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Easy EDI for everyone

I-EDI can slash the high price of document exchanges

By Howard Millman, INFOWORLD August 17, 1998

SUGGESTING THAT your company adopt Internet-based electronic data interchange (I-EDI) is a lot like hosting a convention of pigeons. Both will result in a lot of squawking, ruffled feathers, and someone getting dumped on.

That's because companies that already have "traditional" EDI - in which one company's servers talk to another company's servers through value added networks (VANs)--need to amortize their typical six-figure investment in software, hardware, and custom configuration costs. Furthermore, with the IT expertise available in these "hubs" to help them keep their EDI systems operating smoothly, business managers question the need to fix a process that "ain't broke."

On the other hand, small to midsize companies that plan to implement EDI have heard far more squawking than cooing about the cost of caring for and feeding an EDI system, usually because one of their major customers insists on EDI as a condition of continuing their business relationship.

"Traditional EDI works fine in the larger enterprises because they have IS professionals to maintain the system,' says Dennis Freeman, director of product marketing at Harbinger, an EDI software and services supplier in Atlanta.

"Those companies exchange business documents with their trading partners electronically and save themselves a huge amount of money by not using paper ' Freeman continues. "For smaller companies, that process becomes much more daunting. They don't want - nor can they afford - to own a fullblown EDI server. For them, Internet-based EDI is a low-cost answer."

A lose-lose situation

Until approximately two years ago - when the introduction of low-cost, Web-based EDI services extended the cost-savings benefits of EDI to everyone--trading partners faced a tough choice: They could either pay the going price or lose the customer.

It used to cost small suppliers roughly $10,000 per year to do EDI, ' says Geri Spieler, an analyst at Gartner Group, in Stamford, Conn. "Today, that figure ranges between $650 to $1,000 for lnternet-capable EDI services."

Chris Liccari, general manager at Lancaster Nameplate, in Palmdale, Calif, had that experience when a big customer changed the rules of the partnership.

"This customer had a proprietary BBS system; then they told us they planned to phase it out," Liccari says."We adopted EDI to continue to do business with them; we didn't have too much of a choice."

Using Harbinger's Internet-based Express, Liccari estimates their transaction costs at $800 per year - a cost he can, and must, live with.

"We looked at VAN-based products,'Liccari says."They were costly and complex for us, with very high start-up costs and monthly service fees."

Change in the wind

In a survey of 50 Fortune 1000 companies by Cambridge, Mass.-based Forrester Research, 46 percent of respondents predict that they expect to use I-EDI by 2001.

"Companies will boost [all forms of] EDI use over the next three years to improve order processing," says Steven Bell, an analyst at Forrester Research. "But the Net's cheaper transport and rich commerce applications are affecting their EDI plans. Firms must reconcile traditional EDI and emerging Internet commerce to maximize business trade efficiency."

Bell predicts that 16 percent of EDI data traffic will move from VANs to the Internet during the next three years, fueled by the promise of 15 percent to 20 percent reductions in transport costs. Additionally, according to a Gartner Group study, VANs will react not only by reducing basic data transport rates but also by charging for such extra services as auditing, tracing, and security.

I-EDI answers the needs of small and midsize companies who sell products or services to large companies. Caught in a catch-22, these companies need EDI to generate the added revenue so they can afford the cost of EDI.

"In the nearly 15 years since EDI was first introduced, large companies have always wanted their smaller suppliers to use EDI. But it was too expensive " says Jim Crouse, U.S. marketing programs manager for IBM's Global Network, in Tampa, Fla."My 80-20 rule says that for many of those years, 80 percent of a large company's trading partners were too small to participate in traditional EDI systems."

Today, subscribers to IBM's Web-based service pay as little as $39 per month for a subset of EDI services that once cost between 10 to 100 times as much.

Ruling the roost

Alas, nothing is totally perfect. Despite l-EDI's attractive advantages, it faces several strategic obstacles. First, the hubs have substantial investments in their bought-and-paid-for EDI systems and do not want to retire them prematurely. Although I-EDI offers a high degree of compatibility at the syntax level with existing EDI systems, it is nevertheless a breed apart. Consequently, companies can end up supporting two systems that essentially do the same thing--one just costs far more to care for than the other.

Second, I-EDI is at the mercy of the Internet's uneven service levels, which cause some companies to hesitate using it to transport vital documents.VANs offer better monitoring, tracing, and security.

For example, VANs can assure that the document received by a hub is the same one that is sent by the trading partner, unaltered and unread. Furthermore, they can prove that the hub received it. Depending on the I-EDI system you choose (see article at right), you can obtain some advanced tracking and document notification features. But the price per transaction can rise by a factor of 10 depending on the services you want and the architecture of the EDI system to which you subscribe.

Lastly, traditional EDI integrates better with back-end applications, a considerable benefit to companies exchanging hundreds or thousands of documents daily.

For those companies, that integration results in less manual data entry, fewer mistakes, and faster processing. Most Web-based systems require the trading partners, called "spokes," to type the data into forms designated by the hub or to manually extract and import the data from their back-end applications into the forms.

However, despite the benefits of using traditional EDI, users express an increasing confidence in the Web and in I-EDI software to provide a secure transmission environment. Perhaps damning it with faint praise, they compare it to regular postal mail, saying I-EDI is still faster than snail mail despite occasionally overloaded routers and dropped connections.

"We trust and built our business around the Internet, says Browning Rockwell, president of Trade Compass, an international trade facilitator, in Washington. Trade Compass recently created a hub using Sterling Commerce's Gentran.

"As a result, anyone with a Web browser can access and exchange data with our system," Rockwell says. "With the Internet, creating  a transparent EDI messaging system is no longer a barrier to using EDI anymore. In the past you had to load up on proprietary software and needed a leased line into a value-added network."

Rockwell hopes to have at least 500 customers coming online multiple times per day by year's end.

Show me the savings

l-EDI offers four distinct advantages over traditional, proprietary EDI systems:

I-EDI's cost is so low that Forrester Research's Bell predicts EDI will soon embrace routine consumer transactions such as online auctions bids and structured catalog sales. How low? A survey commissioned by Premenos Technology, a division of Harbinger in Atlanta, found that processing one paper-based purchase order can cost between $50 and $70. Processing the same order with traditional EDI costs about $2.50, and the cost drops to less than $1 for companies that are using l-EDI.

"In addition to the cost savings and reduced errors, other benefits accrue to the trading partners, such as a reduction in inventory stores, improved just-in-time deliveries, and faster responses to problems and inquiries " says IBM's Crouse.

The Internet's universal access expands the potential number of' trading partners a company can reach. With an estimated 175,000 traditional EDI hubs worldwide, even with just 200 spokes each, the potential market is massive. Now that's something to squawk about.

Howard Millman operates Data System Service Group, a vendor independent data integration and systems engineering consultancy in Croton, N.Y. He can be reached at hmillman@ibm.net.

EDI MADE (ALMOST) EASY

Electronic data interchange (EDI) could just as well stand for elitist data exchange. For most of the past 15 years, implementing EDI meant purchasing and integrating an unusual combination of software, hardware, and services with an initial cost that could exceed $100,000. Transporting data over value-added networks could cost upward of $20,000 per year.

This steep cost of entry limited EDI to a select group of large companies, About 175,000 worldwide, whose transaction levels with trading partners would generate an adequate return on investment. In return, the participating companies achieved a high-speed exchange of routine business documents such as purchase orders, shipping information, invoices, and products between trading partners.

About two years ago, EDI vendors decided to capitalize on the universality and popularity of the Web by offering TCP/IP-based EDI systems, which use browsers to enter EDI data and the Internet for transport. For as little as $30 per month, with little or no up-front costs, all trading partners could exchange business documents.

Internet-based EDI services come in two flavors. The first and least expensive is an EDI service bureau that hosts an EDI translation server on their premises. Users, called "spokes," pay a modest fee, averaging about $1 per transaction plus a monthly connection charge, to access the service. Here spokes need not purchase or lease software or hardware, and they can use any Web browser to interact with the system.

In the second arrangement, the primary trading partner, the "hub," purchases and maintains one or more EDI translation servers at an estimated $20,000 to $30,000 each, on their premises. In turn, they give their trading partners (spokes) access to the in-house server via an extranet or other secure connection, using the Web browser or proprietary software. Spokes avoid the need to buy dedicated hardware, software, or related services, and the hubs gain lower cost and greater flexibility that comes from dealing with many more suppliers.

In all cases, the translation server adheres to the strictly defined standards set forth in both the ANSI X12 (U.S. standard) and UN/EDIFACT (European standard) EDI formats.

"In the past, EDI adoption was a slow process because EDI exchanges were based on a proprietary system. Now EDI on the Web will accelerate exchanging business documents," says Browning Rockwell, president of Trade Compass, an international trade facilitator, and the author of the forthcoming book Using The Internet To Complete In The Global Marketplace.

As the prices of EDI plummet, interest continues to soar, which will mean lower prices and more flexible technology for corporate consumers conducting Internet commerce.

A TYPICAL TRANSACTION

Electronic data interchange (EDI) does just one thing, and it does it well. EDI standardizes the exchange of structured business documents (such as purchase orders, invoices, payments, shipping manifests, and delivery schedules) between trading partners. It translates these documents into a globally standardized business language (either ANSI X12 or UN/EDIFACT) that enables computers to communicate across town or across the world.

Traditional EDI users, consisting primarily of Fortune 1000 or Global 2000 companies and their numerous trading partners, use secure leased or dedicated telephone lines maintained by telecommunication companies such as UUNet, IBM, MCI, and AT&T to carry the data exchanges. Internet-based EDI uses TCP/IP lines to transport encrypted data.

See also:


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