SaaS means business-to-business

Software as a service’s ability to establish hubs for b-to-b data integration is winning over large and small converts alike

For the most part, SaaS (software as a service) has been an evolutionary tale, one that offered quick wins to smaller players at the outset in hopes of eventually appealing to midsize companies and, ultimately, large organizations.

But one market in particular — EDI between suppliers and buyers — has already seen some very large players converting to SaaS, as Bell Brands, Welch’s, Arena Brands, and Target are tapping its ability to establish a hub for business-to-business data integration.

To be sure, SaaS enables smaller suppliers to meet the integration demands of big customers such as Bell and Target without having to commit the IT and budget resources necessary to perform EDI in-house or via a managed solution. But SaaS-based b-to-b data integration goes beyond that.

Jim Frome, chief strategy officer at SPS Commerce, lays out the typical challenge for a supplier dealing with a company such as Target.

Target publishes a set of rule books that specify the business processes, workflow, and points of integration that a supplier must comply with fulfilling an order Target has placed.

EDI is the traditional solution that suppliers use to map their processes to a customer’s requirements –- a.k.a. its rule books.

These rule books are not trivial.

“Rule books are three, four, even five inches thick, and there are multiple rule books, one for shipping to a distribution center, one for shipping to a home address, another for shipping from a foreign port,” Frome says. The list goes on, he adds.

Obviously, adhering to the rules is well worth the trouble if your buyer is as big as Target. And if you had only Target as a customer, it wouldn’t be so bad. But say you have a dozen customers, each with its own sets of rule books. EDI comes at a price, both literally and figuratively.

Companies either develop in-house IT expertise, most likely requiring a full-time staff, to create and manage the various interfaces with dozens of customers, or they go the route of a managed service that takes care of EDI for the company. Neither solution is cheap, nor is it likely to keep up with the constant flow of changes made by customers in a highly competitive marketplace such as CPG (consumer packaged goods).

Another trend driving suppliers to seek an easier way to perform EDI is their penchant for outsourcing. And not just IT. We’re talking outsourcing just about everything they do: manufacturing, inventory control, logistics, freight forwarding, and more.

All this outsourcing is making supply-chain management that much more complex. It also means that the entities performing the bulk of the work for the supplier have to act on the supplier’s behalf when the customer wants answers or changes.

The on-demand SaaS model enables these entities to respond on behalf of suppliers in a timely manner, whether they are located in the United States or Asia. So how does SaaS do that?

Well, a company such as SPS Commerce creates what the industry calls a Trading Partner Integration Center. Instead of a supplier having to reinvent the wheel — the data integration code and mappings — for each customer, the TPIC’s multitenant SaaS architecture already has connection points to most of the major retailers in, for example, CPG.

When the customer, Target, changes a business rule, each supplier is quickly mapped and in compliance with the new rules.

As Frome says, without SaaS, you find that each supplier’s IT staff has the same maps as other suppliers’ IT staffs. Very redundant, I would say.

Now, using SaaS, the maps are probably more reliable too because they have been, as Frome says, battle-tested and debugged by thousands of suppliers on a daily basis. Obviously, multitenancy also costs less as the TPIC leverages its solution to many customers and gains economy of scale.

Strangely enough, although suppliers are those most in need of a solution like this, it is the customers — Target, Welch’s, and so on — that are actually buying into the solution. After all, when a supplier doesn’t get it right, the retailer suffers, too.

The more I cover SaaS as a reporter, the more respect I gain for the model, and the more I believe that in just a few more years it will become the entrenched incumbent waiting for some new upstart methodology to unseat it.

It should be an interesting process to watch.

Related articles: • InfoClipz: Software as a service • SaaS gains enterprise cred • SaaS could hit a wall in 2008 • The five tenets of SaaS integration • Calculating the cost of SaaS • Factor sustainability into your SaaS