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Companies may think their ship has come in with Internet
EDI. But some trading partners are still reluctant to set sail
June 12, 1997 10:00 AM ET, By Erin Callaway.
Constructing nuclear-powered aircraft carriers at Newport
News Shipbuilding and Dry Dock Co. involves procuring
millions of parts, from sheet metal to microwave ovens. So
when Arthur Heezen and Craig Brubaker saw a chance to
simplify the process by using the Internet to do EDI with
suppliers, they were all for the idea. Within reason, that is.
"Ideally, we'd like to have all [our suppliers] online. But that
will never happen," says Heezen, EDI administrator for
sourcing at the $1.87 billion company, in Newport News,
Va. In May, the company began using Express, a service
offered by Atlanta-based Harbinger Corp., which allows
users with a Web browser to connect to the Harbinger site
( to send and receive electronic data
interchange documents.
Even with the new service, however, Heezen expects to
conduct EDI with only about 1,000 to 2,500 of the
company's 200,000-plus suppliers. The rest will likely do
business with Newport the way they always have--on
Why does Heezen have such low expectations when the
rest of the corporate world seems convinced that the
Internet will finally move companies to EDI in droves?
Because doing Internet-based EDI is still just that--doing
EDI. The Net-based technology may lower startup costs
and, in some cases, eliminate the need for costly VANs
(value-added networks). But it still requires careful
management, coordination and, ideally, integration with
companies' back-end processing systems--the very
issues that have been a turn-off to EDI in the first place.
Factor in people's lingering doubts about the Internet, and
companies may find EDI is still a hard sell.
Rightful place
To be sure, Net-based EDI will have its place in many
businesses, particularly for companies such as Newport
News Shipbuilding, where transitioning even a handful of
trading partners to EDI will have its benefits. But overall
growth in the use of Net-based EDI will be modest.
Experts estimate, for example, that only 1 percent to 2
percent of the EDI now being done is taking place on the
Internet. And according to The Yankee Group Inc., in
Boston, the projected worldwide market for Internet-based
EDI will barely reach $700 million by the year 2000, while
traditional VAN-based EDI will soar between $13 billion and
$14 billion in that same time frame. "It will encourage
people who haven't been doing [EDI] to reconsider," says
Alyse Terhune, an analyst at Gartner Group Inc., in
Stamford, Conn. "But I would be really surprised if
[Internet-based EDI] caused a huge increase in the
amount of EDI that is being done."
Just ask the Internet EDI team at Ultramar Diamond
Shamrock Corp., in San Antonio. After successfully
completing an Internet EDI pilot project in February with
Chase Manhattan Bank, in New York, Diamond is more
than ready to do Internet-based EDI with anyone who's
willing. Specifically, Ultramar Diamond, which refines
petroleum and manufactures petroleum products, hopes
Internet EDI will help reduce the number of paper checks it
cuts each month, so it can limit the size of its financial
staff as the company grows.
So far, Ultramar Diamond has extended its Internet EDI
capability to 10 of its suppliers and is working on adding
more. But "the biggest hurdle you have to get past is
[people] having a pent-up fear of the Internet," says Jesse
Goode, senior systems analyst at Ultramar Diamond.
"Right now, it is very difficult to find trading partners that
are willing to transact business [that way]."
While many companies are probably being overly cautious
about Internet-based EDI, there is one good reason to be
concerned: liability about the terms and conditions of
fulfilling orders. The liability issue "has nothing to do with
technology--it's contractual," says Carl Howe, director of
network technologies at Forrester Research Inc., in
Cambridge, Mass.
When companies use VANs to send EDI documents, for
example, the VAN takes responsibility for delivering the
goods. But because EDI can be done over the Internet
without assistance from a VAN, there are no clear terms
about who is responsible for an EDI document being sent
via the Net. That means companies considering the
technology must carefully define their liability in areas such
as terms of fulfillment before conducting transactions with
trading partners.
Dispensing with the services offered by VANs could have
other drawbacks as well. "The first kind of interest [in doing
EDI over the Internet] is because it appears, on the
surface, to be cheaper," says Dan Ferguson, president of
the EDI Group Ltd., in Chicago. "But you get what you pay
for--the bold, raw Internet connection."
Sidestepping VANs to avoid costly setup fees and
per-character charges could quickly lead to management
headaches that can sour the sweet taste of doing EDI
independently. Even though emerging Internet-based EDI
products provide reliable security, for example, they still
require a person to acknowledge that an EDI
communication has gone through and has been received
by the right person or to resend a document that has not
been successfully transmitted.
Although it's debatable whether Internet EDI will spur
record volumes of electronic trading, the technology is
evolving rapidly, and the changes are appealing. "We're
really in the infancy stage of all of this, but I do believe it will
grow up very fast. I don't think it will take the time it took for
traditional EDI to mature," says Bruce Chovnick, vice
president of Internet services and emerging technologies
at GE Information Services Inc., in Rockville, Md. GEIS
jumped to the forefront of Internet EDI when it launched GE
TradeWeb, an Internet-based EDI service last summer.
Most recently, Chrysler Corp. signed up to use TradeWeb
for the procurement of non-production-related materials
such as office supplies.
Looking at the alternatives
Alternatives are already emerging, for example, that could
provide companies with important EDI services without the
cost of traditional VANs. Electronic Commerce Systems,
in Atlanta, for one, this year began offering NetVAN, an
Internet-based VAN that includes typical EDI services such
as mailboxing, archiving, audit trails and guaranteed
delivery. But whereas traditional VANs charge per
character, NetVAN charges a flat rate of as little as $1.50
per EDI document. LitleNet LLC, in Lowell, Mass.,
meanwhile, is not a VAN, but provides EDI services as part
of other E-commerce services such as order entry,
payment management and digital distribution.
Significant strides have also been made with
Internet-based EDI products, most notably in the area of
interoperability. "Very shortly, [companies] should be able
to buy off-the-shelf interoperable secure EDI products.
That is major," says Rik Drummond, president of the
Drummond Group and executive director for
CommerceNet's EDI and Network Services portfolio.
Drummond is also chairman of EDI-INT, the Internet
Engineering Task Force's workgroup on EDI over the
Specifically, EDI-INT has outlined standards stating how
products should handle such issues as encryption, digital
signatures and nonrepudiation. A final version of the
standard is due later this year, but four vendors--Actra
Business Systems, Sterling Commerce Inc., Premenos
Technology Corp. and Digital Equipment Corp.--have
already met the guidelines. The benefit to users: more
options for doing Internet-based EDI, because they can tap
any combination of those products.
Results achieved by early adopters such as Mellon Bank
also will continue to fuel the interest in Internet EDI. In a
pilot project between Mellon Bank's Global Cash
Management group and Bell Atlantic Corp. last summer, it
took only 27 minutes for Bell to send Mellon a 40MB file
containing payment instructions via a T-1 line connected to
the Internet.
"If we sent this across a VAN, it would have cost about
$20,000," says Mauro DeFelice, manager of security and
technical services at Mellon, in Pittsburgh. DeFelice based
the estimate on the average per-message unit price
charged by VANs. The Internet-based EDI transmission
cost was only $1.40. Mellon conducted the pilot using
Templar, EDI Software from Premenos Technology Corp.,
in Concord, Calif., and went into production in October.
Transmission time
Alternatively, the file could have been sent via a direct
dial-up connection using bisynchronous transmission, a
synchronous communications protocol used in mainframe
networks. But that form of transmission would have taken
43 hours. The only way to reduce the transmission time
would be to break the file into several smaller files. But
reconstructing the file on the receiving end would have
been nothing less than a hassle, not to mention grossly
expensive, given the cost of the phone call, says DeFelice.
It's that kind of convenience and economics that has sold
DeFelice on Internet-based EDI. "It seems like when you
start looking into the speed, reliability and cost savings, it
comes down to having folks understand how secure this
thing is. Once they understand that, everyone starts going
'oooh' and 'ahh,' " he explains. During the pilot tests, the
group sent more than 10,000 EDI transmissions across
the Internet. Not one of them was lost. The only glitches
occurred when someone at Mellon or Bell started tinkering
with their respective E-mail gateways or firewalls. "The
Internet itself never lost data," adds DeFelice.
Part of the big picture
Many companies will find that the best way to take
advantage of Internet EDI is to incorporate the technology
into a larger E-commerce strategy. John Javolik, vice
president and CIO at Pereli Cable Corp., in Columbia,
S.C., for example, sees EDI as just one small piece of his
E-commerce strategy. "If there is no decision process
involved [in a transaction], EDI is perfect," says Javolik, an
IT exec at the $6 billion power and communication cable
But many types of transactions--checking inventory for
product availability, for example--do require human
interaction. By combining Internet-based EDI with those
kinds of functions, "you can take advantage of the strength
of EDI as well as the strength of the Internet," say Javolik,
who is using Commerce Connection, an Internet EDI
product from Sterling Commerce Inc., in Dublin, Ohio.
Ultimately, rather than expecting--or forcing--all trading
partners to move to Internet EDI, the best strategy might
be to combine the technology with other EDI channels
such as traditional VANs and direct-dial. Because the goal
is to streamline doing business with trading partners, the
more options, the better.
That tack certainly makes sense to Ken Horn, manager of
EDI communications, procurement and supply at Chrysler
Corp., in Auburn Hills, Mich. "It's not necessary to have one
means of doing EDI with everyone," says Horn. "Doing the
communications is a must--but how you deliver them may
be done in multiple ways."
Although it's not for everyone, Net EDI
does hold promise. Despite some rough water, early
successes with InternetEDI are catching people's attention.
And for many companies, there's more than money at stake.
"I don't think the cost savings will be significant. I see
[electronic data interchange connection] charges as
nominal compared to the benefits of having the information
and having it as timely as possible," says Jorge Taborga,
director of strategic systems at Bay Networks Inc., in
Santa Clara, Calif. Bay Networks is migrating from Sterling
Commerce Inc.'s EDI translator and Harbinger Corp.'s
VAN service to ECXpert, the new Internet EDI product from
Actra Business Systems, the joint venture between
Netscape Communications Corp. and GE Information
Services Inc.
Initially, Bay Networks will use Internet EDI to collect
point-of-sale data from its resellers, which the company
uses to analyze its products' performance in the market.
Currently, resellers deliver that data on everything from
faxes to tapes and floppy disks. All told, it can take two
months to process the information. By collecting it via
Internet EDI, however, the process could be reduced to as
little as two weeks.
Frito Lay Co., in Plano, Texas, also is just beginning to get
an idea of how Internet EDI could help improve its
business processes. "It's no secret that ADM Milling Co.,
Cargill and those kinds of companies are fully
EDI-capable. But for us to do EDI with the potato
farmers--that's neat stuff," says Scott Wayles, senior
project manager at Frito. This month, the company is
starting an Internet EDI pilot project with Cargill, a
commodities wholesaler in Minneapolis.
Although Frito already does EDI with farmers to buy
potatoes, the process requires prepackaged software.
Internet EDI could eliminate that.
Frito also envisions using EDI over the Internet to improve
the PBM (price book maintenance) process with
convenience stores. As part of the process, the "c-stores"
obtain information to help them make decisions about
purchasing and selling Frito products, such as pricing and
special promotions. Most c-stores currently handle PBM
manually but could easily do it using Net-based EDI.
Internet-based EDI also may have compelling applications
in the banking industry. Knowledgeflow Inc., a consulting
company in Bridgeport, Pa., for example, is incorporating
Sterling's Web Link Internet EDI software into its own
product, which it will resell to banks.
Called Business Person's Notebook, the Knowledgeflow
offering will encapsulate the services offered by a bank--for
example, account and credit-line management--along with
EDI functions so that customers can transmit documents
such as lease agreements across the Net.
"Facilities that banks want to extend to their customers
aren't easy to do," explains Dana Hoffer, Knowledgeflow's

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