Why Is B2B Integration Critical For ERP?
A recent survey conducted by AMR Research had one very interesting insight - over 33% of the data that is housed in an organization’s ERP system is sourced from outside the company. The source of this data is primarily the customers, distributors, suppliers and logistics providers. This is a pretty significant chunk of data that an organization holds. As I have often told my business clients, data is the most important asset for any business. And without the 33% data that comes to a business from external sources, their competitive edge is all but over.
Despite this overwhelming dependence of external data for the planning and strategizing of future operations, B2B companies have still been treading pretty slow on B2B integration. What this means is that unlike internal data sources that are processed in real or near-real time, external data are handled independently. This leads to two issues. Firstly, since most of this data makes use of a human resource to re-enter the information into the ERP system, there is an added scope of errors. But more importantly, such a handling of data from external sources defeats the entire purpose of owning an ERP system.
To elaborate, take the example of a car spare parts manufacturer who sources smaller components from a third party supplier. This manufacturer produces new spare parts as and when they receive a purchase order from their clients. For sake of simplicity, let us assume that this manufacturer gets an order to manufacture 1000 spare parts from the client. For this, the supplier provides components in a batch of 200 per day. Now, in the absence of a real-time update from the supplier, the manufacturer runs the risk of overproducing their components. This causes a delay in lead time as well as costs extra to hold on to the half-manufactured inventory (till the supplier fulfills their commitment). With a real-time ERP update from the supplier, the manufacturer will be able to know the status of their delivery and thus set up their own manufacturing processes accordingly.
With the advent of modern cloud-based ERP solutions, B2B integration is extremely simple to handle. Cloud ERP providers like NetSuite and its partners provide an ERP system that is web-based and can be accessed by any authorized user. B2B integration is possible through creating a separate module for the suppliers and integrating this data with the rest of the ERP system. Alternately, if the supplier owns their own ERP system, the data from this system may be integrated with your business system to ensure real-time data flows seamlessly from your partners’ systems to yours.
So why is this important? Businesses today are highly decentralized and outsourcing and subcontracting is an important component of almost every business. While there is a significant cost saving by approaching business using this strategy, the delay in communication and consolidation of manufacturing data from multiple stakeholders can lead to needless expenditure that may be optimized using a more integrated ERP approach. Integrating the data from all stakeholders is an ideal way to ensure seamless flow of data among the various stakeholders.