Rumours of the death of electronic data interchange (EDI) have been greatly exaggerated, said a recent report from IT analyst Forrester Research.
In spite of numerous supplier predictions that the emergence of competing web-based standards, and in particular extensible mark-up language (XML), would herald a mass migration of users away from the older, proprietary technology, EDI has survived.
Not only that, but it continues to grow. "EDI standards remain the dominant protocols in the B2B world and EDI-related network traffic volumes increased between 5% and 10% during the past year," said Ken Vollmer, analyst at Forrester Research. That trend, he added, is set to continue for at least the next five years.
The reason for the continued popularity of EDI is clear, said Chris Hayes, solutions manager at Sterling Commerce, a supplier of EDI products and services. "The short answer is that EDI works. Companies have invested in it over many years. It may well have been moderately painful to get it up and running, but now it works."
EDI is a foundation of the IT strategy at electrical goods retailer Dixons. In fact, said Tony McGuire, supply chain manager at Dixons, its EDI system from GXS has been a major enabler of its growth over the past decade.
"In the early 1990s, we were handling 90,000 invoices a year for merchandise. This year, we will handle 700,000, maintaining the same headcount in the accounts payable group. It has only been through EDI that we have been able to handle that amount of business."
According to Brian Morgan, European director for retail business at GXS, 300 new customers from the UK joined the company's EDI network in the first six months of 2004. And over 2004, a number of the company's larger existing customers entered into long-term contract renewals of three years or more for GXS's EDI products and services.
That is not to say, however, that there are not barriers to EDI usage - nor that there are not compelling reasons for some companies to embrace an XML approach to swapping vital business documents such as purchase orders, delivery notes and invoices.
For many companies, traditional EDI is an expensive way to conduct business - prohibitively expensive in some cases. Because of EDI's rigid message structure, companies wishing to perform EDI transactions must agree upon a common standard to ensure continuity and avoid translation problems.
But in almost three decades as the preferred standard for batch format transactions, EDI has spawned numerous, incompatible offshoots. EDI users have frequently customised standards to better suit their needs and developed a vocabulary that fits their specific industry. For example, although Edifact is the primary standard in the UK, retail companies tend to use a different standard, Tradanet. Other standards exist in other industries and geographies.
Most of the commonly used standards are routinely updated, forcing companies not only to regularly update their own EDI environments but also to insist their trading partners do so.
EDI requires a company to deploy a communications gateway, mailbox and software for managing the exchange of business documents and to pay transaction charges to a value-added network (Van) provider to ensure transactions are routed to the right recipient and are secure during transport.
It is hardly surprising that the emergence of XML in the late 1990s created great interest among companies that were not inclined to pay transaction charges to the Vans. Instead, they could use a free medium - the internet - to transport messages.
But XML is not without its challenges. First, XML standards are still relatively immature and unstable. "Some of the newer XML formats do not have a lot of thinking behind them, and certainly do not have a lot of industry expertise behind them. I have seen some really scary examples," said Niki Fourie, product marketing manager at EDI specialist Burns.
In addition, XML has a larger footprint than EDI, which means it requires more bandwidth. For companies that handle large volumes of transactions a day, that extra bandwidth can quickly become expensive.
Finally, many small and medium-sized companies find themselves under pressure to deploy the same EDI system as a major customer. "For many, it is a basic cost of doing business with the market leaders," said Evan Puzey, European vice-president of marketing at EDI supplier Kewill.
What has emerged instead is a type of XML and EDI hybrid, leveraging the benefits of both interchange systems and satisfying the demands of large and small companies in a trading network. This relies on enterprise application integration platforms from companies such as Sterling Commerce and GXS.
"Our customers want to leverage XML with their existing EDI systems, making interaction between the two technologies seamless," said Sterling's Hayes.
"Because our Sterling Integrator product supports EDI and XML natively, users can maintain their investment in EDI while progressing to key XML-based technologies," he said.
In addition, an EDI standard, Applicability Statement 2 (AS2) has been developed by industry consortium the Internet Engineering Task Force. AS2 enables secure EDI-formatted orders to be transmitted solely using the internet, effectively negating the need to use Van services.
Peter's Food Services, a UK manufacturer and distributor of food to supermarkets, wholesalers and the hospitality industry, has embraced both developments. It trades with most of its partners using traditional EDI and a Van, integrated with its SAP back-office system. However, when trading with food service company Compass Group, Peter's Food Services needed to take a different approach. Compass is leading an industry-wide initiative called Optimum Foodservice Supply Chain Initiative, which involves the use of AS2 as the standard communications protocol.
Peter's Food Services' deployment of Sterling Integrator has enabled it to run a new AS2 system alongside its traditional EDI environment without disrupting the existing technology, translating SAP documents into the required XML standard.
Once all Compass traffic had been migrated to AS2 delivery, the company saw a 95% plunge in Van costs. In addition, by monitoring the status of every outbound AS2 message, Sterling Integrator automatically detects any failures in delivery and re-routes the affected message over the Van route used by traditional EDI messages.
With companies such as Peter's Food Services now experimenting with more flexible forms of EDI, the technology's future in the medium term at least seems secure.
"EDI transaction volume is currently in the range of 12 million to 15 million transactions a day on a worldwide basis," said Vollmer. "Its ongoing growth means it will continue to be the dominant document exchange alternative for many years to come."