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Forrester Research

The X-Internet -- an executable and extended Internet built from post-Web technologies -- will transform online collaboration between supply chain partners.

But so far, these Web-centric B2B apps have failed to deliver the promised benefits because they are undependable and sluggish. HTTP (the Web's underlying communication protocol) was designed to deliver static content, not to run interactive apps like collaborative design systems that require minimal latency. Designers manipulating 3D models, for example, need to see the results displayed immediately. So it's not surprising that, after pilot-testing Web-based design tools like those from SDRC, most manufacturers revert to their old practice: sending CAD drawings to partners via overnight mail. Another limitation of Web-based collaboration apps is that they are browser-bound and PC-centric. Current B2B apps were originally built to reliably serve a limited number of office-bound PC users—not to engage in ephemeral communications with tens of thousands of non-PC client devices. As a result, today's apps are inadequate for mobile workers—a community that soon will represent 31 percent of the U.S. workforce—who rely on tools like dial-up modems, cell phones, and PDAs to access their corporate data and to reach out to partners.

Existing Web-based B2B apps were designed to support large corporations operating in a mature environment—with stable demand and a captive supplier network. But the world has changed: Empowered customers are more fickle and competitors challenge successful new products more quickly. Firms have come to rely more on partners to improve their supply net performance and customer service. To meet the new realities of B2B collaboration, business apps need to support:

Rich, real-time collaboration. Web-anchored supply chain apps like those from Manugistics Group can't rapidly reflect changes in partners' production schedules because their centralized databases need hours to collect and process such scattered info. So high-velocity businesses like Cisco Systems that use these batch-based apps are forced to make decisions based on historical data. To continually track and improve its supply net's actual performance, Cisco needs B2B apps that enable real-time collaboration by exploiting a distributed data architecture.

Everything, not just everyone. Although a Web-enabled supply chain execution app from a vendor like EXE can manage the cross-company information flow associated with order management, it doesn't tie that data to the physical assets used to fulfill that order—the shop-floor equipment that manufactures the product or the container in which the product is shipped. To provide customers with more accurate and up-to-date order-status info, firms need B2B apps that can monitor all of the production and transportation assets within their fulfillment network.

Rapid responses to unforeseen events. Web-based B2B apps like e-procurement rely on a rule-based workflow engine to automate routine transactions between partners. But they're not designed to let firms actively find unplanned events like delayed parts or a looming equipment failure in a contractor's plant, let alone resolve them in real time. To provide preemptive customer support and continually optimize asset usage, firms need to sense and respond to unforeseen events without human intervention.

The X-Internet Reshapes Supply Chain Collaboration

Since its birth 30 years ago, the Internet has undergone multiple evolutions; the Web is just its latest manifestation. Recently, the limitations of the Web—and of the B2B apps built upon it—have become glaring. To efficiently move their offline collaboration to the Net, firms need a B2B app architecture that is free from the Web's deficiencies. In the next decade, Forrester expects scores of post-Web technologies to emerge and take hold—paving the way for a more compelling Internet that we call the X-Internet. Unlike today's Web-rooted Internet, the X-Internet will be:

Executable. The X-Internet will exploit smart code like Java and a distributed infrastructure to push the locus of execution closer to end-user devices—enabling these devices to talk back and forth with services in the network using self-describing data. This executable Internet will reduce latency and make cross-firm app integration easier.

Extended. The X-Internet's reach will extend deep into the physical environment in which firms operate—a real world made up of billions of physical objects that range from shop-floor equipment to pallets. The X-Internet will use ever-cheaper sensors as well as smart tagging and tracing technologies to track every product from inception to fadeout.

The X-Internet's executable and extended attributes will enable B2B apps to deliver a whole new level of benefits to users—helping them make the transition from flat data exchange to contextual collaboration. Among businesses today, online supply chain

collaboration is limited to simple document exchanges. But in the X-Internet era, static queries will give way to executables—encapsulations of app logic and data along with codified knowledge of companies' business rules and constraints. Firms can then transition from an explicit but context-insensitive style of B2B communication ("Ship me 10 widgets!") to one that is more implicit, yet richer ("I need to launch this new product next year—how can you help me?").

The X-Internet will extend the scope of B2B collaboration from people-centric to any-to-any interactions. So, if your supplier's truck is stuck in traffic, it can notify your shop-floor systems and alert you. The X-Internet will support the migration to network optimization. Today's intra-enterprise decisions can inadvertently hurt partners' performance. But the multi-tier supply network visibility and real-time data provided by X-Internet services will let firms run trade-off analyses to reconcile multiple partners' incongruent goals, driving improved asset utilization and cost reductions across entire value chains.

The X-Internet's capabilities will reshape the way firms work with suppliers and customers. Here is an example. Today, HVAC suppliers like Carrier maintain their products on set schedules. But when unforeseen factors cause its products to fail, Carrier must rush orders to suppliers to replace any affected part in its defective product. Fast-forward to 2005. Sensors embedded in all critical parts of Carrier's HVACs continually relay real-time data on their status. In one instance, a sensor in a Carrier system at a Taiwanese chip foundry flags a performance degradation in the HVAC's filter. A software agent rapidly identifies the nearest source of filter replacement and dispatches a technician to install the new filter. Meanwhile, Carrier extracts the performance history of the filters in all its existing HVAC installations, combines it with details of the Taiwanese filter failure, and dashes the package electronically to the filter supplier. The supplier runs a root-cause analysis, mapping the Taiwanese incident against all other customer uses—and spots a previously undetected pattern: The filter's performance degrades whenever it is operated below 65ûF. The supplier immediately tells its customers to set their HVACs' tolerance level to 65 degrees Fahrenheit—and directs its R&D team to improve the filters' performance level in low-temperature conditions. That's how the X-Internet can transform collaboration.

The X-Internet Will Create a New Supporting Infrastructure

To reap these benefits—maintenance based on real data, product-design feedback loops, and proactive customer service—firms will need new technologies. These technologies extend—not replace—existing ERP and SCM systems. The X-Internet will spawn new Net-resident services to turn these inward-facing apps outward, making them fit for dynamic collaboration. Over the next six years, a new structure will emerge, with three new classes of Net-resident services built on existing apps (Figure 1):

• Partner integration. Emerging Net-resident data brokering and semantic translation services will simplify integration within partner networks—improving responsiveness to partners.
• Object monitoring. New tagging technologies and standards that improve device-to-device interoperability will make it easier for firms to identify and track physical assets.
• Adaptive planning. Intelligent agent technology will enable machine-to-machine resolution of problems that involve multiple firms—boosting partner networks' adaptability.

Figure 1—X-Internet technologies will provide the foundation for a new B2B architecture.

Partner Integration Services

Eighty-two percent of Global 3,500 firms have yet to integrate a majority of partners to their internal apps. But the X-Internet will simplify partner integration by offering Net-resident data synchronization services. Rather than invest a fortune in integration software from firms like Vitria Technology and hardwired connections, firms will leave these hassles to e-business brokers like Grand Central Networks that offer Net-resident, subscription-based data translation and transformation services built on open standards like XML and SOAP. Partner integration services also consist of semantic translation services. Even XML isn't enough to support complex B2B interactions like negotiation and mediation, which require greater levels of conceptual knowledge (like terms, constraints, and relations). But, semantic translation service providers like Metallect will make it easier for partners to share knowledge—all in a format that machines can understand.

Object Monitoring Services

Object monitoring services help firms' manufacturers track in real time the location and status of all their physical supply chain assets. This will allow firms to become more responsive to the physical environment in which they operate. Cheaper integrated circuits will put Internet connections into billions of physical objects, such as pallets, machine tools, and even bearings. Monitoring their status in real time and connecting them to business apps will become easier with networks that collect sensor data. Using networks from vendors like Savi Technology and WhereNet, firms can track the location and movement of the containers that carry their products. The Auto-ID Center at MIT is creating an alternative to the bar code system with trillions of unique identifiers which—along with low-cost, Net-aware smart tags—will let CPG suppliers track every individual item from the plant to retailers' shelves.

Another major benefit of object monitoring services is that they will simplify intra- and inter-site device interoperability. Because existing plant control systems don't talk to one another, manufacturers struggle to gain an aggregate view of their capacity and inventory levels. But device interoperability services from vendors like Axeda and Echelon will simplify the linkage between proprietary production equipment and enterprise apps. Standards like the Open Services Gateway Initiative (OSGI) will make it easier to interconnect diverse operational assets across multiple industrial facilities.

Adaptive Planning Services

Adaptive planning services will let partners be more responsive to one another. X-Internet technologies will allow firms to cope better with disruptive changes. In particular, businesses will be able to increase their decision-making velocity by tapping exception management services. Long-term planning apps like i2's that rely on forecasts and batch-mode processing won't cut it in the X-Internet era, when environmental data will be gathered and acted on in real time. Event monitoring and exception handling services from vendors like Viewlocity and Verilytics will allow firms respond to glitches in their value chains in a split second. Adaptive planning services will be built upon intelligent agent technology.

Once they're connected to thousands of partners and billions of devices, decision-makers will face the challenge of sifting through the petabytes of data collected. They will leave that arduous task to software agents—Net-resident services that can be configured to collect, analyze, and act on real-time data without human involvement.

How Will the X-Internet Get Traction in the B2B World?

Most X-Internet technologies are still in standards committees or in vendors' R&D labs. But some aggressive users and vendors will quickly realize their potential. The result? A few influential firms will provide the first footholds for the X-Internet. Over the next five years, we will see:

• Old-school vendors like SAP try to reinvent themselves with the X-Internet. Startups like Infravio and Viewlocity blaze the X-Internet trail. But smart ERP and CRM vendors will see in the X-Internet a unique opportunity to extend their inward-facing apps' capabilities to support dynamic collaboration. SAP has already partnered with adaptive planning pioneer BiosGroup to deliver by mid-2002 a set of supply net management services that exploit agent-based technology.

• Private hub platforms like Dell's use X-Internet standards such as UDDI. Large firms like BMW and Dell Computer have shunned public e-marketplaces like Covisint and E2open and are instead building private hubs to improve collaboration with their existing partners. But private hubs will become a source for new partners in the next two years, as platform vendors like Model N begin embedding UDDI-based discovery services into their offering. When Dun & Bradstreet's business service warns Dell that its capacitor vendor's financial viability is declining rapidly, Dell will use its private UDDI registry to rapidly identify a precertified alternate supplier.

• Service providers like GE Cisco build up shop-floor device interoperability. Over the next five years, device interoperability service providers will use IP networks to help manufacturers close the information loop between their shop floor and the top floor. Emerging standards like OSGI will enable these service providers to deliver inter-site device interoperability. The upside? Manufacturers will be able to provide customers with accurate order status and load-balance capacity on the fly.

Mainstream Adoption of X-Internet Will Vary Widely

Mainstream adoption of X-Internet technologies will vary widely across industries. Industries like construction that use, make, and move physical objects will need more time to adapt than will sectors like media that deliver largely intangible products. Similarly, industries with simple supply chains, like financial services, will see more rapid benefits than those with complex value chains like automotive. The adoption of the X-Internet will proceed in three waves (Figure 2):

Figure 2—Industry adoption of the X-Internet will occur in phases.

2001 to 2003: Finance, media, and logistics benefit quickly from the X-Internet. Many mainframe-based apps used by financial firms are decades old. X-Internet technologies provide a unique opportunity to rapidly extend these legacy systems to partners. It's not surprising that Putnam Lovell Securities uses Grand Central's partner integration services to connect more tightly with its numerous mutual fund clients. Digital media pioneer SONICblue is using Bowstreet's services to extend its legacy apps to its multiple distribution channel partners. More freight haulers will follow J.B. Hunt Transport Services' lead in using object-monitoring services like ObjectFX's as they look to optimize the capacity use of their truck fleet.

2004 to 2006: Deregulation and competition spur utilities, telecom, and auto. As the U.S. energy market becomes deregulated, utilities will try to optimize their ROI—by tapping object-tagging and object-monitoring services from vendors like Echelon and iVita. As the auto giants' battleground shifts to the emerging markets of China and India, Nissan's Indian manufacturing engineers will exploit Net-resident semantic translation services like Verticalnet's to communicate local shop-floor constraints to their R&D peers in Japan.

2007 and Beyond: CPG, heavy industries, and construction connect. It will take years for heavy equipment makers and consumer goods firms to Net-enable most of the physical assets in their value chains. But by 2006, large retailers like Wal-Mart Stores will compel CPG suppliers like Unilever to use Net-resident asset-tracking services like Auto-ID to help them with store-level replenishment at the SKU level. As cement supplier Cemex gains more market share by shrewdly exploiting its Net-aware assets to deliver 99 percent service levels, rivals Lafarge and Holcim will begin to monitor their own trucks' performance remotely using Networkcar's services.

How To Get Started with The X-Internet

The X-Internet presents all companies with opportunity. For certain industries, though, this is a make-or-break chance to streamline manually intensive processes, tame complicated supply chains, and meet growing customer requirements. For example, the X-Internet gives notoriously conservative insurance companies a golden opportunity to overhaul their inefficient processes, like claims processing, which today involves multiple human handoffs and sloppily coordinated workflows. The X-Internet will enable firms to pass the whole context of a claim quickly and easily from one stage to another.

For utilities, the X-Internet offers an opportunity to bind customers by helping them become more efficient. Smart utilities like Reliant Energy will increase switching costs for their commercial customers by offering them Net-resident services that let them react to real-time shifts in energy prices.

As for retailers, the X-Internet technologies allow them to provide their suppliers something they have been wanting for years: live sales data. Twenty-four hours after the September 11, 2001 terrorist attacks, Wal-M-art knew that its stores had sold 116,000 American flags. It could report such data quickly because of its heavy investment in Net-enabled point-of-sale systems that let it—and its suppliers—track daily store-level data. But Wal-Mart's rivals' store-level data is at best 12 days old by the time their suppliers get it. To catch up, they must stop engaging suppliers in protracted forecasting exercises; instead, they should upgrade their POS to Net-based systems like IBM SurePos 700 and feed suppliers with live sales data.

The X-Internet Will Re-Invent Supply Networks Management

As firms embrace dynamic collaboration over the next five years, they will need tools that let them work flexibly across corporate boundaries. Most vendors, stymied by proprietary interfaces and centralized data architectures, won't be able to fulfill these needs. Net-resident X-Internet service providers will fill the gap and grow in influence. By 2007, enterprise app vendors that have failed to evolve will be relegated to a supporting role.

The X-Internet will also give a big boost to the budding field of distributed computing. Adaptive planning services that enable split-second decision-making will use agent technology to quickly analyze and act upon data gleaned from partners' apps. These perform best when deployed across multiple servers (or client devices), rather than executed on a single server. Instead of investing in supercomputers to meet their agents' huge processing requirements, partners will tap the latent CPU power in their networks. As demand booms for distributed computing systems from players like Entropia and DataSynapse, these vendors' market caps will soar—and new money will flood their sector.

The X-Internet will favor decentralized decision-making structures. In the X-Internet era, environmental data gathered from billions of objects will need to be processed and acted on quickly—a task at which software agents excel. To perform at their best, these agents need wide latitude, but firms with a hierarchical, command-and-control structure will be reluctant to delegate decision-making authority. Decentralized firms, on the other hand, will be more successful—willingly delegating their monitoring and optimization activities to software agents.

Expect the X-Internet to collapse the end-to-end replenishment cycles in many industries, particularly the consumer packaged goods (CPG) sector. By 2008, scan-based trading retailers like Wal-Mart will force CPG suppliers to own store-level inventory until it's scanned at the checkout. To protect their own margins, smart suppliers like Procter & Gamble will upgrade their supply nets, tapping X-Internet services like agent software and Auto-ID's item-level tracking. The result? Procter & Gamble will shrink the end-to-end replenishment cycle for Tide from four months today to less than a day.