Development of an electronic data interchange model for channel management.
In this paper, the authors propose a new paradigm for distribution management based upon research and data collected over an eighteen month period through contributions made to an online conference sponsored by the Journal of Business and Industrial Marketing. Technological linkages between value chain partners using Electronic Data Interchange (EDI) and Automatic Data Collection (ADC) offers firms significant potential for the transformation of interorganizational relationships. Electronic data transfers offer considerable benefits and responsibilities for all participants and, with the increasing technical literacy of the customer-base, are becoming a requirement for sustaining operations rather than a competitive advantage. The growing importance and ubiquitousness of ADC and EDI in logistics and distribution is considered as well as the need for additional conceptual consideration in strategic business pedagogy.
The World-Wide Web was used not only to survey those interested in distribution, but also to collect and synthesize global input on the topics of Automatic Data Collection and Electronic Data Interchange. Automatic Data Collection (ADC) is defined as the collection of data by a firm without human input or with minimal effort. Scanning devices to read products and meters are normally used to collect the data. Electronic Data Interchange (EDI), the main focus of the paper, is defined as the electronic exchange of business transactions between companies from one computer to another using an accepted standard format (Jenkins, 1994).
Poised to change channel relationships profoundly, the objective of EDI was to obtain time and cost efficiencies through the direct exchange of data between supplier and purchaser systems (Sawabini, 2001). EDI is sometimes mistaken for other communication methods, such as electronic mail, general access to the Internet (Larson & Kulchitsky, 2000) or derivatives such as "Rip-and-Read" (Lauer, 2000). When EDI is confused with other communication methods, its full potential is not realized (Quinn, 1991). For the exchange to be considered truly EDI, the process must go from one system to the other with no manual intervention (Porter, 1990).
In recent years the growth of EDI has been significant (Hill & Swenson, 1994). It is estimated that over one half of all interorganizational business documents is transmitted between corporations by way of electronic data interchange. Further, channel issues such as efficient customer response, Just-In-Time (JIT) manufacturing and stockless inventories have been researched based upon EDI. Organizations utilizing any of these strategies force their supply chain partners, either suppliers or purchasers of goods, to implement EDI or face possible extinction. Thus, organizations are being forced to realign their goals and make decisions with their supply chain partners in mind (Kopczak & Johnson, 2003). However, the data linkages provided by EDI can enable organizations to reduce their inventory costs while improving their response to customer demands. The speed at which data is electronically exchanged is much faster than the traditional paper-based method and systems can be programmed to replenish inventory levels automatically (Ali, 1994).
The increased accent on managerial application has again placed emphasis on the input of the social sciences and non-economic paradigms. However, any new development of channel marketing theory must contain both economic and noneconomic concepts. Relationships can be considered within the economic political paradigm concept. The paradigm is an excellent tool to structure teaching lessons regarding channel management. Marketing pedagogy will be improved with additional concepts to account for and explain the information access influence on channels as well as the economic impact of EDI and ADC on business.
Allowing other channel members access to electronic data makes each firm more dependent upon the other and more committed to them and the system of distribution. The concept of areas of linkage relates well with the most current business thinking and the value web concept. For example, firms are attempting to segregate services that add value to customers. They determine which competencies distinguish that service and link it to customers (Fine, Vardan, Pethick & Hout, 2002). Allowing channel partners' electronic access fits well with the concepts of re-engineering or process engineering of customer services.
ADC allows firms to track product information throughout the channels of distribution all the way to raw materials assembling and thereby measure more carefully the value that is added. There are several factors that should be considered such as Efficient Consumer Response (ECR). ECR is an example of a value added service for customers linked by ADC and EDI. ECR is a series of business practices that utilizes data sharing and cooperation between retailers and distributors, wholesalers and producers to reduce distribution costs. An ECR program can encompass any or all of the following emerging business concepts: contiguous replenishment (CRP), direct store delivery (DSD), cross docking, category management, vendor-managed inventory and activity-based costing. However, ECR is more than new terminology for old distribution ideas. It is the assimilation of data capture information technology combined with the unparalleled cooperation between trading partners.
The data allows for ECR to create a demand-driven supply chain and eliminate expenses by reducing inventories and improving delivery efficiency (Burnell, 1995). In a few years, most firms will be forced to become part of an EDI/ADC system to be competitive. Business schools need to make this knowledge part of distribution management pedagogy including the organizational costs and strategic impacts of such arrangements.
What are the organizational impacts of the EDI/ADC wave pressing on logistics activities of all businesses? Nike has joined the mass customization bandwagon through the creation of <www.nikeid.com> which allows customers to go online to design personalized athletic shoes, sport bags, sport watches and golf balls. Land's End also allows their Web site visitors to design a custom fit for a limited number of products and styles. Customers are able to access a Web-based form where they are able to answer a series of questions regarding measurements and body shape. Levi Strauss Jean manufacturers also experienced the product customization and product proliferation phenomenon. The firm tapped into two key consumer trends by using EDI/ADC technology to adjust the final inventory at retail locations and computerized customization of jeans with its "Personal Pair Jeans" customer interface. The company used in-store computers to create jeans cut to the customers' measurements. As mass customizing capabilities increase and as more variety becomes available, consumers will expect, and eventually demand, specific varieties and customized products and services before spending their money. The purchasing profile of shoppers is changing and is evidenced in decreasing product loyalty and the demise of individual brands (Miller, 1995).
Middle management, throughout the system, tends to resist changes in the way firms administer their distribution. Therefore, an EDI system that is unique would require greater bureaucratic upheaval and resistance to change. Bowersox and Cooper (1992) assert that given the traditional norms, functions, and institutions, a new set of norms and values would have to be promoted by a change agent in order to impact traditional structure. The change agent effort would likely be met with resistance and hostility from established channels. For example, Hill and Swenson (1994) describe how the sales representative job is changing due to electronic data interchange. The nature of the interchange will affect the nature of his job. Any change in that system will further change the salesperson's job. The less compatible the change to old systems the more they and other middle managers might resist the change.
Peter Drucker (1988) has discussed how new practices of management must evolve for the facilitation of information flow. New practices could doom or greatly alter traditional hierarchical command and control organizations. Whatever the level of change resulting from trends in electronic data linkages, it will surely be a factor in future organizational thinking. Organizations are predicted to experience three changes from information technology linkages; they are (1) flatness, (2) empowerment and (3) outsourcing (Meyer & Power, 1989; Rockart & Short, 1989; Savage, 1990).
Flatness may lead to more one-on-one marketing. Thus, the organizational distance between the manufacturer and final consumer will shrink. These concepts are primarily for business-to-business issues thereby final consumers should be linked by ADC/EDI. Empowerment will allow retailers and their various department managers more power over product mix and inventory. Outsourcing could lead to more specialization among channel service operations as well as manufacturers and retailers.
This paper examines the underlying interrelationships between EDI/ADC, process and channel participation (Figure 1). Process is defined as the application and use of EDI/ADC technology characterized by increased/decreased efficiency, value and channel system customization. Channel participant focuses upon the role that channel members hold in the value chain process characterized by power, politics participation and exit costs (Figure 2).
[FIGURE 1 OMITTED]
A set of twelve propositions, concerning the use of EDI and ADC technologies in distribution management, were developed based upon a review of relevant literature. These propositions were then placed on a Web-based conference, sponsored by the Journal of Business and Industrial Marketing, for eighteen months. Conferees posted their reactions to the propositions and a revised set of six propositions were developed based upon collected comments. This paper focuses upon the six revised propositions.
The first proposition focuses upon the investigation by many companies into the potential extended benefits available through electronic linkages. One such opportunity is associated with JIT II in which the supplier provides its customers with an onsite company representative acting as a direct salesperson/purchasing agent. The onsite representative infuses his product knowledge with the customer's business plans and operations in order to increase value through improved efficiency and effectiveness of both the supplier and customer (Oliva, 2002). Companies are also beginning to appreciate the benefits associated with JIT III as their relationships with customers are further strengthened via the exchange of information over secure networks at the knowledge-level of the organization. This increasing dependence upon the development of channel relationships via EDI technology promotes the following proposition.
P1 The higher the level of uniqueness of the EDI-Inventory system for a channel of distribution, the higher the political exit costs for channel members.
In a study on EDI adoption in the marketing and logistical channels of individual firms, Williams (1994) found that EDI adoption was influenced by organizational size, product demand uncertainty and, in some cases, power. According to a study conducted by Heide and John (1990), the authors found that when technological unpredictability, defined as uncertainty associated with hardware, software, and human resource requirements in EDI channels, was present, firms resisted establishing long-term linkages with channel partners. Some studies have found that the higher the investment associated with EDI linkages and thus, the probable sophistication of the technology utilized, the greater the likelihood of a sustained EDI relationship (Heide & John, 1990; Williams, Magee & Suziki, 1998).
In studies examining the relationships of small to medium sized enterprises (SME) with larger channel members, researchers found that several of the SME's studied were reactive in their use of EDI and implemented it at minimalist levels due, in part, to inadequate resources (Chen & Williams, 1998; Dhillon & Caldeira, 2000; Williams, 1994). Some of the SME's were forced to implement EDI or be faced with per paper document charges or lost business (Williams, 1994). This implied power associated with individual channel members leads to the second proposition.
P2 The more unique and individualized the EDI-Inventory system, the more power the channel leader will possess over other channel members.
As the development of technology and the complexity of supply chains continue to increase, organizations are looking beyond their own boundaries to managing their entire supply chain (Hart & Saunders, 1998; Sohal, Power & Terziovski, 2002; Whipple & Frankel, 2000). The Internet and Web-based technologies have enabled organizations to take broader roles in supply chain management (Chan & Swatman, 2000; Cottrill, 1997; Oliva, 2002; Williams, 1994). Organizations are finding that in order to keep their large customers, they often must comply with their requests to utilize strategic alliances such as EDI (Chen & Williams, 1998; Lacovou, Benbasat & Dexter, 1995; Teo, Wei & Benbasat, 2003; Whipple & Frankel, 2000). Often this shift is in the form of an Internet-focused product rather than a more traditionally-oriented form (Bhatt, 2001; Oliva, 2002; Premeaux, 2002).
Organizations maintaining dominant chain roles are in positions to require business partners to adopt specified structures or programs conducive to their business operations (Dyson, 1992; Pfeffer & Salancik, 1978). Some selectively build relationships only with channel partners possessing compatible technologies (Williams, Magee & Suzuki, 1998). Competition is arising between supply chain networks rather than just individual firms (Angeles & Nath, 2001). Interest in seamless integration continues to move trading partners to eliminate traditional boundaries and operate as a unified organization (Towill, 1997). Thus, some firms are feeling pressured to join the EDI/ADC technologies fully or lose clients (Williams, 1994).
P3 EDI-Inventory systems will provide consumers with more value for their purchases. The distribution system will become more efficient as EDI expands. As EDI/ADC expands, consumers will demand this level of value and service of all firms.
In an article studying multiple cases from various industries, Kumar and Crook (1996) found that suppliers involved in the chemical sector used EDI to differentiate their services by providing automated inventory handling services to track and order raw materials for their customers. The banking industry was also found to use EDI-initiated cash management applications to subsume their customers' accounts receivable/payable operations. Some financial services organizations worked with institutions of higher education in order to serve as clearinghouses for student loan and scholarship payments.
Levi Strauss utilized their EDI systems to strengthen relationships with their customers by providing remarkable improvements in inventory replenishment speed (Keen, 1999). Likewise, Westinghouse Electric utilized EDI to streamline delivery time for Portland General Electric from 15 days to one-half day and the processing costs from $90 to $10 (Keen, 1999). Upper Deck Company, a manufacturer of sports trading cards, developed an EDI system with its major retailers in order to establish a more precise, season-oriented JIT system. With this system, shipments are based upon customer sales and the amount manufactured is more precisely matched with the amount demanded (Auguston, 1995). These examples of tailored products and services for individual channel member needs support the fourth proposition.
P4 Retailers will be inclined to join channels with manufacturers who can deliver more computerized, custom-made products efficiently, than manufacturers who cannot customize.
The United Nations is working to develop global standards and procedures for the exchange of electronic data between importers and exporters in the areas of banking, customs, transportation and insurance (Mulligan, 1999). Their aim is to develop agreements on "message standards and structures, implementation rules, translation software, communication links and internal systems integration" (Mulligan, 1999). During his time in office, President Clinton made it mandatory that by 1997, all government purchases had to be made using EDI (Kessler, 1994). Likewise, the Administrative Simplification section of the Health Insurance Portability and Accountability Act of 1996 required members of the health care industry to transfer data electronically by imposed deadlines (CMS, 2002). As demonstrated by the Utility Industry Group, there are specific industries that are encouraging its members to adopt a common format for EDI transmission thus simplifying the capability of switching channel partners (Drazga, 2000). Representatives from large enterprises acknowledged that they were working toward data sharing capabilities with both current and future applications. Proposition 5 is supported by the previous examples.
P5 Major retailers will encourage the development of common EDI-inventory control systems or software to accomplish the same goals so that the exit costs associated with changing suppliers will be lower.
Advances in information technology make it possible to provide mass customization and design numerous products to fit individual customer preferences (Istook, 2002; Liechty, Ramaswamy & Cohen, 2001; Zipkin, 2001). As mentioned earlier, one such company, Levi Strauss, has found that mass-customization is definitely a viable option for satisfying customer needs (Miller, 1995). Due to the rising cost of labor and ever-increasing level of imports, U.S. clothing and textile manufacturers are seeking alternative options for differentiating their products and maintaining their share of the market (Istook, 2002). However, firms struggle with the issue of increasing product lines to satisfy customer demands, yet managing the diseconomies associated with such a broad product scope (Dobson & Yano, 2002). Thus, Bhatt (2001) countered that although an industry was information intensive, this did not automatically imply new product and service innovations. Rather, EDI would influence customer responsiveness to sharing information across multiple firms (Bhatt, 2001).
P6 Computerization will lead to more product proliferation with an increase in custom-made products.
METHOD AND RESULTS
Hundreds of individuals responded to the Internet conference including some from the St. Louis Council of Logistics. They were introduced to the Internet article and encouraged to respond at Logistic meetings.
Internet Qualitative Research
Analysis of Internet postings can be considered a form of qualitative research. Qualitative research consists of research procedures that produce descriptive data; the subjects' own written or spoken words and observable behavior. This conference allowed subjects to input written comments from a global audience on a particular topic. Recently, due to cost considerations and a realization that big samples do not necessarily produce accurate findings, qualitative research has reemerged and much of it using the Internet. In fact, Trachtenberg, (1987) suggested that the reason for the success of Japanese companies may be partly attributable to their use of more qualitative research techniques. Qualitative research is a method to engage subjects in conversation on their terms, thus making it an effective exploratory research method.
Individuals were encouraged by the author to visit the website or, coincidentally, found it while searching the MCB publication website <ww.mcb.co.uk/>. They were encouraged to register and e-mail comments to the posted article. The article explained that the conference was in response to the vast shift in logistics management toward utilization of electronic data interchange and automatic data collection. The described movement in industry required additional theoretical underpinnings and distillation of procedural knowledge. The article also explained that procedures for instituting EDI linkages and a new paradigm for distribution management would be developed based on results from the Internet conference sponsored by the Journal of Business and Industrial Marketing. The conference paper presented twelve theoretical hypotheses and procedural guidelines for improved logistical linkages. Six of the hypotheses received enough support to consider as new propositions (Appendix).
Approximately 1,498 individuals posted comments on the conference web site and an unknown number of others read all or portions of the Internet conference. Although a large audience commented upon a few concepts, they did not contribute new concepts to those already listed. Generally, respondents felt that EDI and ADC were valuable tools that would increasingly become a necessity for potential players in the world marketplace (Appendix).
A request was made for comments regarding the six propositions of the lead paper. Results indicated that, in regards to proposition one, "The higher the level of uniqueness of the EDI-Inventory system for a channel of distribution, the higher the political exit costs for channel members," 93% of respondents agreed with this proposition and only 7% disagreed that it was true. Proposition two, which stated that, "The more unique and individualized the EDI-Inventory system, the more power the channel leader will possess over other channel members," found that only 75% agreed with this statement while 25% disagreed. Proposition three stated that, "EDI-Inventory systems will provide consumers with more value for their purchases. The distribution system will become more efficient as EDI expands. As EDI/ADC expands, consumers will demand this level of value and service of all firms." This proposition was unanimously accepted by all respondents. Only 3.5% of respondents disagreed to Proposition four which stated that, "Retailers will be inclined to join channels with manufacturers who can deliver more computerized custom-made products efficiently, than manufacturers who cannot customize," all others respondents agreed to the statement. Proposition five found that 86% agreed with the statement, "Major retailers will encourage the development of common EDI-Inventory control systems or software to accomplish the same goals so that the exit costs associated with changing suppliers will be lower," while 14% disagreed. Proposition six revealed that only 3.5% disagreed with the statement that, "Computerization will lead to more product proliferation with an increase in custom-made products," while 93% agreed and 3.5% were unsure.
Some respondents felt that Proposition two was not true because advances in technology will allow for greater interchangeableness of systems and connectivity of different systems and software. Others felt that a truly unique system would make usage more complicated. It would make it harder for customers and channel members to utilize and benefit from the individualized system. A standard EDI system, similar to other channels of distribution, would be recommended. Also, the higher cost associated with exiting the system would hinder companies from joining a channel with very unique EDI systems. Others had a "qualified yes" for Proposition two if the compatibility of the unique systems really worked well. Some felt that custom-made products would greatly proliferate because of the increased information flow created by EDI/ADC. Some respondents indicated that it would take a long time for the third proposition to eventually take affect in the marketplace. Demand for higher levels of product services would take a number of years to be fulfilled.
RECOMMENDED PROCEDURAL IMPROVEMENTS FOR FUTURE INTERNET-BASED STUDIES
Those posting comments did not always display expertise but were interested in the topic and produced reasonable levels of constructive feedback regarding the study. Some of the comments that were received regarding the Web-based data collection method included:
1. The purpose should be to showcase works to a wide audience, normally wider than most journal readership, amongst interested parties in academia, students as well as faculty, and amongst industry executives. Therefore, substantial promotion of the website and its purposes are recommended.
2. The convener should assume the role of master of ceremonies or moderator more forcefully introducing topics, drawing attention to areas of controversy, and specifically inviting responses from the visitors and those posting articles.
3. Surfers must be encouraged to comment on specific concepts and each other's responses generating greater interaction and creativity of new concepts.
4. A strong opening article is essential. A researcher cannot expect surfers and others to develop the concepts. Totally new concepts from observers would be welcome but not essential to generate discussion.
5. At the end of the conference period, the convener should count and summarize the results as in any other qualitative study.
Figure three is a full drawing of the model including a short summation of the three propositions that received the highest support and acceptance from the global respondents to the electronic conference. Proposition three garnered unanimous support from conference respondents. Proposition four had the second highest level of support. Proposition one received the third highest level of acceptance and is the third item on the model. The political realities of the channel members, the outer ring of the model, are a limiting factor. Managers will resist change, therefore, the political realities of the varying channel members must be considered. Thus, the political economic paradigm must be considered an environmental limiting factor. The channels of distribution can best be linked for efficiency among members externally by EDI and internally by ADC (Figure 3). This sharing and linking of data should heavily influence conditions associated with the exit costs. Pressure from competitors and customers for faster order cycles and customization of products will act as a bond to encourage close channel cooperation when EDI/ADC is working effectively. Also, when unique EDI/ADC systems raise the costs of exiting the system, they act as a bond to strengthen the channel relationships.
[FIGURE 3 OMITTED]
MANAGERIAL IMPLICATIONS AND CONCLUSION
The business and its trading partners must discuss and decide upon the overall strategic objectives and standards that the EDI system is to follow. Product related customer service and possibly, product customization, will become high priority concerns in the future. Further, the EDI standard should be consistent with the needs of all channel members and possibly the final customer as well. Data transmissions set the "format of electronic transactions, ensuring the verifiability and audit-ability of each" (Tageldin, 1994). These standards work as the engines of EDI by transforming data into a format that is understood by all computer systems in the channel, however, they "must be consistent with the needs of all interested parties" (Ali, 1994).
Once the system is running properly and efficiently, the business can expand the system. EDI conversion should start with a narrow focus to diminish political resistance and then expand as workers adjust to the new systems. Additional trading partners and transaction sets can be acquired to improve and strengthen the system (Cannon, 1993). The firm's "high-tech communications" capability can be used as a marketing and promotional selling point. This will help the channel members realize greater economies of scale and many other EDI benefits. These benefits can be used to attract other channel members and hold them in the system.
Marketing theory has been moving in the direction of increased channel cooperation, relationship marketing and a need for special alliances like the Japanese keiretsu. In Leenders and Blenkhorn's (1988) book regarding reverse marketing, they described the advantages of greater cooperation and integration of suppliers into a major system. EDI is expected to energize these new and improved channel structures and alliances thus necessitating further investigation.
It is critical that all channel members in the merchandise flow are capable of both making the connections and handling the EDI system. Thus, before application of EDI, businesses must confirm that there are "mature information technology systems at both ends of the transaction and that both systems are well equipped for transmission" (Ali, 1994, p. 17). It is imperative to ensure the integrity, reliability and operability of the existing and planned environments before the implementation of EDI. EDI will not improve ill-conceived business procedures and will not refurbish poorly designed systems. In fact, the introduction of EDI into an unstable channel environment will probably worsen the situation by accelerating the rate of information transfer. Eventually, poorly designed systems will become overburdened and fail (Ali, 1994 p. 17).
Before implementing EDI, both the initiating business and its trading partners must have a well-structured business environment with current and stable information technology systems. Implementation of ADC and EDI as part of the corporate strategy is a challenge. The business must understand the time and costs involved in implementation and the extent of impact it will have on the business functions. All corporate levels in the organization will absorb the pressure of preparing the business to implement an EDI system. Therefore, it is a major political and economic decision for all firms involved as shown by the model and will require everyone's complete cooperation and effort. The first step is to receive top level corporate support. One way to build corporate support is through third party, corporate-wide presentations to educate the company. Once the presentations have been conducted, the organization should schedule additional meetings to determine if EDI is right for them. Throughout these meetings, they should discuss issues that could become implementation obstacles and answer questions regarding application of the technology to business processes.
Next, approval should be sought for the EDI project and funding (Cannon, 1993). Once the EDI project has been approved, the next step is to establish a trading relationship with the businesses that will participate in the EDI exchange (Porter, 1990). Power retailers are politically and economically forcing these reforms on channel members. Although portions of past theory and empirical research support some aspects of this model, the relationships proposed in this model demand further empirical examination. Further, the conceptualization and proposed propositions in this model demand further anecdotal analysis relative to distribution issues.
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James E. Ricks, Southeast Missouri State University
Dana Schwieger, Southeast Missouri State University
APPENDIX Proposition Agree Oppose P1 The higher the level of uniqueness of the EDI- 93% 7% Inventory system for a channel of distribution, the higher the political exit costs for channel members. P2 The more unique and individualized the EDI- 75% 25% Inventory system, the more power the channel leader will possess over other channel members. P3 EDI-Inventory systems will provide consumers 100% 0% with more value for their purchases. The distribution system will become more efficient as EDI expands. As EDI/ADC expands, consumers will demand this level of value and service of all firms. P4 Retailers will be inclined to join channels with 96.5% 3.5% manufacturers who can deliver more computerized custom-made products efficiently, than manufacturers who cannot customize. P5 Major retailers will encourage the development 86% 14% of common EDI-Inventory control systems or software to accomplish the same goals so that the exit costs associated with changing suppliers will be lower. P6 Computerization will lead to more product 93.3% 3.5% proliferation with an increase in custom-made 3.5% products. unsure Figure 2: Major Components of Political Economy Relations to the Internal Structure and Environment Environment Processes POLITY Political Relations Internal Polity Dependence relations Goals of the social Interorganizational form unit Control mechanisms Distribution of power Power bases Boundary-spanning positions Mechanisms for managing conflicts Characteristics of the Environment Proximity Capacity Differentiation ECONOMY Concentration Economic Relations Internal Economy Turbulence Competitive markets Structure of the Quasi-integrated systems social unit Integrated vertical Internal exchange marketing systems processes Allocation rules Source: (Arndt 1983) Incentive systems
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|Author:||Ricks, James E.; Schwieger, Dana|
|Publication:||Journal of Strategic E-Commerce|
|Article Type:||Statistical table|
|Date:||Jan 1, 2006|
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