce shipment delays, foresee supply chain bottlenecks, and gain comprehensive visibility via a centralized view of revenue-driving B2B processes, enabling more end-to-end responsiveness and better customer service.
(Image source: remedy.com)
Beyond visibility improvements, however, the major benefits of business integration strategies revolve around the collaborative relationships and new work practices that are enabled.
For example, car manufacturers typically rely on a complex network of suppliers to produce up to 85% of the parts for a vehicle’s internal systems. What’s more, as we move into the area of the connected vehicle (with driverless technology also rearing its head above the horizon), more than for just engine parts, car manufacturers are increasingly relying on whole new swathes of strategic supplier partnerships to provide them with the electronics and technologies they need to make their vehicles smart and get them online.
In China, for instance, 98 carmakers, universities and institutes have joined forces to create a strategic alliance to promote crossover collaboration and improve national industrial standards as the country’s connected vehicle industry matures. According to Kurt Lehmann, former CTO of Continental, vehicle users spend 91 hours connected to the internet during their journeys each year, so cooperation between carmakers and telecommunication service providers is a must.
(Image source: lowcvp.org.uk)
To support any new collaborative business processes, business integration strategies are required that allow for the fast and secure sharing of digital information between all parties in a supply chain ecosystem. According to IDC Manufacturing Insights, “By 2020, 60% of manufacturers will rely on digital platforms that enhance their investments in ecosystems and experiences and support as much as 30% of their overall revenue.”
From EDI to Business Integration
Business integration is a hot topic right now, but the truth is that solutions have been around for some time. One early example is EDI (electronic data interchange), which can be traced back to the 1970s. EDI concentrates primarily on the electronic exchange of documents. When solutions first came into being, there were no standards for data formats – when two companies decided that they would electronically exchange information, they would enter into an agreement as to which format they would use.
EDI standards eventually came into play in the 1980s and 90s, and EDI proved to be a massive time-saver for many companies – though it was far from perfect. For starters, organizations had to purchase various hardware and software, and train employees to establish and maintain connections. What’s more, IT departments had to integrate documents into existing software systems, costing more time and resources.
Today, hybrid cloud EDI software is much more advanced, and almost entirely eliminates the need to manually enter data. And, of course, costs are lower, too, because everything is provided As-a-Service – no need to purchase hardware or software.
EDI systems now automate and simplify the process of exchanging key business documents – such as invoices, shipping notices and purchase orders – with trading partners, and indeed still form the bedrock of business integration technologies. However, as organizations started to increasingly conduct trade electronically, it became clear that further business processes could be enhanced by introducing collaboration and community management features to the same solution. As such, modern business integration platforms, such as Actian Business Xchange, for example, now offer more comprehensive feature sets – such as BPM tools and supply chain analytics – on top of the more traditional EDI provisions.
(Image source: actian.com)
Using a solution like Actian – a fully-managed B2B Integration as a Service solution – organizations are able to exchange electronic procurement and supply chain documents with trading partners, regardless of format or enterprise system.
For buyers, Actian Business Xchange speeds up and reduces unnecessary costs involved with the accounts payable (AP) process, and enables the easy sharing of information with suppliers using a communication layer. For suppliers, days sales outstanding (DSO) rates are significantly reduced by speeding up the orders to cash cycle and automating the invoice sending process. And both buyers and suppliers benefit from a cloud-based portal, enabling easy onboarding and connections to trading partners of all sizes and levels of IT sophistication, with powerful key performance indicator (KPI) dashboards to track DSO, days payable outstanding (DPO), and errors, and provide visibility into status of orders, invoices, and remittance documents.
(Image source: actian.com)
How Business Integration Works
For a company to get started with business integration, it needs to first decide on the technology platform it will use. The choices essentially boil down into four categories – on-premises, hosted, cloud, and hybrid.
On-premises business integration solutions means that the necessary integration software is installed on-site at the organization’s premises. Hosted integration means that the software is installed at an off-site location, cloud integration means that the software is delivered As-a-Service over the internet, and hybrid approaches combine two or more of the previous three strategies.
No matter which a company uses for its own purposes, there are four components that make up a standard business integration process.
- Source Application: To begin, data must be extracted from an organization’s front-end business application. This might be a purchase order from an ERP system, or something like a retail store’s monthly sales figures from a point-of-sale system. Once this data is pulled, the business integration solution will prepare it to be transmitted to the external business partner.
- Data Format: As mentioned above, not all data is standardized when it resides in a business’s application. Formats vary, and so the data must be converted into a standardized format for transfer into the target application of the external business partner. As such, when organizations asses business integration solutions, they must pay attention to the types of integration that are supported, especially if they source and/or sell materials with international supply chain partners.
- Transport Protocol: Naturally, the communication channel – or protocol – must be agreed upon by both parties to exchange information. There are a number of advanced protocols available – such as SFTP, AS2, and HTTPs – to facilitate data exchange, though trading partners and sometimes entire industries will often dictate the transport mechanism to be used. As such, companies should ensure that they select a business integration solution that supports all the protocols that their trading partners require, with the flexibility to integrate new communication protocols as they appear.
- Target Application: The final step involves the target application of the trading partner. The target application must be able to receive and process the data that was sent, make it readable, and integrate the information into the recipient’s core business systems.
In short, these four components collect data from source applications, transform it into the proper format, and then, using the appropriate transport protocol, deliver it to the target application.
To give you an example of how business integration works in practice, let’s look at a hypothetical retail order-to-cash scenario in which Supermarket A is looking to buy cat food from Supplier B.
Supermarket A prepares an order for cat food in its purchasing system (source application). The order is extracted and translated (data format) into a Purchase Order. The Purchase Order is then securely transmitted (transport protocol) to Supplier B via the internet, and processed by Supplier B (target application). Supplier B then sends back a Functional Acknowledgement to confirm the order was received.
After processing the order, Supplier B sends an Advanced Shipping Notice to inform Supermarket A that the cat food is on its way. Supermarket A receives the Shipping Notice, sends back a Functional Acknowledgement, and then integrates the Shipping Notice into its back-end ERP system and prepares to receive the shipment. Once Supplier B ships the cat food order, an Invoice is sent to Supermarket A, and Supermarket A sends another Functional Acknowledgment to Supplier B. Supermarket A then sends a Payment Order to Supplier B to confirm payment details, and another Functional Acknowledgement goes back to Supermarket A to acknowledge receipt of the document.
All of this is handled automatically by the business integration solution, which also leverages the same data that’s being exchanged between the two companies to communicate with other distribution, warehousing and fulfilment applications to prepare for and facilitate the completion of the order.
As working with external companies is fundamental to practically every business operating today, business integration essentially represents the digital transformation of these external relationships. Business integration solutions present a clear competitive advantage – they make it easier to share and receive mission-critical information between an organization and its trading partners.
More specifically, key advantages include reduced costs through eliminating human handling in areas such as data entry, clerical document preparation and mailroom sorting. In addition, the risk of human error is reduced, thereby avoiding costly corrections in business documents.
Organizations can also expect improved operational efficiencies within their trading community. The secure, fast, and effective transmission of data means trading partners can cooperate, collaborate and communicate more effectively. And with better collaboration, spending visibility is improved, as is visibility into inventory pipelines, and supplier activity.
Business integration solutions also lead to better data quality, again, as there is less chance for human error from employees manually entering data. The error rate for manual data entry is around 1% – which can be very damaging and costly for businesses. If an order is incorrect, it has to be rectified, and a new order must then be issued, slowing the whole process down, while increasing the costs involved for all partners. Business integration solutions improve data quality not only by reducing the risk of human error, but also by creating a “virtual quarantine” that ensures the integrity and accuracy of data flowing from an organization’s trading partners before it enters enterprise applications. In this way, organizations can have full confidence in data quality, and thereby in the business integration system to facilitate the end-to-end data exchange required to automate business processes.
Unless you happen to be Amazon or Walmart, and thereby basically dictate and own the supplier channel right through from production to end sale, integration with other businesses, suppliers, resellers, and other trading partners is critical to your success.
Business integration solutions provide total trading partner enablement. From reducing time and costs associated with manual processing to eliminating human errors, improving data quality, increasing productivity, gaining supply chain visibility, and enhancing collaboration with your entire trading partner community, business integration solutions give you the edge you require to remain competitive in the digital age. Modern business integration tools and techniques have brought organizations a long way from the earliest days of exchanging information. Thanks to these solutions, exchanging data can now take place in the blink of an eye, allowing your company to operate more efficiently, competitively, and cost-effectively.
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