The price of Internet EDI
Customers' insistence on certain standards perceived as pain with little gain
By Malcolm Wheatley, contributing editor -- Manufacturing Business Technology, 2/1/2004 12:00:00 AM
When companies move business processes to the Internet, they typically expect those processes to become easier to execute and less expensive to support. But when it comes to Internet-based EDI, that assumption may only be half right.
Consider what happened when The Scotts Company, Marysville, Ohio, traded the combination of telephone lines and value-added networks (VANs) it used to conduct EDI for an Internet-based system that EDI specialist Lori Boyer says "works just like e-mail."
The Scotts Company makes gardening products including Miracle Gro, Round Up, and Lawn Pro. It moved to Internet-based EDI at the request of Wal-Mart, its biggest customer. It also selected an EDI solution that conforms to a particular standard—known as AS2—that Wal-Mart has asked all of its suppliers to adopt.
While all this has made Wal-Mart happy, it has yielded Scotts very little in the way of cost savings, partly because Wal-Mart insists that Scotts continue employing a VAN to monitor traffic on its EDI network and make sure all transactions are completed properly.
Eric Austvold, research director at Boston-based AMR Research, says such requirements are stirring resentment among manufacturers that are being asked to practice Internet-based EDI. Few companies are complaining loudly because most are in the same position as Scotts—making the move at the request of some large customer. Still, Austvold says, there is growing sentiment among manufacturers that being forced to adopt Internet-based EDI—particularly when the AS2 requirement is thrown into the mix—is "giving them more work to do without any immediate benefit."
What is AS2?
Some industry observers say manufacturers have a right to be upset, particularly when there is little prospect of any one standard—even AS2—emerging as the single method for packaging Internet-based messages anytime soon.
"Internet EDI is a very loose term," complains Jim DeMin, technical manager at Infonet Services Corp. "It's very much misunderstood. Ask a dozen people what AS2 is all about, and you'll get a dozen different responses."
Technically, AS2 is not a standard at all; it's a communications protocol. Spencer Marlow, a manager with Sterling Commerce, an EDI technology supplier, explains it this way: "AS2 doesn't care what the format is; it can be flat file, XML, or whatever."
AMR's Austvold says using the Internet to conduct EDI only changes the means of transporting messages—not the method of packaging them—which is what standards are all about. "Instead of using a private network to communicate, trading partners are simply using a public network—the Internet," he says.
For manufacturers, this means that even if they can send and receive EDI messages faster over the Internet, they will still have to ensure the use of the proper standard for formatting messages with each trading partner if they want those messages to make sense. For instance, companies in the auto industry will still have to master the nuisances of the Odette standard, while consumer goods manufacturers must still work with ANSI X.12, the original North American EDI standard; or EDIFACT, its European equivalent.
But not all the news about Internet-based EDI is bad. Because of Wal-Mart's widespread influence on manufacturers' behavior, its insistence that its suppliers comply with AS2 prompted technology suppliers to create a host of solutions that comply with that standard. The Scotts Company was able to get its Internet-based EDI system almost instantly by simply turning to its existing VAN provider, which just happened to be Sterling Commerce.
It works like e-mail
"Someone from Sterling came out, set it up, and tested it, and within a couple of weeks we were up and running," Boyer recalls. Before installing the Sterling Commerce solution, The Scotts Company received some EDI messages in an electronic mailbox that was operated by the VAN. Other messages, including those from Wal-Mart, came in via modem over regular telephone lines. Boyer says it could take up to four hours to download Wal-Mart's orders over the clunky, 9600-baud connection. Worse still, lines could drop, or other communication problems would slow things down.
With the Sterling solution in place, she says, "it works just like e-mail." Orders just arrive, and there is no need to empty a mailbox. "Within minutes of an order being placed, we're working to fill it," Boyer declares.
The added speed is directly attributable to the messages being sent over the Internet, as well as the reliance on AS2, which has built-in capabilities for compressing data, allowing it to move even faster. Other features of AS2 include a mechanism for encrypting data, which alleviates security concerns; and sending notices back to the sender that messages have reached their intended destination.
Some of these tasks—particularly ensuring data security and sending notices that messages have been received—traditionally have been handled by VANs, which is how they came to be known as value-added networks.
With the Internet and AS2, conducting EDI no longer requires a VAN, which is why some industry observers believe more companies—particularly smaller companies that thought it was too expensive—are likely to consider practicing EDI. But these same observers caution manufacturers not to expect dramatic cost savings from Internet-based EDI.
Shawcross & Dickinson, a filing products manufacturer based in Liverpool, U.K., netted roughly $3,500 a year in savings—primarily from the elimination of VAN charges—when it switched from traditional to Internet-based EDI. But John Gwilliam, the company's IT manager, says the move has paid a bigger dividend: making it easier for Shawcross & Dickinson to adapt to the different ways in which its customers want to practice EDI. For instance, ASDA, the U.K.'s second-largest grocery chain (and a Wal-Mart subsidiary), wants all EDI transactions to conform to AS2, while other customers work with a variety of different standards.
Some companies that move to Internet-based EDI will still find they need the services of a VAN. In fact, Marlow, the Sterling Commerce manager, says the role of the VAN will change as EDI migrates to the Internet, but he doesn't see VANs disappearing. "With AS2, you can tell when a message has arrived, and you can tell that it hasn't been tampered with," Marlow says. "That is what most people are looking for in a VAN." But others—including industry giants like Wal-Mart—want more.
"AS2 will tell you if a critical $10-million order didn't get delivered," Marlow adds, "but apart from continuing to try to send it, it won't offer any alternatives [for resolving that problem]." That's where VANs can now add value, he says, by monitoring the traffic on EDI networks and offering a guarantee that all messages will be delivered.
Wal-Mart sees performance monitoring as so vital that in addition to insisting on AS2, it also requires suppliers to retain the services of "an approved" VAN.
A new role for VANs
David Dobrin, president of B2B Analysts, Cambridge, Mass., envisions VANs becoming the primary places companies turn to for getting messages translated into and out of the various formats and languages that customers will want to use when conducting Internet-based EDI. Inovis, an EDI technology supplier, is positioning itself for that role by adding extensive translation capabilities to its line of services. The goal is to have customers send one message and have it be read and understood by customers ranging from grocers to high-tech manufacturers. "When it comes to translation, we will handle Web services, traditional EDI, XML, AS2—whatever the customer wants," says Hatem El-Sebaaly, Inovis' VP of technology.
As vendors establish their credentials as EDI translators, manufacturers may be able to conduct EDI with a broader range of trading partners while relying on fewer EDI suppliers, and that could lead to a wave of consolidation in the EDI marketplace.
Shawcross & Dickinson decided it could reduce its number of EDI suppliers after Wal-Mart issued its Internet-based EDI edict, which also applies to companies doing business with Wal-Mart's ASDA subsidiary.
Shawcross & Dickinson had been conducting EDI through a combination of dial-up lines and traditional VAN mailboxes operated by GXS (formerly GE Information Services). That network has been replaced by an Internet-based EDI solution from Freeway Commerce, which Gwilliam, the IT manager, says was chosen largely because it offered full EDI translation services through a single connection.
"One connection takes care of both the AS2 EDI for ASDA Wal-Mart and the ordinary EDI for our other customers," Gwilliam says.
Dobrin believes companies eventually will begin outsourcing their entire EDI operations to VANs. "They will have someone else figure out how that message is handled at the other end," he says.
The potential for VANs to profit from translating EDI messages has one VAN executive half-jokingly referring to Internet-based EDI as "a VAN's best friend." That's quite a shift from the early days of Internet-based EDI, when most experts predicted it would drive VANs out of business.
EDI facts
| Term | Definition |
| EDI | Electronic data interchange: an automated method of exchanging business documents that bridges the gap between computer systems used in different companies. |
| EDI standard | A format for packaging EDI messages that both sender and receiver will understand. Individual standards tend to be used primarily by companies in a single industry. |
| VAN (value-added network) | Sometimes referred to as "an electronic post office," a VAN is a third-party service that transmits and stores data in the "electronic mailbox" until it is picked up by the appropriate party. |
| Direct connection | Unlike the VAN, a direct connection allows you to pass the data straight to the receiving party. |
| AS2 | A standard that facilitates passing EDI messages over the Internet. Offers better security than typical Internet messages because it has capabilities for encrypting data and notifying the sender when messages reach their intended destinations. |
| Source: MSI | |
