The Internet makes possible a new kind of business system. Instead of enterprise systems that work only inside a single company, there will be supply chain systems that work across many companies.

By "supply chain", we mean all of the activities involved in bringing a commercial product to its ultimate customer: retail, transportation, distribution, manufacturing. A supply chain system links all of these business processes into the same chain of computer processes. An Internet supply chain system uses the Internet as a global public network linking all the computer processes.

REA stands for Resources, Events and Agents. REA is the best model for a standardized Internet supply chain system, as explained below.

The main benefits of these Internet supply chain systems will be speed, agility and cost. The increases in speed and agility will be extreme: thousands of times.

Speed: Ford is moving to an Internet supply chain system, because it now takes a month for a demand to get from one end of their supply chain to the other. With the Internet supply chain system, it will take a few minutes at worst. That is approximately 43,200 times faster! (43,200 is the number of minutes in a month.)

Agility (meaning the ability to change partners, products, orders, components, at will): Setting up new trading partners via EDI can take months. Setting up new trading partners using an Internet supply chain system takes minutes. Information on product, order and component changes will be equally swift and easy.

Cost: another major benefit for smaller companies will be that the Internet supply chain system will be hosted by somebody else. The smaller company will only need a computer with an Internet connection and a browser. The system will be up and running almost instantly (for the new participant, that is - the system will already be up and running for others).

(This is in contrast with previous supply chain software that cost millions of dollars and many months to get up and running.)

Ford's new Internet supply chain system is nice for them, they can afford it. But how about all the other companies in the world? Do they need to implement their own expensive Internet supply chain system?

Moreover, GM is implementing their own Internet supply chain system, too. So what does Bosch do? They sell parts not only to Ford and GM, but Daimler-Chrysler, Toyota, Honda and Nissan, too. Do they need to implement different Internet supply chain systems for each of their major customers?

That's not the way the Internet works. The Internet works by common standards. For example, what if you had to get a different Web browser for every Web site? The Web would lose its "network effect" (added value because of more participants). The Internet revolution would never have happened.

Similarly, an open standardized Internet supply chain system would have the same "network effect". Any company could instantly partner with any other company anywhere in the world. "Virtual Enterprises" could form, change, and disband as required by the shifting tides of international business.

The Resource-Event-Agent business model was developed by Professor William E. McCarthy of Michigan State University. McCarthy and his colleagues have distilled business relationships down to the simplest number of software components.

REA can model any business process, but it is particularly good at modeling processes like supply chains that run across many companies.

There are several competing groups attempting to standardize Internet business transactions, like Purchase Orders. REA does not compete with these groups, but operates at a higher level: linking together all the processes and people.

Certainly a transaction standard will converge in the near future. However, in a supply chain, transactions do not operate independently from each other. For example, when a customer orders a computer from Dell, there are dependent demands for all of the components of the computer, and the components of the components, and time on the Dell assembly line, and a UPS truck to deliver the finished computer, etc. (Dell, of course, is implementing its own Internet supply chain system to manage all these dependencies.)

REA is the way to link all the Internet transactions together for every company, not just Dell. REA is public domain - totally non-proprietary.

Professor McCarthy and Logistical Software, LLC, are developing a reference model for REA-based supply chains. Logistical Software has a running system for small supply chains that is ready for beta testers.

McCarthy and colleagues are making the supply chain model open to all interested parties, first in the form of a UML (Universal Modeling Language) model, then in the form of an XML Schema.

McCarthy and Logistical will work through several E-Commerce standards organizations to get agreements on an Internet supply chain standard. The REA models will be made available to the organizations, and probably merged with other candidate models and extensions until an Internet supply chain standard emerges.

The full development of an Internet supply chain system will take at least one year, and probably more.

A more detailed paper on this same subject