ENDANGERED SPECIES

Some say the advent of Web-hosted supply chain applications will eliminate the need for systems integrators. But others believe the integrators will simply shift their focus to adapt to their new environment.

By -- Logistics Management, 5/1/2000

If you've heard rumors that Web-hosted supply chain applications will do away with the need for systems integration, you're not alone. Many providers of these software services have created the impression that their Web-based applications don't require any tie-ins to work with their clients' existing software applications.

But that's not exactly true. Although Web-hosted software makes installation quicker and easier, it doesn't totally eliminate the need for a systems integrator to tie data flows together-at least at present. It does appear, however, that the advent of Web-hosted applications will change the role systems integrators play in the logistics field.

The Ties That Bind

Until now, the systems integrators have enjoyed unprecedented market opportunities. Companies often buy an enterprise resource system (ERP) package from one software vendor and a supply chain application-like a warehouse management system (WMS)-from another vendor. In order to allow information to be exchanged between these different software programs, someone has to install or write an interface to facilitate data transfer. That person is often a systems integrator.

And the opportunities have not been limited to tying systems together. In the past two years as many supply chain software vendors have focused on selling their products, they've turned to systems integrators to install their applications as well. In addition, integrators have been hired to link up materials-handling equipment, radio-frequency systems, and bar-code systems with WMS programs used in a distribution center.

The market for such services is huge. The research firm ARC in Dedham, Mass., estimates that U.S. businesses last year spent more than $10 billion on systems integration work alone. About 8.5 percent of that $10 billion was spent just on integrating supply chain applications, says Russ Novak, director of consulting at ARC.

The integrators' services do not come cheap. Kevin Sperry, a vice president at Indian River Information Systems, an integration firm in Melbourne, Fla., says that developers who make modifications to existing software packages charge anywhere from $80 to $150 an hour. Integrators that configure and install software packages earn between $120 and $180 an hour. Integrators who also act as business consultants get between $150 and $250 an hour. In fact, companies used to figure as a rule of thumb that the integration work would cost them one to three times the price of the actual software package.

A New Software Model

Given these prices, it's no wonder companies have found the recent emergence of Web-based software so appealing. Application service providers (ASPs)-companies that rent their software applications-have recently begun offering online access to software to manage supply chain activities such as transportation or export and import compliance. Recent technological developments in the computer industry have made it practical for the software vendors to host the application on their own computers and give users access to their programs via the Internet or a private network. In most cases, the user can simply employ a standard Web-browser to operate the application, which is actually located off-site. (See "Software for hire," Logistics, April 2000.)

The lure of these so-called "Web-hosted" applications is that they are quick and easy to set up. "Web-hosted applications for the supply chain solve a lot of problems," reports Steve Gold, a partner at the consulting firm KPMG Peat Marwick LLP in Chicago. "Typically, the [client company's] IT staff doesn't have the time or energy to work on supply chain tools. Sales systems take priority. But Web-hosted systems take all the stress out of the internal enterprise and put it on the Web application host."

But the Web-hosted application still must talk to the company's other internal applications. Unless the ASP or corporate IT staff is willing to do the tie-in work, the services of an integrator remain necessary. "The fact that it's Web-based doesn't do away with [the need for] integration," notes Jim Uchneat of Benchmarking Partners in Cambridge, Mass.

Adds Karen Peterson, an analyst with the Gartner Group in Stamford, Conn., "I can't buy a Web-hosted application integrated with everything I need in supply chain management. I still have to link my internal systems to it."

The Connectivity Challenge

To begin with, integrators still have to provide connections for the exchange of data between the Web-hosted application and existing programs. "There's going to be a need to integrate ERP systems with data flows across the Web," says Gary Cross, the supply chain ERP practice leader in IBM Consulting's Cleveland office. "Integrators build these translators to help with data conversion."

Although interfaces are needed if the Web-hosted application is to work in concert with internal programs, systems integrators today can take advantage of new "middleware" tools to build the connections more readily. "It's getting easier because people have tools to map the interfaces pretty quickly from the larger ERP vendors," says Steve Mulaik, director of the logistics systems practice at the Progress Group, a systems integration firm in Atlanta.

Uchneat believes that Web-hosted applications in conjunction with middleware tools will speed up the integration process, reducing the cost of such services. "The real benefit today is that the integrator is using middleware tools," says Uchneat. "That makes integration faster, and it should be cheaper."

Some Web-hosted solutions-such as those for transportation management, export-import compliance, and inventory visibility-are relatively easy to link. "For certain logistics applications, primarily those providing inventory visibility and managing international trade, the integration is simple," notes Dan Gilmore, an analyst with the Meta Group in Stamford, Conn. "All you have to do is pull some files from your ERP or legacy system database. You send the order information to these hosted applications and then you get back the reply through a Web browser."

But other systems, such as warehouse management systems, pose an integration obstacle, especially when they oversee sophisticated materials-handling equipment. "There's still a need for an integrator who understands the software you're renting [online] and can have it interface with the WMS that runs the warehouse," says Michael Hernan, a senior project manager with the systems integration firm Integrated Technologies Group in Chillicothe, Ohio.

The Integrators' Other Strengths

In any event, integrators nowadays perform services other than supplying the point-to-point interfaces between software programs. They often train the workers who are going to use the applications. "You still have to train the users whether they use a browser or not," says Sperry.

In addition, many integrators double as consulting firms these days, showing companies how to take advantage of the software to improve their logistics operations. And consultants-cum-integrators will still be needed to help companies gain the most from Web-hosted applications. "The systems integrator provides more benefits than just integration," says Peterson of the Gartner Group. "They help me develop a process to take advantage of all these new technologies."

Consulting firms that provide integration services can help companies re-engineer their logistics operations. "Because you've implemented these tools, you'll now have metrics available at your fingertips," says Gold. "The position of the logistics manager becomes more strategic, rather than tactical. As a result, the role of a consultant becomes one of helping the client to think out all of the strategic implications."

But the threat of possible loss of integration work has also prompted some of the integrators to consider transforming themselves into application service providers and offering Web-hosted services themselves. Gold notes that KPMG has formed a venture with Quest Communications International of Denver called Quest Cyber Solutions to provide hosted applications. Andersen Consulting is also reportedly examining this possibility.

Mulaik, for one, is convinced that many integrators will become ASPs in the future to offset the loss of revenue from a decline in integration business as companies embrace the concept of online software. "Eventually," he says, "we're going to lose the market for implementation work or do hosting work."

Web Integration

But the advent of Web-hosted applications could also shift the focus of the systems integrator away from tweaking software within a warehouse to helping link trading partners so they can communicate with one another over the World Wide Web. "In the Web-enabled world, it's all about creating communities of trading partners using the Web as the mechanism for sharing logistics information," says Moe Trebuchon, a former systems integrator who's now the chief operating officer for the connectivity vendor Viewlocity in Atlanta. "In order to realize business value, you have to bring together a number of different companies, which makes the integration process complex. The systems integrator will act as an assembler to get them into that community."

For the near term at least, companies must continue to pay for integration services to bring together all of their supply chain applications-whether Web-hosted or site-situated. "As an integrator, I'm not worried one bit about Web-based applications," says Sperry. "There are still plenty of things to keep us integrators busy."