Importance of High Availability for B2B e-Commerce

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Information about Importance of High Availability for B2B e-Commerce

Published on March 15, 2009

Author: stevekeifer



This white paper explains how B2B e-Commerce technologies have become so critical to manufacturing and retail companies that further investment is required in high availability architectures.

A GXS WHITE PAPER The Importance of High Availability for B2B Integration Considerations for B2B e-Commerce Strategists

B2B e-Commerce—A Strategic Application? If you asked business or IT executives to list the top 10 mission critical applications in their enterprise, very few would list B2B e-commerce. For many leaders in the retail, manufacturing or services sector, B2B e-commerce is not considered a strategic applica- tion. The attitudes towards B2B are reflected in the investment levels in business continuity plans for B2B infrastructure. Most corporate disaster recovery managers focus on internal enterprise applications when developing business continuity strate- gies. Such a prioritization seems logical upon first consideration. In the event of a disaster, common sense would suggest that you prioritize the recovery of the applica- tions your own employees use above those used by your business partners. What many IT leaders fail to consider is that without operational B2B platforms, many internal applications, such as ERP, lack the data needed to operate and are therefore significant- ly handicapped. In fact, enterprise dependency on B2B applications has grown substan- tially in recent years as businesses have become more dependent upon their partners. Today, B2B is an application that can be just as critical as CRM, ERP or e-mail. This white paper will explore the importance of B2B in today’s enterprise environment, with a focus on the need for highly available, resilient platforms to conduct e-com- merce. Specifically, the following discussion will explore how: B2B e-commerce is often • Changes in the value chain have made organizations more dependent upon not a high priority in business partners than ever before. corporate business continuity strategies. • B2B information exchange has become so critical that it is one of the top metrics that customers in many industries use to measure partner performance. • Many business processes in manufacturing and the services sector are crippled when a failure in B2B communications occurs, resulting in potential for significant financial loss. • Government regulations are forcing corporations to put formal business continuity procedures in place for B2B communications. • Few enterprises or B2B service providers have made the necessary investments to support a highly resilient B2B architecture. • Significant ambiguity exists about what constitutes true availability in the B2B sector. After establishing the impact of B2B communications downtime on the supply chain and business operations, a methodology for evaluating the resiliency of B2B architec- tures will be offered. Best practices for designing highly available B2B architectures and measuring the ongoing performance will be introduced. THE IMPORTANCE OF HIGH AVAILABILITY FOR B2B INTEGRATION 2 A GXS White Paper

Value Chain Evolution Raises Importance of B2B In the early days of manufacturing, vertically integrated companies would produce all of the raw materials and component parts required to build their products. The past 100 years have Corporations are trans- seen radical transformations in value chains. Corporations have become more specialized, forming from vertically depending upon a network of partnerships to help them design, manufacture, transport and integrated models to service their products. To illustrate the changing nature of value chains, let us explore the become more specialized, dynamics of three of the larger manufacturing sectors—automotive, electronics and consumer depending upon a net- products. work of partnerships to help design, manufactur- Automotive er, transport and service Consider the automotive industry. In the early days of car manufacturing, companies such as products. Ford produced all of the materials and performed all of the manufacturing necessary to build a vehicle. The OEM would produce everything from the raw materials such as steel, glass and rubber to the various parts in the engine, exhaust and suspension systems. The automotive supply chain has transformed considerably from the original vertical integration model. Today’s automotive industry is horizontally structured. OEMs are removed from the raw materials process almost entirely. Specialized Tier 3 suppliers produce the steel, aluminum, rubber, glass and leather materials needed for today’s vehicles. OEMs have transformed primarily into brand owners with much lighter supply chain management and production responsibilities. Instead, design, development and assembly of vehicle components and subsystems are performed by Tier 1 suppliers. Today’s automotive OEMs are focused on Automotive OEMs are driving market demand, innovating product design and enhancing the customer experience. shifting responsibility Automotive manufacturers enjoy much higher profit margins from financing services, extended for vehicle subsystem warranties and aftermarket parts than they do from new vehicle sales. Consequently, the manufacturing, supply industry focus is shifting from the traditional model of just selling cars to a new paradigm chain management and centered upon higher margin add-on service transactions. raw materials production to business partners. FIGURE 1: TRANSFORMATION OF AUTOMOTIVE INDUSTRY Vertically Horizontal Integrated Landscape End-Customer Sales Finished Vehicle Production Sub-Assembly Production Components Production Raw Materials Production 1930s 2000+ THE IMPORTANCE OF HIGH AVAILABILITY FOR B2B INTEGRATION 3 A GXS White Paper

Electronics The high tech industry offers another example. Just a few decades ago when mainframe com- puters were introduced, companies such as IBM owned the entire value chain. OEMs manufac- tured all the components—storage, CPU, memory, displays and peripherals. Software applica- Electronics OEMs are shift- tions were developed by the hardware manufacturer as well. Early mainframe OEMs such as ing more of the design, GE, IBM and Honeywell developed the operating systems, databases and business applications development, manufactur- for their platforms. In fact, the OEM often provided all the support services including data cen- ing and service of compo- ter hosting, call center support, systems management and application upgrades. The high tech nents, subsystems and supply chain has transformed from its originally vertical integrated model. Today’s computer software to business value chain is horizontally structured. High-end server equipment is assembled and marketed partners. by an OEM brand owner. However, the hardware components are made by various independ- ent suppliers. For example, the memory may be manufactured by Kingston, the CPU by Intel and the storage by Seagate. Software applications are developed by an independent community of developers. For example, a server-grade operating system might be developed by Microsoft, business applications by SAP and a database management system by Oracle. OEMs offer servic- es such as hardware maintenance, call center support and systems integration. However, many corporate customers prefer to buy custom development, application hosting and IT outsourcing from specialized providers such as Accenture, Wipro and EDS. Consumer Products Consumer products companies are transforming the value chain as well. Historically, brand owners such as P&G, Coca-Cola and Nike performed design, development, manufacturing, sales and distribution of their products. Raw materials such as sugar, corn or wheat were often Consumer products compa- sourced from third parties. However, manufacturing and supply chain management were con- nies are shifting more sidered core competencies of consumer products leaders. Today, consumer products companies manufacturing, marketing, are developing more specialized operations focusing primarily on activities in which they can sales and distribution gain a competitive advantage. Some are becoming brand companies with strengths in market functions to their business research, product design and demand creation. Others are specializing in manufacturing, acting partners. as contractors for their retail customers or even other consumer products brands. Non-core functions are outsourced to specialized third parties around the world. In the apparel sector, third party contract manufacturers are used to produce clothing and footwear in low cost geog- raphies. In the food industry, specialized brokers often are used to manage the product sale and customer relationships with selected retailers. In the beverage industry, distributors perform store delivery, product replenishment and regional marketing. In the media and entertainment segment, Fourth Party Logistics Providers (4PLs) provide expertise in category management, new product introductions and in-store advertising. The examples above demonstrate the transformation that has occurred in supply chains over the past few decades. Manufacturers have migrated from vertically integrated models to more specialized approaches leveraging outsourcing partners. To support the new model, manufac- turers have built an international community of specialized partners to help manage their supply chain. Specialists take many forms, employing a variety of business models. Common value chain participants are outlined in Table 1. THE IMPORTANCE OF HIGH AVAILABILITY FOR B2B INTEGRATION 4 A GXS White Paper

TABLE 1 - SPECIALIZED TRADING PARTNERS Business Function Specialized Trading Partners Design and Assembly Original Design Manufacturers (ODMs) Contract manufacturers Postponement specialists Transportation Marine transportation Air transportation Rail transportation Full truck load (ground transportation) Less than truckload (ground transportation) Logistics Third party logistics providers Customs brokers Importers Exporters Freight forwarders Consolidators Sales Channels Distributors Bottlers Brokers Agents Resellers Marketing Services Fourth party logistics providers Marketing specialists Financial Services Banks for payments and foreign exchange Lenders and Factoring Providers Commercial Trade Insurers Specialization and outsourcing are not limited to the supply chain. Increasingly, back office business processes are being sourced to specialized third parties. Examples of outsourcing exist Back office functions such in every major business function. Traditionally, business process outsourcing has focused on as payroll, marketing and transferring selected functions within an organization to an external firm. Common examples information technology of outsourcing selected business functions include: are increasingly being • Payroll—Payroll processing is one of the most popular business functions to outsource. outsourced to third party Specialized providers will assume responsibility for employee pay distribution on behalf providers. of human resources. The processors will host the software applications which calculate personnel salaries, tax withholdings and benefit contributions. Payroll providers can also manage the actual payment processes including paper check printing, electronic funds transfer or stored value cards. • Information Technology—A wide variety of information technology outsourcing providers are on the market. Some firms specialize in running a corporate IT infrastruc- ture including network management, desktop support and data center operations. Others will take on a broader scope including business process consulting, custom software development and ongoing application maintenance. THE IMPORTANCE OF HIGH AVAILABILITY FOR B2B INTEGRATION 5 A GXS White Paper

• Marketing—Outsourcing of selected marketing functions to specialized third parties is a common practice. Traditionally, corporations have sought outside assistance with brand development, advertising and public relations. In the past 10 years, more specialized firms have emerged to manage primary research projects, product concept testing, web- site design and search engine optimization. A new breed of outsourcing is emerging that extends beyond the selective sourcing approaches used in the past. In the new model corporations are beginning to outsource entire functional disciplines to third party providers. Examples of business process outsourcing include: • Finance and Accounting—Business process outsourcing for finance and accounting is a The business process out- nascent, but quickly growing, area. Specialized providers can offload the entire finance sourcing model in which function from an organization including accounts payable, accounts receivable, tax man- companies outsource agement, treasury management, risk management and regulatory activities. entire organizational func- tions such as human • Human Resources—Another growing area of business process outsourcing is human resources or finance is resources. A number of multi-national corporations have contracted with third parties becoming increasingly to provide personnel management, organizational development, recruiting and hiring, popular. benefits administration, compensation planning and strategy and performance manage- ment services. In both the manufacturing and services sector the trend is clear. Corporations are specializing. Industry leaders are developing core competencies and deep expertise in particular niche func- tions. The specialized focus enables higher levels of innovation with better economies of scale. The benefits of the new business models are significant. However, the risks should not be underestimated. The specialization of roles that occurs with horizontally structured value chains creates a strong dependency upon business partners for day-to-day operations. The implications of the change can be substantial, particularly if the choice of business partners proves to be problematic. Consider what the impacts would be if a key value chain partner became financial- ly insolvent or suspended operations temporarily. The disruption to a supply chain and business operations could last for days, if not weeks. There are implications for information technology strategy as well. In today’s specialized value chain, information systems are dependent upon your business partners as well. Applications such as ERP quickly become inoperable without data feeds from external sources. In fact, a high percentage of the data housed in enterprise applications actually originates from external business partners. Examples are illustrated in Table 2. THE IMPORTANCE OF HIGH AVAILABILITY FOR B2B INTEGRATION 6 A GXS White Paper

TABLE 2: EXTERNAL DATA SOURCES FOR BUSINESS APPLICATIONS Business Application Data Sourced from Outside External Business the Enterprise Partner Sources Enterprise Resource Customer Forecasts, Customer Customers, Distributors, Brokers, Planning Orders Agents, Resellers Procurement and Product Catalog, Pricing, Vendor/Suppliers Sourcing Promotions, Vendor Marine, Air, Rail Transportation Transportation Shipment Status, Import/Export Providers, Freight Forwarders, Customs Management System Documentation Brokers, LTL, TL, Parcel Carriers, 3PLs Finance and Accounting Supplier Invoices, Customer Vendors, Customers, F&A BPO Invoices, Remittance Advices, Providers, Payroll BPO Providers Payroll, General Ledger Treasury Workstation Bank Account Statements, Foreign Cash Management Banks, Securities Exchange Transactions, Securities Broker/Dealers, Foreign Exchange Banks Ownership Human Resources Recruiting, Performance, HR BPO Providers Compensation, Employee records Information Technology Data center, network, application IT Outsourcing Providers status, Trouble ticket status Without reliable information exchange between business partners, the value chain becomes dysfunctional. Consider what the impacts would be if a company’s B2B communications went Due to outsourcing and off line for 24 hours? How many orders would be lost? How many customer credits would specialization in the value you have to be issued? More importantly—How much credibility would be lost? chain, an increasing per- centage of corporate data Supply Chain Disruption comes from external busi- To further understand the dependence of business processes on B2B communications, let us ness partners. examine three case studies from various industries. • Automotive Logistics—The transportation process used in the automotive sector offers an excellent example of how disruptions to B2B communications can cripple manufac- turing activities. There is a growing trend for suppliers to co-locate their plants in close proximity to their customer’s manufacturing operations. The short distances between customer and supplier sites can reduce transportation costs and lower inventory levels. Furthermore, it offers an enhanced level of responsiveness to changes in manufacturing schedules or end-customer demand patterns. Depending upon the distance between the supplier and customer plant, the time to transport goods may be as few as 15 minutes. When the materials leave the supplier’s plant an advanced shipment notification (ASN) is transmitted electronically to the customer’s receiving system. The ASN communicates the details of the truckload, including shipment contents, transportation carrier, expected The delay in transmission arrival time and routing instructions. If electronic communications between the supplier of an ASN, can stop manu- and the customer are interrupted or delayed, the truck may arrive at the customer’s plant facturing lines in the auto- before the advanced shipment notice. Consequently, the receiving department at the cus- motive industry. tomer location will not have a record of the shipment. The parts and materials will be held until they can be correlated with a specific order. If the ASN is delayed for several hours, downstream manufacturing processes could be delayed or suspended due to the THE IMPORTANCE OF HIGH AVAILABILITY FOR B2B INTEGRATION 7 A GXS White Paper

lack of availability of critical parts or materials. Suppliers are typically penalized with invoice deductions or lower performance ratings when problems with the ASN occur. • Manufacturing VMI—Some manufacturers are moving one step beyond plant co-loca- tion to vendor managed inventory (VMI) models. The VMI model requires the supplier to assume responsibility for the ownership of the inventory up to the point of consump- VMI processes used for tion. The supplier must monitor inventory levels to ensure parts are always available at production manufacturing the customer’s location. It is cost-prohibitive to have an on-site person in each customer are critically dependent location monitoring inventory. As a result, software-based VMI applications are used to upon B2B e-commerce. monitor consumption. VMI applications typically track inventory on-hand, in-transit, on-order and out-of-stock at an individual part level. VMI software can model and pre- dict out-of-stock situations based upon forecasted manufacturing and delivery plans. When an out-of-stock situation is predicted, the application will send a replenishment request to the supplier electronically. But what happens if the electronic communications between the customer’s site and the supplier’s order fulfillment applications are interrupt- ed or delayed? The replenishment request may not be fulfilled or even received before an out-of-stock condition occurs. For VMI programs supporting production operations, the consequences can be significant. Manufacturing processes may be suspended until the necessary parts or materials are available. The labor force may be sitting idle for several hours. The manufacturer may not be able to meet demand downstream resulting in the loss of sales or issuance of penalties. Repeated manufacturing delays could result in a loss of business with key accounts. • Corporate Payments—B2B communications are not just critical for the supply chain sector. Financial activities can be impacted by disruptions to B2B connectivity as well. High value payments and funds transfers offer an excellent example. Most payments are Corporate payments for cleared and settled through automated clearinghouse and wire transfer systems. These employee payroll, govern- wholesale payment systems typically operate during a limited set of business hours. As a ment taxes, shareholder result, banks establish payment cutoff windows with their customers. Payments and dividends and loan repay- funds transfers submitted before the cutoff window will be executed the same day. Those ments are dependent upon not received before the cutoff will be postponed until the next business day. It is com- B2B communications mon for corporate treasury departments to wait until the mid-afternoon to submit their between banks and their daily batch of instructions. As a result, banks must be prepared to accept and process a customers. high volume of payments in the last hour before cutoff. If there is an interruption or delay in B2B communications during the peak processing timeframe, funds transfers may not executed as planned. Delayed payments result in SLA violations by the bank and financial compensation to the customer. Repeated missed payments can negatively impact a bank’s relationship with their corporate client and result in a loss of business. The implications for the corporate client could be far more significant. If a loss of B2B connectivity occurs, most likely not one, but an entire series of payments will not be exe- cuted. Delays to employee payroll, government taxes, shareholder dividends or bank loan repayments could have expensive consequences. Failure to execute a funds transfer on a THE IMPORTANCE OF HIGH AVAILABILITY FOR B2B INTEGRATION 8 A GXS White Paper

particular day could result in late-payment penalties, overdraft banking fees and even lower credit ratings. Customer Satisfaction Due to the potential consequences of B2B communication interruptions, large buyers have begun to measure and penalize suppliers for downtime. These metrics are tracked as part of an overall supplier scorecard program. Measurement programs have become common policy for large buyers in the aerospace, automotive, electronics and retail industries. Suppliers are rated The impacts of B2B down- monthly, quarterly or sometimes annually by their ability to meet the buyer’s Key Performance time have become so sig- Indicators (KPIs). Poor ratings can affect a supplier’s competitiveness in renewing contracts or nificant that they are now new business proposals. In some cases, buyers in procurement organizations will use a weak per- one of the key perform- formance rating as leverage to negotiate better prices or contract terms. ance indicators used to rate suppliers. A common example of a B2B communication metric tracked by many buyers is order acknowl- edgement response time. Customers will measure how quickly a supplier confirms acceptance of a purchase order. Time frames of two to four hours are most common. In some cases, the lack of a response within a specified time frame constitutes acceptance of the buyer’s terms. The Vendor Compliance Federation (VCF) recently conducted a study to assess the extent to which B2B communications are being measured in supplier scorecards. The study found that 20 percent of the 500 most common causes for invoice deductions were related to EDI (B2B e- commerce). Table 3 highlights the most common supplier metrics identified in a recent VCF study of the retail industry. TABLE 3: COMMON DEDUCTION CATEGORIES USED IN US RETAIL INDUSTRY Category Violation A VCF study found that Purchase Order Late Shipment 20% of the 500 most EDI No Advanced Shipment Notification Floor Ready Poor Quality, Un-scannable or Un-readable Barcode common causes for Packaging & Marking No GS1 128 Labels invoice deductions were Transportation Wrong Transportation Carrier related to B2B e-com- Purchase Order Over-shipment Transportation Shipped to Wrong Location merce. EDI Late Advanced Shipment Notice Floor Ready Wrong Barcode Label Floor Ready Wrong Retail Price Purchase Order Unauthorized Substitutions EDI Bill of Lading—Missing or Incorrect on ASN Source: Vendor Compliance Federation Note that several of the top measurement categories track criteria related to the advanced ship- ment notification or barcode label. In fact, VCF found that the fourth most frequent invoice deduction category was ASN-related problems. Failure to deliver complete, accurate ASNs in a timely manner can have a significant impact on vendor performance ratings. Consider for example the scenario in which an interruption to B2B communications delays the ASN of a THE IMPORTANCE OF HIGH AVAILABILITY FOR B2B INTEGRATION 9 A GXS White Paper

critical shipment. The supplier will be penalized even if the physical shipment arrived in full, on time and at the specified quality level. The delayed ASN could result in a decrease in perform- ance rating from five out of five to a three out of five. The lower rating may be the difference between the supplier winning or losing their proposal to renew an annual contract. Having a highly reliable B2B communication service with fast throughput time frames is critical to achieving a strong performance rating on supplier scorecards. Service level measurement has become more popular in the services sector as well. The corpo- rate banking industry offers an excellent example. Third party institutions such as Greenwich Associates and Phoenix Hecht conduct independent surveys of bank customer satisfaction on Vendor scorecards are a monthly basis. The results of the surveys are published in the form scorecard ratings for indi- becoming increasingly vidual banks. More frequently, corporate clients are demanding the option to review copies of popular in the corporate satisfaction scorecards as part of their bank selection processes. Increasingly, corporate clients banking sector as clients are requesting that banks develop their own scorecards with customized metrics specific to seek quantitative methods particular accounts. For example, many corporate clients want to ensure that banks process to assess their financial high value payments within seconds of receipt. Examples of service quality metrics commonly institution's performance. measured in the banking sector are outlined in Table 4. TABLE 4: EXAMPLE BANKING SCORECARD FOR CASH MANAGEMENT Service Quality Metrics Electronic Transmission of Daily Statement Information Electronic Transmission of Daily Funding Information Electronic Transmission of Monthly Billing Information Percent of Previous Day Reporting Deadlines Met Percent of Current Day Reporting Deadlines Met Information & Statement Accuracy and Transmission Quality Number of Open Information, Statement and Billing Inquiries Average Resolution Time of Closed Inquiries Source: Tower Group Note that several of the key metrics relate to electronic transmission of account status data between the bank and their client. A March 2006 Tower Group report titled Service Quality in Treasury Management stated: “Superior service quality is the most important avenue for differentiation among treasury management service providers... The institutions that lag their counterparts in service quality are likely to see decreased market share, reduced profit margins, and relegation to status of a second tier provider...” Bank-to-corporate communications represent an important subset of the service quality metrics. Success in the corporate banking sector demands a reliable, high performance B2B integration platform. THE IMPORTANCE OF HIGH AVAILABILITY FOR B2B INTEGRATION 10 A GXS White Paper

Regulation Customers are not the only group tracking performance of B2B communications. Government agencies have enacted regulations governing business continuity policies in various industries. Examples of guidance or legislation in the health care, financial services, government and public Government agencies and utilities sectors are outlined in Table 5. These regulations govern a broad scope of IT functions ministries have begun to of which B2B is only a subset. include business continu- ity in regulatory policy. TABLE 5: SELECTED REGULATIONS IMPACTING BUSINESS CONTINUITY Industry Regulation Business Continuity Impacts Health Care US Health Information Portability and Requires data backup plan, disaster recovery Accountability Act (HIPAA) plan and emergency mode operation plan. Government US National Institute of Standards and Defines detailed recommendations from NIST, Technology (NIST) Special Publication requiring contingency, disaster recovery and 800-34, Contingency Planning Guide for continuity of operations plans. Information Technology Systems Financial Basel II, Basel Committee on Banking Requires that banks put in place business Services Supervision, Sound Practices for continuity and disaster recovery plans to ensure Management and Supervision continuous operation and to limit losses. Utilities US Federal Energy Regulatory Commission Mandates recovery plans. (FERC), RM01-12-00 (Appendix G) Source: Gartner—Laws Influence Business Continuity and Disaster Recovery Planning Among Industries— 11 July 2005—Number: G00128123 Business continuity is important even for industries without a specific government regulation. In today’s market there is an expectation amongst shareholders, customers and suppliers that the necessary efforts to make systems highly available will be performed. Missed Opportunities Business disruptions which suspend manufacturing activities or interrupt financial operations are often the most straightforward examples of the costs of B2B downtime. Equally impactful are scenarios which do not necessarily disrupt operations, but instead result in missed opportunities. The Vendor Managed Inventory (VMI) process in the retail sector offers an example of how disruptions to B2B communications can lead to missed opportunities. VMI is enjoying adop- Even if a B2B communica- tion in the big box retail segment for a variety of product categories which have complex tion failure does not lead demand patterns such as video games, movies and music. The retail VMI process typically to business disruption, it works as follows. Each night the retailer aggregates point of sale data from its stores and trans- may result in missed fers the information to the brand owner. The brand owner will use the sales consumption data opportunity costs. along with its last-known store inventory positions to assess stock positions at each individual location. The data is fed into a replenishment application which can calculate SKU-level stock- ing needs for each store. The calculated replenishment quantities are then sent to local distribu- THE IMPORTANCE OF HIGH AVAILABILITY FOR B2B INTEGRATION 11 A GXS White Paper

tion centers for routing of product to each location in time for store openings. As a result, con- sumers can expect to find the product of their choice at their local retailer. The technology infrastructure required to support the process can be very complex, requiring high levels of reliability and throughput. Each retailer captures different sales information due to variations in POS applications. As a result, the files sent from each retail chain will vary in structure and content. Data must be cleansed and standardized before it can be analyzed by the brand owner’s replenishment algorithms. Capacity is another challenge. Very high volumes of Retailer replenishment data must be transmitted, re-formatted and analyzed in a relatively short time window to enable processes in the VMI a daily store delivery model. Brand owners only have a few hours to cleanse and analyze the model depend upon the data. The few hours between the nightly store closing time and the morning truck dispatch do exchange of point of sale not leave much room for error. If there is an interruption or delay in the exchange of demand and inventory data with data between the retailer, brand owner and distributor, the process breaks down. Stores for the brand owner and which data is not processed will not have a replenishment order. If a truck visits the store on distributor. B2B communi- its route, the driver may be able to visually inspect the store shelves for out-of-stock inventory. cation failures can result The truck driver can sometimes pull products off of the truck to fill the shelves. However, the in out-of-stock situations driver may not be carrying the right inventory or sufficient quantity to replenish each of the and missed sales opportu- stores. There is a missed revenue opportunity for both the retailer and the brand owner during nities. out-of-stock situations. The opportunity costs are highest for recently introduced products. Often brand owners perform extensive marketing to drive consumers to the stores for the new product introductions. New offerings typically enjoy higher prices and margins, particularly when there is less competition on the market. When VMI replenishment processes are inter- rupted, not only will consumers be disappointed to find out-of-stock situations, but the brand owner will lose out on high margin sales. Corporate cash management offers another example of the opportunity cost associated with B2B communication. Large corporations use a pool of bank accounts in various countries around the world to fund their day-to-day operations. The local accounts are used to remit pay- ments to suppliers, employees, investors, retirees or government agencies. The accounts are also used to collect receivables from government, business and retail customers. At the end of any given business day, the summation of all the payables and receivables will result in a net cash deficit or cash surplus. If there is a cash deficit, the treasury department will draw upon a bank line of credit to fund the shortage. If there is an end of day cash surplus, treasurers will put the balance to optimal use. In most cases the money will be invested in an overnight interest-bear- ing account such as a sweep. Alternatively, the funds may be transferred to another operating company to offset a deficit. Ideally, a corporation would put all available funds to use and a zero balance would exist in each account at the end of each operating day. Identifying idle cash requires the ability to obtain accurate account balance data for each of the corporation’s various bank accounts. Corporate treasury departments are dependent upon a feed of account balance information from each of their banks to assess their cash position. If the B2B communications between a corporation and its banks are interrupted, the treasury depart- ment will have an incomplete view of their global cash balances. If a significant cash surplus THE IMPORTANCE OF HIGH AVAILABILITY FOR B2B INTEGRATION 12 A GXS White Paper

exists, the opportunity costs of missed interest payments could be substantial. Treasurers can use the web, phone, fax and email to gather the data from individual banks. However, the manual data collection process will be time-consuming. Manual processes can usually not be completed in the critical time window near the end of the day in which account balances must be evaluat- ed and investment decisions need to be made. The examples above represent just a few of the scenarios in which a supply chain disruption or missed business opportunity might occur due to a loss of B2B communications. With a greater appreciation of the impacts of downtime in B2B integration, we will now explore a methodolo- gy and best practices for developing a highly available e-commerce infrastructure. Defining High Availability in B2B To develop a business continuity strategy for B2B integration, the corporation needs to under- stand the acceptable amounts of downtime that business processes can accommodate. Downtime is typically measured by two factors: • Recovery Time Objective (RTO), which refers to the maximum acceptable length of time between the point of disruption and the recovery of critical functions. In other words, RTO measures how long B2B communications were interrupted. • Recovery Point Objective (RPO), which refers to the point in time to which data must be The first step in assessing restored in order to resume processing. In other words, RPO measures how many B2B high availability require- transactions need to be reprocessed due to the outage. ments for B2B is to identi- fy the financial impacts of To assess the maximum acceptable RTO and RPO for your business processes you should con- downtime. sider a number of factors: • Acceptable Latency—Some business processes require information exchange to occur in near real time over a period of just a few seconds. Other business processes may tolerate higher levels of latency with transactions being orchestrated over a period of minutes or even a few hours. Example transaction sets with typical latency time frames are exhibited in Figure 2. • Customer Impacts—Transactions which are measured by customer scorecards or those which are regulated by government legislation should receive a higher level of focus. Financial penalties will result if such transactions are delayed due to downtime. • Manual Workarounds—Some business processes have manual workaround procedures that can be executed if a loss of B2B communications occurs. Scenarios with reasonable workarounds can reduce the operational impacts of downtime. With a full understanding of the financial and operational impacts of downtime, IT organiza- tions can design the B2B architecture to meet the necessary RTO and RPO objectives. THE IMPORTANCE OF HIGH AVAILABILITY FOR B2B INTEGRATION 13 A GXS White Paper

FIGURE 2: ACCEPTABLE TRANSACTION LATENCY FOR KEY BUSINESS PROCESSES Hours Minutes Seconds • Purchase Order • VMI Signal—Intra-Day • Field Service Replenishment (Emergency Request) • Commercial Invoice • Advanced Ship Notice • High Value Payment • VMI—Daily Replenishment or Funds Transfer • Health Care Eligibility • Import/Export Declarations Inquiry There are additional dimensions beyond RTO and RPO which must be considered when struc- turing high availability measurements in B2B. GXS recommends that B2B architectures be evaluated on the concept of “true availability,” which offers a new framework for corporations to assess the operational and financial impacts of downtime. True Availability is based upon two tenets not traditionally factored into high availability metrics: • System-Wide Availability—Uptime of the entire B2B architecture as opposed to measur- ing the uptime of individual architecture components or selected subsystems. • End User Availability—Uptime as experienced by the end user of the B2B services as opposed to the IT organization or service provider which often exclude scheduled main- tenance periods. Let us explore these two tenets of True Availability in further detail. Tenet #1—System-Wide Availability To appreciate the concept of system-wide availability, one must understand the structure of a typical B2B platform. B2B architectures are based on an integration broker, which typically acts as a gateway for all external communications. The integration broker uses a services oriented architecture to link enterprise applications with the systems of external business partners. It is True Availability Tenet common for large companies to offer a choice of multiple interface types to their trading part- #1—Measure uptime of ners. Larger business partners will prefer a direct, Internet-based connection for data exchange. the entire B2B architecture Small and midsize partners will interact either through a third party B2B integration provider versus the uptime of each or a web-based portal. A typical B2B architecture is illustrated in Figure 3. individual component. For a B2B communication to be fully functional all components of the architecture must be highly available. Many IT architects focus high availability investments on the heart of the B2B infrastructure, the integration broker. As a result, the trading partner interfaces such as Internet communications and the web portal are often exposed to single points of failure. The lack of resiliency in trading partner interfaces can result in significant business impact if an outage THE IMPORTANCE OF HIGH AVAILABILITY FOR B2B INTEGRATION 14 A GXS White Paper

FIGURE 3: TYPICAL B2B ARCHITECTURE Enterprise B2B Gateway Direct Connections Applications (Integration Broker) (AS2, S/FTP, HTTPS) Internet B2B Integration Provider Web Portal occurs. Even the portals and third party integration providers used by small and midsize busi- nesses can cause business disruption. Some might incorrectly conclude that a smaller business partner cannot have a material impact on a supply chain or business function. However, the True Availability requires size of a supplier is in no way reflective of their importance to the supply chain. It is not com- both B2B Gateways and mon for even the largest retail and manufacturing companies to depend upon small businesses Trading Partner Interfaces for critical parts or services. A true high availability architecture for B2B must include a fully to be designed for busi- redundant suite of trading partner interfaces. Internet connections, web portals and third party ness continuity. provider architectures should be evaluated for single points of failure that may lead to service interruptions. One of the most challenging aspects of evaluating the resiliency of a B2B infrastructure is identi- fying potential failures from third party service providers. The internal architectures and opera- tional processes of B2B integration providers are often a mystery to corporate customers. Few corporate buyers spend much time evaluating the business continuity capabilities of their service provider’s infrastructure. Instead, corporate buyers typically select B2B vendors based upon trans- action pricing rates. However, in the long term, a narrow focus on transaction pricing may not result in the optimal financial benefit to the corporation. Many of the lower cost B2B providers have underinvested in the resiliency of their B2B architectures. A prolonged outage at a low price B2B service provider may lead to manufacturing line delays, retail out-of-stocks, customer com- pliance penalties and lower supplier scorecard ratings. The financial impacts of business process interruptions and unfavorable performance evaluations will far outweigh the cost savings realized from lower vendor transaction fees. THE IMPORTANCE OF HIGH AVAILABILITY FOR B2B INTEGRATION 15 A GXS White Paper

To mitigate the risk of a service interruption from a third party B2B provider, you should thor- oughly evaluate the underlying architecture of your vendor’s operations. An example of a typical B2B service provider architecture is illustrated in Figure 4. FIGURE 4: EXAMPLE B2B SERVICE PROVIDER LOGICAL ARCHITECTURE Enterprise Small Business 3rd Party Interconnects Connectors Connectors Private Line EDI-to-Fax HTTP/S Web Forms Secure FTP Dial-Up Transaction Management AS2 Excel Adapter Queues Event Mgmt. FTP/S Logging Archiving Quickbooks Adapter Operations Systems Value Added Services Backup and Restore Network Based Translation Systems Health Monitoring Network/Data Encryption Logical Security File Compression Database Administration Data Quality Management Call Center Reporting and Scorecards Most service providers focus high availability investments on the core transaction management component of the architecture. The focus is logical given that the transaction management modules perform the most critical and computing intensive processing. However, a single point of failure in any of the trading partner interfaces, value added services or operational support systems can be crippling to the overall availability. Consequently, True Availability demands that a service provider ensure the resiliency and high availability of all components of their infra- structure including: • Enterprise Communications—For all Internet protocols (AS2, AS3, Secure FTP) and private network connections (Point-to-point, MPLS, Frame Relay). • Small Business Enablers—For services such as fax-to-EDI conversion and web-based forms; specialized adapters for Intuit’s Quickbooks or Microsoft Excel; and dial-up modem banks for legacy communications. THE IMPORTANCE OF HIGH AVAILABILITY FOR B2B INTEGRATION 16 A GXS White Paper

• Interconnects—Often overlooked, but provide critical access to third party networks such as VANs (e.g. Sterling Commerce, Inovis, Kleinschmidt), specialized networks (e.g. ANX, ENX, or SWIFT) and industry exchanges (e.g. Covisint, Liaison, Elemica). • Operations Systems—Must be operational for the service provider to manage the underlying hardware, software, network and application infrastructure. • Value Added Services—Such as network based translation and data quality management which may provide critical transformation of the file format or its contents. B2B service providers should have architected redundancy into each of the subsystems in their architecture. Tenet #2—End User Availability The second tenet of True Availability is the measurement of uptime from the perspective of an end user rather than the IT organization or service provider. Many IT organizations and B2B service providers are still running their applications on mainframe-based platforms. These lega- Tenet #2 of True cy applications have not been enhanced in years, in some cases more than a decade. Not only Availability—Measure are these mainframe based systems out-of-date, they require long periods of extended down- uptime from the perspec- time. IT organizations and service providers regularly take these systems offline for periods or tive of the end user ver- four, eight or even twelve hours during weekends

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