Advances in the safety and reliability of using Electronic Data Interchange over the internet could make the paperless supply chain a reality for more firms and suppliers.
Wal-Mart recently announced it would be encouraging its many thousands of suppliers to exchange their invoices and shipping notices with it via the internet.
The new system, which is intended to replace some parts of its Electronic Data Interchange systems, will be based on a protocol called EDI Internet Integration Applicability Statement 2, (EDIINT AS2) which is claimed to make the internet as safe and reliable an environment for EDI as value-added networks (Vans).
There are a variety of ways to carry out EDI over the internet, but they all share a selling point: the promise of making electronic documentation exchange accessible to all, enabling business agreements to be reached faster and reducing the cost of doing business by cutting down on paperwork.
Another benefit is that the always-on nature of the internet makes it possible to exchange documents on a near real-time basis, whereas Van-based EDI tends to be used in batch mode. A controversial view is that the costs of Vans, which include the Vans' own charges as well as the costs of lease or dial-up lines, can also be cut.
For companies to be comfortable transacting webEDI, the technology has to provide safeguards at least equivalent to those available with Van-based EDI.
EDIINT AS2, an initiative by the Internet Engineering Task Force, represents an attempt to do just that. It aims to create a secure environment for internet messaging. Its AS1-enabled data exchange is via SMTP, whereas AS2 is based on HTTP.
AS2, it is claimed, equals or exceeds traditional EDI in terms of privacy, authentication, integrity checking and non-repudiation. It can transport EDI and XML messages as well as other documents.
The architectural possibilities for webEDI are various. For example, independent systems integrator Commerce-Connections recently helped British Sugar automate a process where it submits up to 10,000 customs declarations every year. British Sugar had many years of EDI experience but the Customs and Excise government gateway is internet-oriented and can accept EDI messages only with an XML envelope and digital signature - requirements to which British Sugar was less geared up.
Now, Commerce-Connections' service automatically translates British Sugar's messages to the government's required format, and does the opposite for acknowledgments sent by Customs and Excise to British Sugar. The company has estimated the change should save it between £100,000 and £350,000 in administration costs without any disruption to its in-house systems.
However, EDI to XML message translation may have its limitations. Dennis Keeling, chief executive of the Business Application Software Developers Association, said, "Flat-file messages work in a totally different way to XML. The more successful messages are those written in XML as these can take full advantage of XML's capabilities."
Many more such standards are being defined, such as E-buildXML, a message standard for the house building industry Basda has been involved in.
Weighing up the pros and cons
Kevin Malone, software technical strategist with IBM which is helping to implement the solution, said, "By allowing smaller players to connect to EDI without huge start-up costs, you can make the value chain more electronic and both parties benefit from increased flexibility."
Frank Kenney, research analyst with Gartner, believes the decision to move to webEDI should be a strategic one, because, contrary to the hype, the cost savings alone may not justify it. "The cost of EDI software on the internet may be minimal, but the cost of managing your trading partners can be considerable." He pointed out that the much-maligned Van suppliers provide not only infrastructure but also services.
"With Van, you give your partners a free telephone number, and then the supplier has the heartache of provisioning the partners and agreeing protocols. If you do it yourself, you have to support your trading partners, including the one in Singapore who hits a problem at 4am."
Wal-Mart, he said, is not a typical example because it has always had facilities for supporting its trading partners, whereas other companies do not.
This does not mean Kenney is advising against webEDI. "But do not do it because it is cheaper. Do it because it allows you to manage your trading relationships better," he said.
Large organisations certainly believe they can save themselves money by using electronic messaging instead of paper. Even if no money is saved by cutting out the Van provider, the organisation should gain from doing more business electronically.
One of the complaints about traditional EDI was that it only benefited businesses that integrated messaging with other systems. When large supermarkets or manufacturers pressed their smaller suppliers to adopt EDI (often supplying them with standalone data entry facilities) they were making life easy for themselves but creating extra work for the suppliers.
One outcome was the suppliers often had to take printouts from their own systems and re-key them into the EDI screens. If the supplier traded with several supermarkets, each had different message formats and data entry systems.
Early versions of webEDI tended to boil down to standalone data entry screens that, like their traditional EDI counterparts, gave the user extra work in return for very little benefit - one reason, perhaps, why webEDI seemed to go quiet after the first flush of enthusiasm in the late 1990s.
Fortunately, webEDI does not have to be this way, and even small suppliers can derive some benefit, said Helmut Fritz, services director at Commerce-Connections. "EDI may not do much for them, but XML can. Once data is in the XML format, you have the option of importing it into your accounts package. And with a style sheet, you can display XML data on screen in a format anybody can read."
A problem that XML cannot abolish is that there are lots of competing message standards. Fortunately, there are intermediary products and services that can convert data from one format to another, and we can expect to see more standardisation initiatives across industries.
Malone said, "It is in the interests of the big players to produce common standards. If they expect their suppliers to deal with different message formats depending on who they are selling to, they are going to spend a lot of time dealing with questions from small suppliers."
The amount of effort involved in starting up webEDI depends partly on where your company fits into its sector's pecking order. When an industry moves to webEDI for the first time, there is work to be done in defining standards.
The Dental Practice Board (see case study) spent considerable time defining a precise specification for message formats; and this specification is now available for use by anyone wanting to develop software. The board did this work on top of choosing and implementing the underlying communications mechanism. This can be minimised if EDI is already being used through message translation services and products.
With the right design, the technical input required from a smaller company can be minimal and some kind of quid pro quo should be achieved.
Another Commerce-Connection project helped high street retailer Argos to EDI-enable its smaller suppliers. A browser-based service takes an incoming order and, at a click from the supplier, generates a delivery report and invoice in formats that comply with Argos' EDI messaging requirements.
The emergence of many accounting packages using XML, along with intermediary services and products that translate between different message formats, may make integration with operational systems relatively easy for some smaller players.
However, Keeling said there are drawbacks to integrating the messages with an in-house system. "It is fairly easy to generate an outgoing XML message - it is very similar to formatting a document for printing - but feeding an incoming message into your own system requires special expertise and interfaces."
Despite their attractions, new ways of doing EDI are not likely to obliterate their predecessors in the foreseeable future. Keeling said, "Flat-file EDI is probably still the best way to deal with large volumes of invoices, whereas XML is better for ad hoc exchanges of information. We are going to see co-existence rather than the replacement of one by the other."
More on EDIINT AS2 www.ietf.org/html.charters/ediint-charter.html
European Forum for Electronic Business www.eema.org
Diffuse Project www.diffuse.org/edi.html
Case study: Dental Practice Board
The Dental Practice Board has been piloting the exchange of XML data via web technology for dentists to claim payment following treatment of NHS patients.
Paula Arthur, who is in charge of dental computer promotion at the board, said the move is primarily a means of encouraging more dentists to send their data electronically.
"WebEDI provides a cheap, robust and reliable method we believe will appeal even to those less enthusiastic about embracing IT," she said.
The Dental Practice Board has been using conventional EDI since the early 1990s, swapping Edifact messages with dental practices over a private network. This older service is used by about 50% of practices and works smoothly, but better uptake of EDI will further reduce administration costs for the board.
Electronic transmission reduces error and the volume of entry work: data retrieved electronically by the Dental Practice Board has an error rate of less than 1% - much lower than that associated with paper forms.
Two practices have been successfully piloting the process for over a year and the board plans to increase this as suitable software becomes available.
The current EDI system tends to be used in conjunction with practice management systems, which have had limited uptake because not everybody is familiar with such sophisticated technology. While the practice management packages can be adapted to use webEDI, the Dental Practice Board intends to have simpler alternatives available, including basic data entry facilities.
Apart from simpler front-ends, web-based service will have other advantages over its predecessor.
Arthur said, "Dentists will be able to choose which ISP they want instead of having to use a specific network; they will be working with data in a familiar format; and we believe XML messaging will allow the board to offer dentists a much wider range of services." Security has been a priority: messages are encrypted using 128-bit SSL encryption and there is integrity checking of XML message content.
The Dental Practice Board was the first NHS organisation to achieve BS7799 accreditation for information security management and its technology also has the blessing of the Department of Health as a means of sending confidential data over the internet. The initiative is in line with the government's aim of making all public sector services available over the internet by 2005.
What is EDI?
Electronic Data Interchange has been around in some form since the 1970s, but really took off during the 1980s and 1990s.
A major attraction of EDI for industries such as retail and manufacturing was that it enabled large companies to reduce the amount of inventory they held by ordering goods or components on a just-in-time basis.
In traditional EDI, messages are transmitted, normally in batches, over a private value-added network, which is accessed via leased or dial-up lines. Many standards for message formats have been defined, including the UK's Tradacoms and the UN's international Edifact. In addition, industries and companies have specified their own message formats within these standards.
EDI implementers have developed technical and contractual measures to minimise risks when messages are exchanged. These measures include non-repudiation in various forms (designed to ensure neither party can deny a message was sent or received or dispute the contents of a message), and authentication (to ensure that the message was from the apparent sender).