2. Reporting and Auditability — All mandates require demonstration of compliance, which necessitates auditability and reporting capabilities. Today's extended enterprise demands that these capabilities incorporate business processes that involve transactions between entities, not just communication between internal systems. For example, the Sarbanes Oxley legislation requires executives to implement, document, and test controls over processes that contribute to the financial statements. Many of these controls include validating information and processes from external trading partners, such as invoice data from suppliers, shipping status from logistics providers and payment notifications from customers. The inclusion of external data and processes is essential to complete auditability and reporting, and therefore conclusive mandate compliance.
3. Manual Process Reduction — With companies sourcing supplies and distributing products around the world, each border-crossing shipment requires approval by the local government customs agency. These customs approvals require significant coordination between the corporation, customers, shippers and providers of customs services and logistics services. However, the vast majority of these shipments are currently processed through manual, paper-based methods, which generates tremendous process inefficiencies. Companies that are able to automate these processes not only simplify government mandate compliance, but also realize significant business benefits. One multi-national company that automated the customs declaration process reduced the cost per customs declaration transaction by more than 30 percent and cut the customs clearing cycle time in half.
Governmental Mandates Require Connecting B2B Trading Partners
Meeting these business requirements and achieving governmental mandate compliance is further complicated by the continually increasing complexity of supply chains, much of which is driven by increasingly global value chains. Cost reduction and performance enhancements are being actualized through the establishment of multi-national supply chains that utilize low-cost manufacturing, regional product distribution centers and optimal staging of materials for final production. This is evidenced through the increased importance of Eastern Europe, China, Southeast Asia and Brazil where companies are leveraging highly distributed value chain operations.
Global expansion, outsourced manufacturing and third-party logistics translates into additional steps in the supply chain. As companies depend on more partners for the production of materials and other functions, they face increased difficulty gaining control and visibility into processes and information, which multiplies the bullwhip effect and increases supply chain inefficiency. This presents further challenges when it comes to meeting the information requirements for the mandate in question.
However, organizations that harness the complexity of the value chain have achieved remarkable results. In July 2003, professional services firm Deloitte & Touche published a landmark study, Mastering Complexity in Global Manufacturing, which compared the performance of 300+ companies, analyzed the complexity of their supply chains, and highlighted the importance of high performance value chains. Complexity Masters — those companies with a superior ability to synchronize value chains and leverage strengths in collaboration, flexibility, visibility, and technology — were able to generate up to 73 percent higher profit margins than their competitors.
As companies continue to migrate toward highly distributed value chains, the resulting increase in B2B processes and data exchange to meet both business needs as well as governmental mandates will increase. The benefits of the distributed organization are well understood, but the need for control, execution, coordination and reporting in the value chain, while also meeting the relevant government mandates, have become significant drivers for B2B projects.
The Need for Business Process Networks
Despite the demonstrated impact of high performance value chain initiatives and automating trading partner relationships, it is estimated that only 10 percent of the personnel in corporations are available for such projects. Instead, most personnel are concentrated on internally focused IT platforms such as enterprise resource planning (ERP), customer relationship management (CRM), and manufacturing execution systems (MES), which have been deployed to generate internal efficiency but don't necessarily reduce trading friction or streamline B2B transactions.