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SAP and Business Network Transformation

Paolo Malinverno from Gartner stood up at a press conference this week in Berlin at SAP’s TechEd and asked Leo Apotheker, Co-CEO of SAP, about their bold move to invest in Crossgate (an Automated Business Exchange for SAP users) and the potential next steps. Leo answered, “Our decision to invest in Crossgate is a very important step towards Business Network Transformation and this is our strategy.”

This development begs the question – What is a business network? A Business Network is a revised and updated term for trading partner communities. The term refers to companies and organizations that engage in business activities with each other. For example, the chemical company ACME conducts business transactions with vendors/suppliers, customers, banks and government entities. All of these entities make up ACME’s Business Network.

ACME’s business requires huge amounts of in-bound and out-bound business information to be exchanged. Most often this information is printed and/or received on paper forms that are time consuming to process, error prone and inefficient, sent or received by the slow postal service, fax or email where they are processed again, archived and turned into reports that enable managers to make business decisions (often on out-dated information). The larger the Business Network, and the more business information that flows through the system, the bigger the paper processing challenges becomes and the longer it takes for information to be provided to decision makers. This can lead to the following problems:

  • High paper processing expenses
  • Lack of visibility into the supply chain
  • Delayed visibility into demand
  • Delays in collecting, processing and paying invoices
  • Missed opportunities to benefit from significant early payment discounts

Traditionally, if ACME wanted to reduce the amount of paper documents exchanged between itself and its Business Network to improve efficiency, reduce costs and improve visibility into its business, it would need to purchase an expensive EDI/B2B solution, hire IT staff and consultants, invest in training and implement a lengthy and expensive multi-year effort to transform t their Business Network from paper to electronic data exchanges. This is a daunting and expensive task and requires significant resource investments in the best of economic times.

It can take up to 37 days to automate a partner and costs up to $5,000 to integrate just one partner process (i.e. a customer sales order). What if you have thousands of trading partners and many different electronic documents to enable in your business network?

The challenges listed above are significant, but let’s also consider the rapid pace of change in many business networks. Customers, vendors, suppliers and financial institutions are being changed and reorganized regularly to address changing product lines, changing marketplaces, new ventures, and mergers and acquisitions. How can ACME achieve the benefits of electronic data exchanges in their business network if the target is moving and the resources required are cost prohibitive?

Companies and industry experts are identifying the ability to resolve these challenges as a key competitive issue. “In a world where business networks are emerging as a new unit of industry competition, the gating item has been business network-enabling systems,” said Geoffrey Moore, author of “Crossing the Chasm” and managing director at TCG Advisors.

SAP, the worlds largest supplier of business software, also recognizes this challenge and has recently invested in a company they believe can help resolve these issues. “SAP’s investment in Crossgate complements our existing business process outsourcing agreement and funds continued innovation in business network-based services for SAP users in all market segments,” said Jim Hagemann Snabe, member, SAP Executive Board. “We are providing companies with solutions that are key enablers for business network transformation, allowing them to increase their flexibility to capitalize on market changes and opportunities.

One of the key points Snabe emphasized is the need to provide a solution for SAP users in all market segments. Many of the B2B industry hubs that have grown up over the past few years such as Elemica (chemical) and E2Open (High Tech) have focused on a limited set of industry standards and have failed to broaden their support for cross-industry standards that are needed by their members. This leaves many companies searching for a solution that addresses the wider needs of their supplier and customer bases.

SAP co-CEO Leo Apotheker spoke at length recently about the growing importance of business networks as the boundaries between enterprises are beginning to disappear. Apotheker said SAP would be focusing future development of its business suite of products and Netweaver integration middleware at meeting business needs to develop and maintain collaborative networks.

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  • In my good ole days of working in the industry (less than 4 years ago…), collaboration was forced upon me as a supply chain manager.  Several major players would require costly B2B connections in the name of savings, saying that it would save me time and money.  The fact is, at the time my CSR’s would have to touch e-orders just as often as a faxed order.  Things of course have changed, and I think this partnership with Crossgate is a good example of how collobaration does not have to be a 4 letter word.  Efficiencies are being realized by many companies, across many industries, with more to come.