CONNECTIVE ISSUE

Early advocates of Efficient Consumer Response once estimated the annual savings from widespread use of electronic data interchange at some $14 billion. Four years later, though, much of that money is still on the table.The supermarket industry has made enormous progress in adopting EDI for purchase orders and invoices. In many other areas, however, EDI use is still the exception rather than the rule,

Early advocates of Efficient Consumer Response once estimated the annual savings from widespread use of electronic data interchange at some $14 billion. Four years later, though, much of that money is still on the table.

The supermarket industry has made enormous progress in adopting EDI for purchase orders and invoices. In many other areas, however, EDI use is still the exception rather than the rule, with the industry struggling to overcome implementation obstacles.

Areas in which the industry has failed to adopt widespread use of EDI include advance ship notices and synchronization of data between trading partners on product specifications, pricing and promotion, among others.

David Hutchings, director of supply chain logistics for Kraft Foods, Northfield, Ill., acknowledged that although EDI is recognized as a vital enabling technology for ECR, progress has been slower than expected.

To better understand the challenges associated with EDI -- as well as other ECR initiatives -- the Joint Industry ECR Operating Committee set up process-improvement groups to study specific issues and look for ways of building more support for them.

Hutchings is a co-chairman of the EDI process-improvement group. He estimated that 80% to 90% of the organizations "that do business today in one way or another in the supermarket industry are still not using EDI or are not using the standards the grocery industry uses."

In terms of volume, the numbers are strangely similar: Companies representing 80% to 90% of total industry case volume still do not use some form of EDI.

"The major challenges keeping more companies from getting started or getting more deeply involved in EDI is the most important question addressed in our survey," added Tom Schaumburg, director of ECR logistics at Harris Teeter, Charlotte, N.C. "If you do not know what the barriers are, your chances of surmounting them are slim to none."

Schaumburg also is co-chairman of the EDI process-improvement group, which surveyed the industry last fall to develop an industry status report.

That survey was "business-process focused, not technology-focused," Schaumburg noted. "Because it addresses barriers, we can go a long way toward understanding where EDI is not progressing and why."

The survey showed that EDI usage in retail is not correlated to size of company. It also identified three major barriers to EDI participation: reliance on legacy systems, difficulty in understanding and measuring the benefits of certain EDI processes and lack of senior management support.

"We found that the only area where EDI is even nearing critical mass is the basic stuff, like purchase orders and invoices," said Hutchings. He attributed this, in part, to a "lack of clarity of benefits for the more advanced EDI programs."

"Our data show that the transaction sets that have widespread acceptance are those that have been around for a while and also directly facilitate the movement of goods," Schaumburg added. "The impact of these transaction sets is easy to see with existing functional silo measurement systems that exist in the industry today."

However, transaction sets that deal with cross-functional activities, such as those that communicate price or deal changes between trading partners, are more difficult to measure with existing costing methods.

Schaumburg suggested that this is an area where EDI needs "a robust activity-based management costing system" to measure and quantify the benefits that can be derived from EDI.

"The benefits of EDI are process improvements that cut across functional hierarchies within companies," he said. "The existing measurement systems track what happens within functions or silos. These systems cannot see the benefits of the process re-engineering efforts that cause benefits across the silos."

Because of this, Schaumburg said he believes the EDI "benefits case" can be hard to articulate.

"Essentially, EDI in and of itself does nothing for you -- it's a business tool," Hutchings added. "But if you're going to synchronize things like product specification and pricing information between suppliers and distributors, then you have to have different processes in place within the organization to get that data on a timely basis over to an EDI system."

One key barrier to EDI is the lack of support from senior management, the executives noted. Hutchings believes there are two reasons for this: Understanding the benefits of EDI is often difficult without sophisticated measuring systems, and the language of EDI is hard to grasp for people not familiar with technical terminology.

The process of implementing and explaining EDI often requires understanding the "real nitty-gritty of how organizations connect internally and to each other, to the point where it becomes a very acronym-laden technospeak," he said.

Among the other challenges that the EDI process-improvement group identified and hopes to tackle is developing a case study looking at EDI through the lens of activity-based management analysis and electronic commerce, especially as it relates to the Internet and intranets.

Robert Drury, vice president of management information systems at Schnuck Markets, St. Louis, said that the Internet could become an extremely important communication channel for the industry.

"The best technology that we've yet to exploit is Internet-related stuff," he said. "The Internet makes it possible for us to collaborate in ways we've never done before, because we couldn't afford it or we didn't have the time."

Further, intranets can provide more security than the public Internet for companies that want to exchange information on prices and promotions.

"If you look at the costs of these value-added networks for EDI right now, they're extremely expensive," Drury said. "So the cost benefit of an intranet is going to be favorable as well. If you have a need and you have a cost-effective way to do it, it's going to happen."

Given the widespread use of CRP, financial information and data synchronization are two areas where EDI use could blossom in the next few years, Hutchings added. "You'll see a strong push into the data-synchronization area, or UCS II area, because there are just too many benefits that can be reached by getting that right, including clerical, purchase orders and invoices," he said.

"As distributors become more sophisticated in the areas of cross docking and flow-through distribution, that is going to become an essential component of EDI."

For large companies with big technology investments already in place, keeping pace with EDI developments will be easier than it will be for the smaller independent retailers that are still struggling to adopt EDI processes.

"The big challenge for us is the business process re-engineering," Hutchings said, referring to major manufacturers and distributors.

He added that smaller players who are "not already in the game," on the other hand, have to worry about competing for scarce EDI resources on the technical side and the "up-front costs to get into the game," like software and communications.