PIONEERING WEB-BASED EDI

Over the past few years, the Internet has had a dramatic impact on the way retailers and wholesalers communicate with their product suppliers. In such areas as B2B trading exchanges, data synchronization and CPFR, the Web has become the de facto communication standard.Increasingly, the Internet is playing a transforming role in perhaps the most commonplace electronic exchange between trading partners

Over the past few years, the Internet has had a dramatic impact on the way retailers and wholesalers communicate with their product suppliers. In such areas as B2B trading exchanges, data synchronization and CPFR, the Web has become the de facto communication standard.

Increasingly, the Internet is playing a transforming role in perhaps the most commonplace electronic exchange between trading partners -- EDI (electronic data interchange).

As in so many areas, the principal driver of this change is cost -- Web-based EDI is considered to be less costly than VAN (value-added network) solutions or direct dial-up solutions (such as direct bisynchronous transport) that have carried the EDI load for many companies for decades. Still, the initial cost of software enabling secure transmissions over the Web can cover a wide range, from $1,000 to $300,000, depending on the extent of use, according to AMR Research, Boston.

Another factor is the Internet's reputation as a precarious place, fraught with hackers and spam artists -- and not necessarily ideal for the transmission of sensitive business documents like purchase orders, invoices, or advanced shipping notices.

But the standards that have evolved over the past few years for transporting EDI over the Internet -- known as EDIINT -- have gone a long way toward addressing security issues. Two standards, AS1 and especially AS2, are now employed.

So with lower costs and a fairly secure infrastructure in place, not to mention the real-time speed offered by Internet communications, a growing movement to Web-based EDI is taking place, especially among high-volume retailers and suppliers. At the Uniform Code Council's U Connect conference, held in Lake Buena Vista, Fla., in May, EDIINT was a frequent topic of discussion, and was the focus of case studies presented by Wal-Mart, Supervalu, P&G and Springs Industries.

Other major users of AS2-based EDIINT, according to AMR Research, include Meijer, Army & Air Force Exchange Service and Lowe's. AMR said it expects use of EDIINT AS2 products to "escalate dramatically" over the next 18 months.

Taking its usual proactive approach, Wal-Mart has mandated that its suppliers communicate with it via EDIINT by this fall, according to AMR. By sparking usage among its manufacturers, the chain would enable other retailers to take advantage of greater opportunities for Web-based EDI communications, observers said.

However, EDIINT is not yet being universally embraced by smaller operators. Associated Food Stores, Salt Lake City, for example, uses third-party companies to convert EDI documents to a Web form that is sent on to suppliers by e-mail. But the wholesaler is not interested at this time in investing in EDIINT software itself, said Doug Carlile, its EDI coordinator, who spoke at U Connect.

Carlile said he's been able to send EDI over the Internet via his VAN without any security breaches, so he's not motivated to invest in AS2 software for security reasons. He also doesn't want to drive up his VAN costs by channeling a major supplier's EDI traffic to the Internet, and he doesn't want the complexity of managing a network of trading relationships himself. Moreover, he boosted his EDI roster of suppliers from 200 to 800 in a year with only a $150 increase in VAN costs. On the other hand, he said he could be persuaded to make the investment in EDIINT "if a major supplier said we've got to do it."

Morley Marshall, EDI coordinator, Western Family Foods, Tigard, Ore., a private-label buying cooperative, said at U Connect that "a good portion of our suppliers have no intention of moving to AS2," concluding that EDIINT wouldn't make sense for Western Family.

Overcoming Doubts

Though it has become one of the leading users and proponents of EDIINT, Minneapolis-based Supervalu was not an early adopter, said Greg Zwanziger, Supervalu's director, electronic commerce, who spoke at U Connect. "When the Internet came out and everybody said, 'OK, we're going to move all the data over the Internet,' I was one of those doubting Thomases," he said.

But Zwanziger doubts no more. Since 2001, when Supervalu began implementing EDIINT, the wholesaling and retailing giant has developed direct EDIINT connections with more than 60 high-volume trading partners, including Fortune 100 CPG suppliers, large regional suppliers, and national and local chains, he said.

In addition, Supervalu has formed EDIINT connections to more than 1,500 suppliers via third-party providers, about half through Edict Systems, Dayton, Ohio, and the rest through Sterling Commerce, Columbus, Ohio.

Zwanziger said Supervalu would like to develop direct EDIINT links eventually to about 100 of its highest-volume trading partners, those with whom the distributor is doing "a lot of real-time transactions," such as ASNs and cross-docking. Supervalu would also like to use the third-party companies to connect via the Internet to another 700 suppliers who remain outside of the Web and can't connect directly to Supervalu.

Associated Food Stores' Carlile noted that these third-party providers typically don't charge distributors for this service, garnering revenue from the suppliers who use the service.

"Our goal is to use 100% Internet-based communications [with suppliers], moving all high-volume partners off VANs to direct connections," said Zwanziger. "We're not mandating it, but it would be helpful for us and for them to do that." In fact, he said Supervalu would like all trading partners to be using AS1 or AS2 EDIINT by as early as September.

Zwanziger said suppliers could contact Supervalu's electronic commerce help line for assistance in working through connectivity issues. "Suppliers will get letters with a step-by-step process we can take [them] through," he said. Suppliers going direct can use any certified, interoperable system.

There are now 19 AS2 EDI/XML software products certified as interoperable -- they can be used to communicate with each other -- by the UCC and Drummond Group. These products have passed muster as "eBusinessReady," an industry-neutral software compliance and interoperability testing program operated jointly by the two organizations. Test results are available at www.ebusinessready.org. The next round of AS2 interoperability testing is set for this month.

In terms of cost, Zwanziger said that if a company sends and receives a lot of EDI documents via VANs, "you will probably have the opportunity for some savings." He cited a UCC/Drummond Group study that concluded that EDIINT systems could reduce VAN costs up to 90% and realize a payback within 10 months. Supervalu uses EDIINT software from Cyclone Commerce, Scottsdale, Ariz.

But it's not just cost that attracts Supervalu to EDIINT. Web-based EDI offers the company better delivery of transmissions than VANs, Zwanziger said. "We now can have data almost instantaneously at our trading partners," he said.

The Web also offers real-time visibility into orders, allowing Supervalu to look at transactions and "raw data," as well as manage delivery notification. Internet processing also allows automated exception reporting, re-submission of orders, data archiving, and creation of audit trails. These capabilities make it possible for Supervalu to stop using VANs.

In the new world of EDIINT, there is still a role for traditional VANs, said Zwanziger. "When the EDIINT standard came out, some of us thought it might be the death-knell for VANs," he observed. "And it is a great negotiating tool. But the VANs have morphed, and they are looking to add value. We see them playing a critical role for a large number of people out there."