The Internet, which has entered into almost every corner of the business world, is starting to be employed as a vehicle for electronically transmitting purchase orders and invoices between retailers and their trading partners.
By leveraging the Internet for the electronic exchange of business documents -- what's known as electronic data interchange (EDI) -- retailers and their trading partners are developing a viable alternative to the value-added networks (VANs) or dial-up connections that have traditionally handled EDI transmissions.
Internet-based EDI, or EDIINT, as it has become known, has some significant advantages, said industry observers. Most of all, it's considered less expensive over time than VANs or dial-up links like direct bisynchronous transport.
EDIINT is not necessarily inexpensive either. Cyclone Software, Scottsdale, Ariz., one of the leading EDIINT software providers in the grocery industry, charges between $100,000 and $200,000 for a renewable three-year term for its hub system. Cyclone charges much less -- $10,000, which can be paid over five years -- for a system that provides links to one trading partner.
But once the initial investment and maintenance costs are covered, Internet transmission to trading partners similarly equipped is free. By contrast, VANs charge for each character of a document that is transmitted, though the cost can be reduced if the VAN receives EDI documents via EDIINT, observers said.
"We do have quite a large VAN bill each month, so we're looking at reducing those costs," said Michael Hopkins, manager, EDI, Associated Wholesale Grocers, Kansas City, Kan., which is planning to use EDIINT. He said the potential savings could be as much as $60,000 to $75,000 per month.
Internet transmissions are also much faster than VANs or dial-up, and the Web's higher bandwidth offers the opportunity to send other data like XML and images that VANs are not equipped to handle, observers said.
In addition, direct bisynchronous transport is losing its support, with the Uniform Code Council (UCC) setting a "Sunset Date" of this November for the standard.
The one big question about sending mission-critical documents over the Internet -- security -- has been addressed by the development of security standards AS1 and AS2 by the IETF (Internet Engineering Task Force), an international community of network designers (www.itf.org).
For all that EDIINT has going for it, many retailers and wholesalers remain committed to VANs, believing that VANs' services and security justify their costs (see "Standing by Its Van," this page).
Perhaps the biggest obstacle to EDIINT, is that, like many supply chain initiatives, it is dependent on a "chicken-and-egg" scenario: It provides the biggest return when both retailers and their trading suppliers are using it, so each depends on the other to get onboard.
Some major food retailers, distributors and manufacturers are doing just that, including Food Lion, Supervalu, Winn-Dixie and Wal-Mart, among the retailers; and Unilever, Kraft, General Mills, Kimberly Clark and Procter & Gamble among the manufacturers.
AWG's Hopkins said he is encouraged by the interest of retailers like Wal-Mart and Food Lion in EDIINT. "They've put the word out that this is how they want the data transmitted," he said. "That helps us." (Wal-Mart declined to comment; Food Lion could not be reached for comment.)
A retailer that can switch EDI transmissions aimed at large manufacturers from a VAN to the Internet can come out ahead on costs, said Dave Rike, director of sales and marketing, Edict Systems, Dayton, Ohio.
Supervalu, Minneapolis, is using Cyclone's EDIINT software to send EDI documents to some of its large suppliers as well as to Edict Systems, which is serving as a conduit to 550 smaller Supervalu suppliers that were previously not able to receive EDI transactions, said Rike. Supervalu pays nothing to Edict, which gets revenue from connected suppliers, he added.
"We're trying to roll out EDIINT and reduce VAN charges," said Bekki Windsperger, electronic commerce project manager, Supervalu, at the UCC's U Connect conference in Salt Lake City last month. "We have found it to be very successful for us."
Companies like Edict serve as an EDI-enabler for smaller companies, also using the Internet as the communication medium. In Supervalu's case, those companies need only a Web browser to access documents from Edict and send them back to Supervalu through Edict. Because of systems like this, Supervalu is now connected with just about every supplier via EDI, Rike said. (Supervalu could not be reached for comment on the Edict program.)
Edict is serving in a similar capacity for Winn-Dixie and Food Lion, which are also connecting to Edict via EDIINT software, and for Kroger, which is continuing to use its VAN to link to Edict.
On the manufacturers' side, John Duker, e-commerce specialist for P&G, Cincinnati, told SN that P&G is conducting EDIINT exchanges with a "handful" of retailers daily. "It's in the early stages of adoption. More are seeing its value. We recommend it." He predicts that by the beginning of 2004, the "majority of companies in the food industry" will be employing EDIINT. "It's endorsed by the big retailers, manufacturers and UCC, and it's taking off."
Hopkins told SN that AWG was in the process of evaluating EDIINT software from vendors such as Cyclone Commerce, Scottsdale, Ariz.; TrailBlazer Systems, Atlanta; and its current VAN, Sterling Commerce, Columbus, Ohio. He added that the co-op hoped to have a plan in place for converting to EDIINT by the end of the year.
Cyclone and TrailBlazer are among eight solution providers that have passed a UCC-sponsored interoperability validation test for communicating EDI data via the AS2 standard. Trading partners need to use interoperable software to communicate with each other, observers say.
The AS2 standard allows vendor applications to communicate data such as EDI and XML over the Internet (via HTTP) in a secure and documented manner, according to UCC.
In a session at U Connect, P&G's Duker said another 14 software packages are being tested for AS2 interoperability in August. "I was glad to hear that," said AWG's Hopkins. "The additional competition should drive the price of the software down."
Like most retailers, wholesalers or manufacturers looking seriously at EDIINT, Hopkins views cost reduction as a key driver.
But that depends on getting enough key suppliers to also use EDIINT software. As Hopkins sees it, of the 600 vendors with whom AWG does business, 100 account for 80% to 90% of the VAN bill.
Hopkins is also motivated to switch to EDIINT by the fact that support for his primary link to his VANs, direct bisynchronous transport, is being phased out. IBM has already relinquished support of the standard for its mainframe as of the end of March, said P&G's Duker, who noted that UCC has recommended that people get off bisync and go to EDIINT. "The handwriting is on the wall," Duker said.