Forecasts for 1986: The Electronic Data Interchange Market.
EDI is the electronic exchange of business information between companies in a structure application. It is used by companies to excahnge electronic versions of standard business forms such as purchase orders, invoices, shipping bills of lading and similar documents that might otherwise be prepared on computers, printed and then mailed.
With EDI, a company's computers exchange information with a trading partner's computers, even though they may be using incompatible systems and different document/data formats. EDI software translates the information to conform to agreed structures, routes it to the trading partner or places it in an electronic mail-box for later retrieval. EDI is different from electronic mail in that the content structure and format is known in advance, and communications is process-to-process rather than person-to-person.
EDI's benefits to a corporation include reduced costs in document preparation, faster turnaround, fewer errors since information is not re-keyed, time/space transparency and the ability to integrate EDI data with existing applications such as inventory control, materials resource planning and forecasting.
While exchanges directly between two companies are being done now, the complexities of modern trading relationships often make managing such links difficult. For example, the auto industry buys components from approximately 35,000 small suppliers. Accordingly, third-party EDI services are being offered by value-added networks (VANs) with their processing affiliates, and by smaller remote computer services (RCS) that don't generally operate their own networks.
Was about a $38-Million Market
We estimate the 1985 EDI market at $38 million, but project that it will grow by approximately 100 percent per year to become a $1.15-billion market in 1990. Transaction volume will grow by a larger amount, but as usage increases and as the effects of competition come into play, per-transaction costs will drop. Transaction costs are currently under a dollar, and in some cases, in the 15 to 50-cent range. (See chart for our projections and the factors influencing EDI's growth.)
One of the key factors that will drive the growth of the EDI market is more awareness of its benefits. We've found that information systems managers generally have little knowledge about EDI, and that relatively few articles about it have been published in trade publications.
Vendors currently offering EDI services are McDonnell Douglas Electronic Data Interchange Company, General Electric Information Services Company (GEISCO), Control Data Corporation, AT&T Information Systems, IBM's Information Network and Informatics General. Smaller RCS vendors providing like services are TranSettlements, RailInc. and SCM Kleinschmidt.
EDI software is available from several, small vendors: EDI Incorporated, Prgram Sciences Incorporated, Metro-Mark Integrated Systems and the APL Group. Some of the VANs also sell software, either their own or packages developed by these other firms. Packages developed by these other firms. Packages are available for all sizes of computers and are suitable for companies developing their own EDI systems, as well as those using third-party services.
Largely missing out on this activity is the banking industry. We do expect more banks to offer EDI financial services within the next few years. One of the problems is that electronic funds transfer (EFT) data formats are not the same as EDI formats. Regardless, the Bank of Boston and the First National Bank of Chicago have, or are developing, financial services that permit trading partners to authorize payments directly linked to EDI transactions.
Industry associations are taking an important role in establishing and gaining acceptance of EDI standards. The leading advocate for EDI is the Transportation Data Coordinating Committee, which has been centrally involved in educating potential users and assisting in the development of EDI standards called X.12 by the American National Standards Institute. However, these standards have not yet been finalized.
Also involved in this activity are trade organizations representing the automotive, paper, office products aluminum, steel, warehousing, chemical and grocery industries.
For example, the grocery industry is fast adopting advances in technology, right down to the check stand, as a way of optimizing profit margins measured in fractional percentages. Grocery-industry buyers issue some 15 million purchase orders annually. These documents trigger a similar number of bills of lading and invoices, along with other documents such as adjustments, product announcements, allowances and other information.
The total of this traffic is estimated to be in excess of 100 million messages between 2,000 distributors, 5,000 manufacturers and 2,000 brokers. Accordingly, EDI marekt participants view the grocery and distribution industries as prime candidates for EDI services.
Adopted Services for Savings
The grocery industry has been gradually adopting such services since a consulting firm predicted the industry could save between $196 million and $324 million if only half of all transactions were done electronically.
The Uniform Product Council, the agency behind adoption of bar-code standards, is the principal grocery-industry EDI coordinator. Its efforts have resulted in the Uniform Communications Standard. UCS services are available through McDonnell Douglas's EDI-Net, GEISCO's Mark-Net, Informatics General's Ordernet Services and through proprietary networks.
General Mills has set up an EDI network to link supermarkets with the company for invoicing. The company earlier had a private network from its headquarters to plants and sales offices; however, this was deemed unsuitable for EDI. McDonnell Douglas's EDI-Net (then Tymnet) was contracted to provide networking services. Twice daily, General Mills' computers send out invoices that are converted to the UCS format by EDI-Net before delivery to supermarkets. Future enhancements include using the network to distribute to supermarkets other information, such as upcoming promotions and ad-campaign details.
Infomatics General's Ordernet was endorsed by the National-American Wholesale Grocers Association to support UCS beginning in 1984. Grocery wholesalers use micros to send UCS-formatted information to suppliers. EDI Incorporated supplied the software that's used to reformat data to UCS standards on Ordernet. Order entries are keyed into a menu-driven system, or a micro workstation reformats directly from an existing file.
We recommend that various industry groups consider adopting an EDI graphic symbol for cross-industry usage, to identify companies that use EDI standards. Promotional use of such a symbol on letterheads and in advertising and marketing literature will provide competitive advantages by enhancing corporate imagery, while creating more EDI awareness.
It is advantageous for large companies to develop proprietary, on-line systems supporting business transactions, as such systems work to maintain the customer base and provide a competitive edge. Also, EDI systems shift some of the internal customer-service burden to customers, and the resulting savings will defer development costs and help one maintain competitive prices on goods and services.
However, unless developed with attention to future needs, proprietary networks may later prove burdensome to enhance. Often, the pressures to meet internal needs prevents attention to standards, which add another level of complexity to system implementation. Some private EDI system developers told us that they had enough problems without worrying about using standards.
We recommend that proprietary EDI systems use X.12 standards, and that users/developers monitor refinements to these standards to maintain compatibility for future needs. Most intercompany communications are not confined to a specific industry. Keeping options open for extension to other industry groups offers the safeguard of system flexibility, should future requirements mandate.
Developers should solicit feedback from system users, and design flexibility into the system. Otherwise, a rigid system designed without user input can create frustration, will not be accepted, and will not be used. User organizations are well advised to form an EDI task force with broad company representation to work across departmental lines and to avoid internal jurisdictional problems.
Managing a proprietary EDI network requires a commitment in resources for both implementation and management. Telecommunications managers should carefully evaluate their ability to make that commitment before implementation, and should use a third-party service if there is any question about company support.
Finally, guidance in implementation, programming, data elements definitions, transaction-set standards and communications standards is available from the Transportation Data Coordinating Committee in Washington, DC and from several industry associations.
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|Date:||Jan 1, 1986|
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