Electronic Data Interchange: EDI Does It

Electronic data interchange has taken some time to get going ? 20 years in fact ? but now it is on the verge of the big time. Annie Gurton reports

Electronic data interchange (EDI) has been with us for over 20 years but many companies which use it regularly only do so because they are forced to by customers or suppliers who insist on it.

If a business wants to trade with Marks & Spencer or Tesco it has to do business electronically, but that does not mean that it is committed to EDI or will use it for other transactions with other customers. Such reluctance hints that the technology is flawed or over-complex, but that is not true.

EDI is easy to use and improves business efficiency, although it can be expensive and difficult to implement ? in other words, some may say, an ideal technology for resellers. A shame, therefore, that demand and acceptance are not higher.

The paradox is that companies which have adopted EDI swear by its convenience and reliability. It saves time and money by eliminating or reducing paper transactions. It is also popular with resellers due to the rich opportunities it brings because, like many applications which involve comms technologies, few users understand it well enough to install it confidently and need experts to help.

According to Dennis Keeling, director of BASDA, which has been campaigning hard for EDI standards to break the stranglehold of proprietary EDI systems, EDI is failing to reach its potential and achieve expectations because prices are being kept unrealistically high by the major software developers. ?They are refusing to adopt open standards because it would mean the end of their nice, cosy, safe, rich source of income,? he says. However, the software houses say that standards exist and there is no need for a new one from BASDA.

Theo Van Dort, managing director of Megatech Software, which produces entry-level accounting software, says: ?There are several widely used EDI standards, but the BASDA one means that our accounting product can talk to them all. But is not essential

to have the BASDA standard, which is why many of the EDI product vendors are ignoring it. There are other issues at the root of why EDI has been slow to be widely adopted.?

Ian Kilpatrick, group managing director of Wick Hill, agrees and says that although the business benefits are dramatic and impressive, the technology suffers through being perceived as difficult and involving major changes to the way a business works.

He says: ?To get most benefit from EDI an organisation should streamline its processes, and many managing directors shy away from BPR. But there are two answers to that: the first is that EDI can be implemented without widespread changes to the internal systems and processes, and second, that today?s EDI is low cost and easy to use.?

In fact, says Kilpatrick, the next 18 months should see a huge surge in EDI business for resellers. He says: ?There are many organisations out there which have been quietly

looking at EDI over the years and have been evaluating the impact it will have on their organisations, and, now that the prices of EDI are coming down and they are getting easier to use, they can be persuaded to place an order. The pressure to get EDI installed before the year 2000 is going to be strong.?

Some claim that what will trigger a surge in demand for EDI is the internet. With its low cost of entry and ease of use, internet EDI transactions could become up to 10 times cheaper than those sent over a value-added network, currently the most common way of linking EDI users. Not so, says Keeling. ?The internet is not robust enough. It cannot be relied upon and the whole point about EDI is that it is inherently reliable? he says.

Keeling says that the turning point for EDI will only happen when the big software providers give up their proprietary versions of EDI and adopt a common standard interface. He says: ?BASDA has published a standard interface but few of the EDI software developers have taken it up. They express interest, they come and sit in on our meetings, but they don?t take it up.?

The reason for this, according to Keeling, is clear. ?At the moment they are making extortionate profits and of course they don?t want that to end. It is not in their interests to adopt a common standard,? he says. And such self-interest is having an impact on the reseller community, which is unable to sell as much EDI as it could with open standards.

Jonathan Hubbard-Ford, chief executive of Pegasus, says that it is the network enablers which are also keeping the costs unrealistically high. ?It is very short-sighted of them,? he says. ?They could make more money from line charges, and it would make more sense for them to help reduce the setup costs so that more companies were encouraged to adopt EDI.?

But, like Kilpatrick, Hubbard-Ford sees installation costs about to come tumbling down, although Kilpatrick denies that lower charges will mean less income for resellers. ?The margins will proportionately stay the same, and the number of companies adopting the technology will rise, so that ultimately, resellers can earn more,? he says.

EDI does not historically include the transfer of funds. It is the electronic transfer of purchase orders, bookings, confirmations, invoices and payment demands, but does not necessarily include the transfer of money. But an increasing number of EDI solutions offer a financial element, and Hubbard-Ford believes that for many companies the ability to make financial transfer will encourage EDI adoption.

Pegasus has been involved with a pioneering application with Barclays Bank called Opera Electronic Cashbook which will enable customers to have full access to the bank?s services via their PC. Hubbard-Ford says: ?Pegasus saw the potential of EDI several years ago and we have been investing particularly heavily in the technology. As a result we are leading the market with products which offer more enhanced EDI facilities than any others.? As a result of the deal with Barclays, Hubbard-Ford sees more banks adopting EDI, which should encourage more widespread take-up.

Van Dort compares the adoption of EDI to that of Bacs, the automated banking payment system. He says: ?There comes a critical point in an organisation?s size and maturity when they have to take up Bacs, but it is often with great reluctance. People and companies are traditional and like to do things the old way, even if that means laboriously writing cheques and orders.?

There is also the age-old problem of a new technology, which is that it is no good having it unless your trading partners do too. ?This was the problem faced by the telephone and fax machine, ? says Kilpatrick. ?Eventually you reach a point when enough people have it and it rapidly becomes a commodity, and I believe that we are on the verge of that happening with EDI.?

Despite Keeling?s scepticism, some developers and network providers are investigating the use of the internet to deliver EDI services. One method, called Web EDI, involves using secure Web sites to translate documents between HTML formats used by Web browsers and the EDI formats.

Another system is to use existing standards for Net email, encryption and digital signatures. So far, tests have shown that existing internet email protocols can be used to ?enclose? EDI messages for secure reliable delivery over the Net.

Keeling?s doubts are likely to reflect those of the business community, and it may be some time before there is enough confidence in the internet to adopt it for the crucial EDI transactions. Van Dort says: ?Provided there is a system for confirming message delivery, as there is with many email systems, then it is good enough to be used for many EDI applications. We are a long way off offering financial transactions, but many companies only need EDI for order placement and confirmation.?

The beauty of the internet is that it will allow the transfer of orders and documents to parties which do not have EDI, although purists point out that this is not ?real? EDI. But Van Dort says that anything which increases use of EDI will benefit the whole market, and should not be discouraged.

Richard Beasley, managing director of Promark Software, says that the internet is still an experimental medium for EDI. ?There are many issues which are unresolved, like security and electronic funds transfer, and my view is that the jury is still out on the internet as a backbone for EDI,? he says.

David Errington, R&D director of Sagesoft, agrees. ?The internet is still immature technology and has a long way to go, but it is bound to be key to the way EDI and e-commerce as a whole are taken up.? Errington is reluctant to separate EDI from the whole gamut of e-commerce, which includes online banking, Bacs, and home shopping. He says: ?There is no doubt that the cost of EDI is unrealistically high at the moment and that is preventing customers and resellers from adopting it. But it is bound to slip into commodity, probably when the set-up charges are reduced. The cost of entry needs to be reduced, and that will probably happen soon.?

Errington points out that, as a company producing low-cost accounting software, it is hard to tell a customer that the EDI module will cost around #2,000 when the rest of the system is a few hundred pounds a module. And he agrees that once a company like Sage launches a low-cost EDI product, the flood gates will open.

?Sage does not offer EDI at the moment because the entry costs to set up a network are prohibitive, but once those costs come down then you can assume that Sage will have a competitively priced product available,? he says.

Errington points out that whether or not the internet is used as the communications medium for EDI, it is having the effect of bringing down networking costs overall, and that will have an effect on the general costs of EDI.

?The internet may not be reliable enough for some time, except for basic document transfer and acknowledgement, but it is having a wider impact overall on perception and prices, and that will increase EDI adoption,? he says.

But Errington sees the BASDA standards as unnecessary. ?We already have standards from other bodies such as Tradernet and Edifact, and an EDI organisation called The Electronic Commerce Association which has a code of practice. We do not need another standard,? he says. ?The issue which has held back EDI is cost, not technical standards, and that is set to fall very soon.?

Keeling says that he knows of a wine merchant who has to have a completely separate desktop PC for each of the suppliers it deals with, but Hubbard-Ford believes he is being disingenuous.

?There is no need for a trader to have a completely separate EDI system for each supplier,? he says. ?If we are put in touch with that wine merchant we will simplify and rationalise its EDI system. Things have moved on and a single standard is not necessary. It is the set-up and network costs that are the problem, not the software standards.?

?EDI will come soon,? Hubbard-Ford predicts, ?and resellers will find a huge demand for their services.?

Boom town facts

Despite the lack of standards in EDI software and doubts about the reliability of the internet as a communications medium for EDI transactions, the market is set to boom according to analysts. The Henley Centre predicts the value of the market will exceed $1 billion in 1997, compared with $200 million in 1995.

Northern Business Information, a research group based in New York, sees a 24 per cent increase over the next three years.

Dennis Keeling, chairman of BASDA, says: ?At the moment, 15,000 UK companies use EDI, but over 40 per cent of the entire business population wants to use it. That is enormous pent-up demand.? The Massachusetts Institute of Technology (MIT) says: ?EDI is not a choice, it is the inevitable way that business will be done.?

Cut the costs

Some industries are already adopting EDI as a standard, despite overall hesitation from the general business community. The insurance sector, for example, already uses EDI as a way to transfer quotations, policy documents, and to process claims.

In the personal insurance market in particular, over 80 per cent of transactions are now conducted using secure EDI networks. Kim Brook, business development manager with Misys, believes that, in the personal insurance sector, the use of EDI has reached a point where anyone not using it is severely disadvantaged to the point of being uncompetitive.

He says: ?From the broker?s point of view, EDI delivers such cost benefits that they can?t not use it. It reduces the cost at the insurer?s end, and these savings are passed on to the customer in the form of cheaper insurance products. It saves the broker?s own administration costs, and it enables a better service to be provided.?

In the same way that insurance companies and their brokers have found that EDI has reduced the costs of the supply chain and given competitive edge, so other sectors and industries will turn to EDI for the same advantages. Beasley says: ?In the past, when a customer wanted a quote they had to wait for that, then they could get a quote while they waited but had to wait for the policy documents. Now then can walk in off the street and buy insurance, walking away with a live policy.?

Contacts

BASDA 01494 678840

Megatech Software 01372 727274

Pegasus 01536 495000

Promark Software 01444 440196

Sagesoft 0191 255 3000

Wick Hill 01483 772280