Gearing up for EDI.

Some companies are waiting to see how other firms fare with electronic data interchange before they experiment with the technology. Others aren't.

THE QUALITY MOVEment in America has reached virtually every aspect of corporations today. At Georgia Gulf, a manufacturer of chemical and plastic products, much of our quality focus is on the flow and storage of information. How do we respond to this rapidly changing environment? First, we look for ways to improve.

When several top Georgia Gulf executives created an information management team (IMT) to target areas in the firm where continuous process improvement would have a dramatic impact on information, they found that the most effective way companies can transfer and manage information between each other is electronically. So the IMT's first strategic directive was to initiate a task force to research how information flows to and from customers and ultimately to develop a strategic plan for Georgia Gulf.

The task force members were selected according to their areas of expertise, bringing together a national sales manager, a credit manager, a customer service representative, a systems analyst, a sales representative and an accountant. After five months of discussions, the task force came to this conclusion: Georgia Gulf needed electronic data interchange (EDI) to be competitive.

JUST WHAT IS EDI?

The first item on the task force's agenda was to learn more about EDI and how Georgia Gulf could incorporate the technology into its operations to better serve our customers.

The best definition of EDI the group came up with is "communicating common business document data between two different business management systems using standard data formats," with the key phrase being "between two different business management systems." This phrase implies the following: that trading partners have computerized systems in place, so data can be integrated directly into or out of systems; that, to gain the greatest benefit, EDI must be integrated into computerized systems to eliminate redundant clerical effort, the need to mail documents, processing time delays and errors from moving information; and that EDI applications can be found in virtually every business management system.

The task force determined that nearly 70 percent of the data in any computer originates from or will be transferred to another computer. This fact makes the application of EDI a massive shift in information management for a company. But many companies find the change worthwhile. When information is transported via EDI, which keeps data in a digital format, the need to reenter data is eliminated. Because most corporations use standard mail services to transport data, they have to transform digital information into paper form before sending it and then back into digital form upon receipt. With EDI, a translation program enables the computer to convert data automatically so it can be sent directly over a communications network to trading partners.

EDI Research, Inc., conducted a survey to find out the primary reason why firms use EDI and discovered these motivations: their customers request it (35 percent); they get quick access to marketing information (26 percent); they gain an advantage over their competitors (14 percent); their data is more accurate (13 percent); and they save money (12 percent).

TRY AN EDI SURVEY FIRST

Because we wanted to know where Georgia Gulf's customers stand on EDI before making any decisions, we used a survey to question them about their current and future use of EDI. We chose a qualitative rather than a quantitative approach for the survey, and the results were the basis of our analysis and subsequent recommendations to Georgia Gulf management.

We developed the survey with three key elements in mind: First, we wanted to insure a high response rate by keeping the survey simple; second, we wanted to inquire about our customers' standard EDI transaction sets and their status; and, third, we wanted to gather the type of customer information that we could use to draw meaningful conclusions.

The results of the survey proved to be extremely helpful in determining the level of interest our customers have in EDI. The comment section of the survey was especially enlightening. Here's what some customers had to say:

* "Only 2.5 percent of our suppliers are EDI, but this represents 54 percent of our total volume."

* "We are currently pursuing our 100 to 200 top suppliers in terms of purchase order or invoice transaction volume. This will represent 75 percent of our business."

* "|We're~ currently investing in real-time EDI. We have 112 suppliers using EDI, which represents 15 percent of total suppliers."

* "We have infrastructure in place -- a translator relationship with VAN, etc."

* "The current recession with many of our suppliers has put EDI on hold. The benefits are realized over a long period, but the costs are immediate."

* "EDI is a long way out in our future."

* "We have seen a lot of curious interest about EDI but very, very few people willing to push the effort to establish a trading partnership. We are positioning ourselves to be ready when it happens."

* "Other company locations are using EDI extensively. Our full-scale usage is probably two to four years away."

* "We will require suppliers to use EDI this year (for payment, purchase order and invoice)."

* "Our current EDI activities are with customers and transportation providers. We do not have any near-term plans for EDI with suppliers."

Such comments from our trading partners convinced us that many companies are interested in -- or have already prepared for -- EDI. Georgia Gulf's task force concluded from the statistics gathered in our survey that 24 percent of our customers are currently using EDI and 31 percent are planning to use EDI with their suppliers. For the larger corporations, the percentages increased. Forty-seven percent are currently using EDI, and 33 percent are planning to use it.

Our survey also showed that Georgia Gulf's client corporations are contemplating using EDI for many types of transaction sets, not just the standard invoice, purchase order and payment advice. The relative importance of each transaction set for customers using EDI is high.

Based on these results, we've decided that EDI is here to stay and that its use will steadily increase. But each corporation must determine how EDI fits in the company and what level of commitment it will make to the effort.

HOW EDI WILL CHANGE YOU

The implementation of EDI is evolutionary. Like many corporations, Georgia Gulf uses EDI to a limited extent now, but we know we need to maintain a structure to insure a consistent approach as we apply the technology more. Some corporations make the mistake of making EDI a data processing project, but EDI has much greater implications throughout corporations. Every company must start with an EDI strategic plan to get the maximum benefit from the technology.

How do you go about designing such a strategic plan around EDI? First, step back and examine what you need to accomplish and how you can improve your business processes. This may sound far too fundamental for your objectives, but we believe it's a must. Only after you clearly define and monitor these processes should you incorporate into them such a technological change as EDI. Re-engineering a process before you have it under control can lead to unintended results.

As for internal considerations, Georgia Gulf's task force next determined that EDI must be driven by business needs with an eye to support functions. We knew we needed to address internal changes in procedures to make our EDI program successful.

What are a company's major obstacles to implementing EDI? People and internal systems. A company can establish an effective EDI program only with the acceptance of its department managers and lots of internal training. We figure by tackling small applications first and showing the real benefits of the technology -- for instance, its speed of processing -- EDI will gain momentum and become more widely accepted throughout Georgia Gulf.

From a survey conducted by EDI Research, Inc., we learned that other typical barriers are trading partners that won't participate (22 percent), a lack of knowledge of EDI (10 percent), the cost of implementation (12 percent), the incompatibility of computers (17 percent) and the lack of EDI education (12 percent).

But we found that, while the cost of implementing EDI is immediate (for hardware, software and training), you don't realize many of the benefits until the economies of scale click in. It's like building a production plant: The benefits don't come until your production and sales begin.

Hardware costs vary since you can set up EDI on any computer from a mainframe to a personal computer. The cost of EDI software ranges from $2,000 for a personal computer to well over $100,000 for a minicomputer or a mainframe. Other costs are for personnel training and, of course, the time you dedicate to EDI; these will vary widely from company to company. For instance, some large corporations have a team of full-time experts, while other corporations treat EDI as a part-time function for a few individuals.

Too often, a company investigating EDI considers only the hard costs and ignores the soft cost savings. When evaluating EDI's return, you can relatively easily put a dollar value on things like mailing costs or hours saved. Some short-term benefits of EDI that Georgia Gulf identified during our task force meetings are these:

* Offers a competitive advantage to our sales force by giving customers a choice.

* Responds to customer requests.

* Reduces processing delays and errors resulting from reentering data.

* Reduces the cost of paper forms and mailing.

* Improves our inventory control and shipment scheduling due to faster document processing.

But the long-term benefits of EDI are far more significant, even though you may find it difficult to estimate these soft-cost savings when you're evaluating EDI's return. This is especially true for such benefits as strengthened trading partner relationships. We found that the long-term benefits of EDI for Georgia Gulf are these:

* Produces timely and detailed marketing information to help us improve our sales forecasting and business planning.

* Improves our internal business efficiencies by introducing new procedures and eliminating redundant tasks.

* Enhances the quality and speed of service to our customers.

* Frees employees to refocus their energies on more productive business activities.

* Improves the business relationships with our trading partners by helping them reduce costs while offering them improved customer response.

LEADING THE CHARGE

Beyond its recommendation that Georgia Gulf immediately implement a strategic plan for using EDI with our customers, our EDI task force suggested that we start with manually controlled EDI and evolve into fully integrated EDI.

During the initial implementation, Georgia Gulf's EDI process was driven by experienced EDI users at customer sites. These users helped us map out transactions and develop new procedures for sending and receiving information. We felt the situation was win/win: Our customers wanted to increase their economies of scale, and Georgia Gulf wanted training from experienced trading partners.

The EDI task force also recommended, from an organizational standpoint, that the company appoint an EDI coordinator, which we did. This coordinator maintains the support structure for our entire corporation. Ideally, a person in the coordinator position should have strong communication skills and a good knowledge of the workings of the sales, credit and customer service departments. He or she also should be able to interface with the data processing personnel.

Specifically, the EDI coordinator's job is to educate affected departments, work with the data processing area to purchase the necessary hardware and software and oversee the testing and integration of EDI into Georgia Gulf's culture. In conjunction with the sales force, the EDI coordinator visits with customers to forge trading partner agreements.

The task force agreed with the numerous customers surveyed -- and with EDI experts -- that placing an individual "in charge" of such an implementation strategy is of paramount importance.

Strategically, starting with a manually controlled EDI system and moving to fully integrated EDI allowed us to respond to customers' wishes in the short term while giving us time to work toward the full integration, which includes education, training, and hardware and software integration.

One caution here: If you make fundamental changes in your company and ultimately need to downsize any departments, you have to consider the human relations aspects of those changes as well. That's another reason to start your EDI implementation with a well-planned strategy.

From a business standpoint, the EDI coordinator works in conjunction with the sales group to make sure that EDI agreements between Georgia Gulf and others conform not only to the American National Standard Institute (ANSI) computer standards (an EDI format that can be read by any business management system) but to agreed-upon business terms. With EDI-transmitted purchase orders, for example, such items as the payment terms, destination points and timing are mapped between the two partners for transmission purposes, but they first must be negotiated. Remember, EDI doesn't change the process; it only speeds up the data movement. And you also have to standardize the procedures for using EDI and then test those procedures -- always with input from both a legal expert and your internal audit staff.

As you can see, we've been very thorough in setting up our corporate guidelines for implementing our EDI program. At Georgia Gulf, we believe EDI inevitably will shape the future of information technology. That's why executives should take the time now to learn how it will affect your corporation and your business partnerships. Don't wait to be forced into using EDI. Chart your own course.

LESSONS LEARNED

If you're planning to implement EDI now or down the road, take a look at some of the lessons we learned at Georgia Gulf as we stepped gently into our EDI program.

DO THIS

* Get a consensus of your goals after you've discussed your needs.

* Flowchart the current process.

* Postpone automation until you redesign your current processes where necessary.

* Start by fixing a small but annoying problem to win friends.

* Structure the project so there are visible payoffs along the way.

* Try out rough prototypes of new systems to get early feedback from the people who will use them.

* Select the best people for the project team, even if it disrupts your day-to-day operations.

* Settle for 80-percent solutions. That is, your systems don't have to incorporate all of the functionality that users request, but through continuous process improvement they can be built upon.

DON'T DO THIS

* Set vague objectives, such as "improving productivity."

* Design the project to minimize conflict within your organization.

* Assign project management to someone who's technically proficient but unskilled in negotiation.

* Assume that interviewing computer users will reveal exactly what they need from the new system.

* Start your effort by looking at places to apply the hottest new information technologies.

* Leave technology for last, or you'll overlook opportunities for using it.

* Implement incremental improvement if what you really need is fundamental change.