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FOR IMMEDIATE RELEASE
ANCHORS AWEIGH ?
-
- 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
- (www.harbx.net) 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
- paper.
-
- 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
- Internet.
-
- 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
- manufacturer.
-
- 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
- CEO.
-
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