Strategy - Supply chains - Putting value into the chain

A curious aspect of the US Department of Justice's pursuit ofiative, but will it catch on? Jane Dudman reports. Microsoft over the vexed question of monopoly power is that it highlights a kind of paranoia within the industry.

Conspiracy theorists are everywhere, seeing world dominance in everything the company does. Heaven only knows what some think of Microsoft's Value Chain Initiative (VCI), a bid by Microsoft to get better applications integration among supply-chain software companies. This should support a dynamic flow of real-time data between trading partners. Essentially, Microsoft says it wants to make ecommerce easier, by helping to standardise the way companies' networks communicate.

Now what could be wrong with that? Nothing, say the 185 supply chain companies that have signed up to VCI. Nothing, says Mark Walker, Microsoft's worldwide head of transportation. He says companies around the world want to cut costs by paring down the price of doing business with customers and suppliers.

Electronic trading is the way to do that, but all supply-chain players - from raw materials suppliers to retail stores - face a significant hurdle.

Before they can work together efficiently, their systems must be integrated.

'This is an old problem,' says Walker. 'Industry associations, standards bodies and consulting firms have long attempted to define solutions for selected sets of organisations. To date, no proposed solution has managed to gain wide acceptance.'

Initiatives that have shown promise, he adds, have been crippled by underlying technology issues. So Microsoft has grabbed the bull by the horns and decided that the way forward is to set out its own stall. It provides the underlying infrastructure, based on its Windows NT operating system and using its Component Object Model (Com) technology.

Many in the industry agree with Walker that some form of integration would eventually have emerged even without Microsoft's push, but would have been a drawn-out process.

David Godwin, director for business development at ecommerce company USWeb, which has implemented a VCI-based system for component distributor Datrontech (see box), says it's hard to bring together existing disparate systems.

'If you're building an ecommerce system, you may have an Oracle database, but if you've also got applications on Microsoft, Unix and so on, what brings them together? At the moment, it's piecemeal. There are database standards and so on, but progress is slow and hard. It would have been more difficult to do without Microsoft.'

And yet, all is not sweetness and light in the new world of VCI. Some doubt whether even Microsoft, with all its muscle, can force through the kind of co-operation needed between so many different suppliers for real integration to be achieved.

'In theory, this is a good thing,' says Chris Jacobs, managing director of Loyalty Logic, a software company which specialises in making loyalty cards. 'But whether it's achievable in practice is another matter. Formulating any standard is always difficult, because all the parties have different vested interests. It's not easy.'

Jacobs' point is underlined by the fact that even Microsoft, with all its marketing muscle, hasn't been able to make things happen particularly fast. The VCI team was established by Microsoft two years ago. It took a whole year before the company was able to run its first demonstration of VCI in action, in November 1997. At its Redmond head office, Microsoft demonstrated Windows applications from 11 vendors sharing data to navigate a shipment of PCs through an imaginary computer vendor's warehousing, distribution and transport systems. It was a demonstration that impressed the analysts and journalists who attended and led Compaq, for one, to say it was intending to take up the approach. But since then, progress on VCI hasn't been particularly swift. The numbers of suppliers signing up to join the initiative has certainly grown, but steadily, rather than in leaps and bounds. This may not matter, since the long-term prize is well worth waiting for.

According to a recent report from US research firm Forrester, Microsoft and IBM are positioning themselves to increase their share of the ecommerce market by taking sales from existing ecommerce application server vendors.

Forrester believes IBM is in a better position than Microsoft to gain sales, while Microsoft will gain market share only gradually over the next couple of years.

Much of the technology needed to support enterprise-wide, integrated ecommerce applications is still being developed. Companies looking to run commercial ecommerce systems want reliability.

Microsoft's pitch in this market is based on Windows NT and SQL Server, and Forrester reckons NT 5.0 and SQL Server 7.0 will need to become proven systems before businesses will bet their ecommerce on them. Once they are, however, the prospect for Microsoft is appealing - a major step forward into the enterprise-wide application market.

Microsoft hopes that supply-chain integration will be a Trojan Horse, admitting the 'nerd' into new corporate data centres.

'We're hoping for greater penetration and acceptance of Windows NT Server into large enterprises,' comments Andy Matson, group manager for ecommerce at Microsoft UK. 'We hope that will be a platform people are comfortable with. Traditionally, the supply chain market has been very much a Unix, mainframe and Oracle market. But now companies are starting to recognise that they can use modern technologies, such as the Internet, at the front end, without having to re-engineer all their core systems.'

According to Matson, VCI isn't about product. 'It's about trying to get the 185 companies involved to think about sharing data more effectively,' he says. 'A lot of this is driven by customers demanding more of us in integrating enterprise systems. We're talking about infrastructure here.

We at Microsoft don't have the applications on top. You won't find Microsoft financials or warehousing or logistics.'

No-one doubts that ecommerce needs some streamlining if it is to take off, but Microsoft's involvement in the supply chain market in the shape of VCI causes some unease. Market research specialist Martin Butler. says: 'Microsoft appears to be effectively embedding VCI software into the next versions of NT,' he says. 'It's a very sneaky way to get de facto dominance of that particular market.' Butler's adherence to this view has already ruffled Microsoft's feathers. The company maintains that it has no plans to dominate the ecommerce universe. But that doesn't make the issues go away.

'It is a big issue,' says Butler. 'Many companies have disparate internal systems and platforms, and they get around that one way or another. But when you then have traffic going between different companies, in ecommerce applications you can't afford any ambiguity in the interfaces. Vendors know they need standards and Microsoft is the only player with the muscle to achieve that. But it's a double-edged sword, given the potential of NT with ecommerce capabilities.'

Microsoft's VCI focuses on interoperability with supply chain software solutions from specialist suppliers such as Manugistics and OnDisplay, as well as the ability to provide a reliable, scalable platform for ecommerce systems. The core of the company's product approach is based on NT, SQL Server and Site Server Commerce Edition, of which a key component is the commerce interchange pipeline (CIP). The whole approach is based on the Com, Microsoft's object-based technology, because CIP enables the exchange of Com-based data between trading partners.

If Microsoft convinces enough supply chain specialists to write application programming interfaces (APIs) to CIP, it will have succeeded in providing, once again, an effective industry standard, and one that depends on the deployment of its own software. There are other approaches to supply-chain integration, such as the Supply Chain Council's supply chain operations reference (Scor) model, which is being used by a large number of supply-chain software suppliers.

Coming at the issue from the other end of the supply chain is a consortium led by Sun Microsystems, National Semiconductor and Internet specialist Vignette that has put together the Information & Content Exchange (ICE), protocol.

The ICE specification works to an XML-based common language and the aim, once again, is to make it easier for companies wanting to trade electronically.

But Microsoft's approach is proving attractive to a growing number of specialists in areas such as transportation management, warehousing, EDI, import and export, routing and scheduling, distribution management, inventory control, fleet management and satellite tracking.

Almost half of the 50 suppliers that attended the most recent VCI group meeting said they intend to build CIP into their software products. To join the VCI, suppliers have to have systems based on NT.

The list of those who have already signed up includes well-known suppliers such as Baan, PeopleSoft, SAP and Unisys, as well as more specialised players.

Microsoft says that by basing its VCI on the Com object model, ecommerce systems can be developed that work over any kind of network, from the Internet to virtual private networks and EDI-based systems. There's only one catch. To be part of VCI, you have to go the Microsoft route, building systems based on NT and Com. Many companies will regard this as a means necessary to an end, as they define the bigger picture.

As Forrester says, they simply won't be able to afford to be on the outside if VCI takes off.

That will do little to allay the concerns of those who, like Butler, fear the building of an ecommerce universe based firmly, once again, on a raft of Microsoft products.

DATRONTECH'S ECOMMERCE AMBITIONS

Datrontech is well-placed to get into ecommerce, since its business is in the IT industry, distributing computer components and software to PC resellers and systems builders. In a business that depends on fast-moving products, with stock and prices changing all the time, pressure was growing on Datrontech's callcentre.

It wanted to improve service at the callcentre, where orders were bunching up at the end of each afternoon. Enabling its customers to order online would ease the pressure and cut costs - and the company had the advantage of knowing its customers spent a lot of time on the Internet anyway. The real challenge in building its online ordering system was getting tight integration between its online business and the callcentre, so sales agents would know exactly what products customers had bought, however the order was placed. Consultancy USWeb worked with Datrontech to set up its ecommerce system, which is built on Microsoft's Site Server Commerce. 'This system has been built around Microsoft's VCI,' says David Godwin, director for business development at USWeb. The core technology in the system is Microsoft's Commerce Interchange Pipeline, which has enabled Datrontech to integrate the web site with its legacy systems. Customers can log into the site and check these details by querying Datrontech's system directly. Online orders are made in real-time and are written back to the transaction system.