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Technological management learning: the adoption of electronic data interchange by retailers.


Electronic data interchange (EDI) is defined by the UN/EDIFACT standard (1984) as:

The electronic transfer from computer to computer of commercial or administrative transactions using an agreed standard to structure the transaction or message data[1].

EDI, therefore, concerns data communication between systems, usually (although not always) belonging to different organizations. EDI messages between two (or more) companies must, necessarily, conform to a common standard, defining the core information and where and how that information must appear.

By the end of 1992, according to Bartel[2], there were more than 15,600 European users of EDI, an increase of 71 per cent over 1991. More than half these users (8,300) were UK-based; thus UK experience of EDI has a relevance wider than the UK alone. Sixty-five per cent of the largest UK retailers were believed to be EDI users.


EDI is a relatively simple technology. This article is not a general review of the case for EDI; it examines the processes leading to the adoption of EDI by a sample of large UK retailers drawing on a range of perspectives originating in innovation theory. It analyses:

(1) The factors which have led to the rapid adoption of EDI by UK retailers since the late 1980s.

(2) The EDI decision-making process.

(3) The organizational and systems changes required to optimize the strategic benefits of EDI by retailers.


Perspectives of EDI in the literature vary. As a "young" technology, there are many general/instructional articles and texts -- often descriptive and uncritical (e.g. [3-7]). However, the context is frequently strategic, drawing on insights such as the use of information for competitive advantage[8] and time-based competition[9]. A constant theme of the literature, however, is the potential use of EDI to derive strategic benefits/competitive advantage (e.g. [6, 10-12]) rather than cost reduction, although Benjamin et al.'s careful analysis[13] casts doubts on whether a technology with low entry barriers can provide sustainable competitive advantage or is merely a "cost of doing business". US consultancy research[14,15] suggests EDI cost savings can be significant. However, EDI can deliver transactional efficiencies to both parties, facilitating "partnerships" or "quick response" relationships (e.g. [14,16]).

Rogers[17] suggests that key influences on the adoption of an innovation are its perceived attributes, two being its relative advantage over alternatives and its compatibility with current systems (see also [16]). Clarke and Staunton[18] show that innovation is not a single event or item; it should not be equated with equipment, but is critically dependent on knowledge, layouts and operational procedures. Thorelli[19] emphasizes the importance of peer networks in the diffusion of innovation, while Teece[20] and Loveridge[21] underline respectively the critical importance of complementary assets and management learning in making effective the potential gains of an innovation.

Empirical Base and Methodology

Empirical Base

This study is based on a longitudinal survey of nine retailers who adopted EDI in the period 1987-1992. Four are grocery firms, four clothing/textile retailers and one do-it-yourself (DIY or hardware). Fifteen suppliers who exchange data with one or more of the retailer sample have also been interviewed.

Detailed interviews were carried out with three of the grocery firms and all the clothing/textile firms in 1981 and 1986 as part of research into retail telecommunications/communications needs on behalf of Post Office Telecommunications (later British Telecommunications)[22-25]. Contact has been maintained with all the sample firms since 1986, with a succession of staff interviewed about IT and communications no less than every two years. Every effort has been made to preserve the confidentiality of the sample. Further information can be found in Table I.


The empirical base is self-selecting, consisting of companies which survived over a 15-year period, and which were prepared to participate on an irregular basis in research carried out for a third party. One purpose of the research was to find out what were the range of issues addressed in making decisions about telecommunications investments. It is likely that this sample was rather more proactive concerning IT and telecommunications than their rivals. The companies have been interviewed regularly, and access to certain financial and stock data has been provided by them.
Table I.
Sample of Retailers Introducing EDI

          Kind of             EDI    No. of EDI   EDI              EPoS   EPoS
Company   business   Size     date   suppliers     %    Messages   date    %

A         Grocery    Large    1987       800      80        5      1982    90
B         Grocery    Large    1990       500      65        4      1982    95
C         Grocery    Large    1989       400      55        2      1981    50
D         Grocery    Medium   1989       100      90        5      1988    10
E         DIY        Large    1988       900      90        4      1985   100
F         Fashion    Medium   1989       400      60        4      1988    90
G         Fashion    Large    1990       350      45        3      1982   100
H         Fashion    Large    1987     1,000      90        4      1980   100
I         Fashion    Large    1992       100      20        2      1983   100

The weaknesses of the methodology include: small sample size; self-selecting sample; large and generally well-run firms; and a potential Hawthorne effect from regular discussion about telecommunications. These weaknesses are real enough, and are probably inevitable in a long-term longitudinal study of this kind. An alternative would have been cross-sectional analysis by, for example, questionnaires and case-study type interviews. The sample might have been better, but the longitudinal benefits would have been lost. Just as important, there is anecdotal evidence that retrospective accounts of computer systems strategy often suffer from a halo effect surrounding decisions, and practical data problems caused by the short periods of service of many retail computer managers and retail directors.

The Adoption of EDI

The Benefits of EDI

The main benefits of EDI can be categorized as:

* Cost and productivity benefits: savings in time, operating costs and inventories while improving stock positions. Exchanged data needs no rekeying, invoice handling is easier, accuracy is improved, shorter lead times before delivery is made reduces the danger of stockouts, and lower inventories result from more timely information (see [6]).

* Reconfiguring the value chain: strategic supply chain benefits can be derived from EDI via the adoption of a fast cycle system (see [12]), changed (closer) relationships with trading partners, the adoption of quick response, or simply being faster in changing merchandise in response to changes in patterns of customer demand.

Why Did EDI Not Occur in 1982-83?

EDI was technically and commercially possible in the early 1980s. A number of large retailers had been exchanging orders and invoices on paper or magnetic tape since the mid-1970s, with Boots receiving 15 per cent of its invoices (from one supplier) on paper tape as early as 1972. By 1979 Boots were exchanging orders and invoices with ten suppliers[26], and there were three other retailers interchanging trading documents in this way with a handful of suppliers. Electronic invoicing was not established as legal, however, in England and Wales until the Finance Act of 1980.

A mechanism for magnetic tape/data interchange could have been established at this time around Centrefile. By the late 1970s, a number of medium-sized retailers and suppliers used the same company (Centrefile or Baric) to obtain third-party data processing. It would have been easy for these customers of Centrefile (retailers and their suppliers) and others wanting electronic trading to exchange trading data via Centrefile, but there is no evidence that this ever occurred.

Direct point-to-point data interchange between companies was also feasible by 1982/83. The technology of EDI is relatively basic -- and inexpensive -- and by 1982/83 PCs and mini computers were increasingly available, modems could be purchased and had fallen in price from [pounds]1,200 to [pounds]500, and the availability of PSTN and high-speed lines was much improved (the average waiting list in 1981 being six months)[22]. The Tradacoms standards for the exchange of data between organizations became available in 1982 from the Article Number Association (ANA).

However, EDI was not part of the agenda for the early 1980s. The RMDP study[23] does not refer to EDI but to "electronic invoicing". The 1981 study showed that eight large retailers expected to be using it (out of 50 surveyed) by 1984. The 1986 follow-up study indicated that of the eight retailers which envisaged using "electronic invoicing" by 1984, only one was actually using EDI in 1986, and only four of the eight expected to be using it by 1989[23].

It is possible to argue that DP managers were preoccupied with several innovations including electronic point of sale (EPoS) and scanning systems, IT system enhancements aimed at producing timely information about the business, a new generation of stock/order systems, and branch-head office communications. Thus, to the extent that EDI was envisaged at all, it was futuristic rather than a current priority, while much public discussion during 1979-1982 concerned the possible use of viewdata/videotex products for interorganizational communications along with home shopping and branch-head office communications (e.g. [27]).

EDI Adoption 1986-1993

According to RMDP[24], by 1986 71 per cent of large retailers claimed to be familiar with EDI. However, from a sample of 50 large multiple retailers and co-operatives, only two were using EDI and six were exchanging orders with suppliers using magnetic tape. However, a rapid take-up of EDI was predicted by the study: Twenty-six (52 per cent of the group) expected to be using EDI by 1989 and 57 per cent of the sample by 1991. Actual users were as follows: 40 per cent by 1989 and 66 per cent by 1991.

Precipitating Factors for EDI

What were the precipitating factors which had caused this change in perspective over five years? Based on the sample for this article, the factors seemed to be:

* EDI innovation networks;

* cost and performance improvements; and

* management learning.

EDI Innovation Networks

Thorelli[19]2 argues that inter-organization peer networks or "innovation poles"[28] promote awareness, problem solving, and peer pressure to adopt an innovation. The ANA, established in 1976 to promote the EAN coding system, consisted of retailers and manufacturers. It started work on the Tradacoms standard in 1979, ran trials of six manufacturers and suppliers exchanging order and invoice documents on magnetic tape, and finally awarded the contract for a Tradacoms-based third-party value added network (VAN) to 'INS in 1983. 'INS still dominates retail EDI systems in the UK. Retailers interested in developing EPoS joined the ANA to obtain barcodes (numbers increased from 1,000 members in 1981 to 1,500 in 1983), and became aware via this community of the EDI/Tradacoms experiments in electronic supply chain information systems. The success of grocery retailers in compelling manufacturers to use EAN may also have convinced a number of retailers that major changes could also be brought about in ordering systems.

The best retailers drew on diverse external Sources (see [18]) incorporating both know-how and know-who. These were:

* Professional. Computer-user groups (including ICL, DEC, HP and IBM), and the British Computer Society.

* Trade. The Institute of Grocery Distribution, trade shows and conferences (including the annual EPoS conferences). Retailers introducing EDI were prepared to share their knowledge with others concerning systems, procedures and pitfalls.

* Intermediaries. Consultancies such as Kurt Salmon (promoting EDI for Quick Response), Management Horizons, Martec, and the role of the European office of Levi Strauss & Co. (disseminating US experience for national contexts) should also be noted[29].

* Overseas. Visits to suppliers and retailers in the US were carried out to understand the full potential of EDI.

This process of information and experience gaining was similar to that carried out for EPoS.

Cost and Performance Improvements

By 1986/87, telecommunications transmission quality, facilities and costs (especially computer equipment, terminals and modems) had improved over 1981[22]. The standardization and codification of EDI, which had been achieved through the Tradacoms standard as well as ANA's advice packs, produced a dominant design (see [18]) with clear support from the industry's opinion leaders (including John Lewis, Tesco, B&Q, Unilever and Pedigree) which others were invited to adopt. EDI was embodied via software and third-party VANs, which made it relatively easy for a retailer to send a purchase order/stock replenishment file to a supplier who subscribed to the same VAN. Intermediaries such as Kewill-Xetal could produce simple-to-use PC software and hardware based on the dominant design enabling new users (including small companies) to send and receive EDI documents.

Management Learning

In the 1970s/early 1980s, for most large retail organizations, DP was a centralized activity involving mainframes or minicomputers run in batch mode; DP managers had little involvement or training with distributed systems. By the mid-1980s, all firms in the sample except D and F had become responsible for EPoS computer systems in-store and store-head office data communications. EPoS required strong central disciplines concerning the product master file, new products and price changes (see [30]); housekeeping, computer routines, data input, and communications at store level were usually handled by a non-specialist (often these were checkout supervisors who had never attended a meeting of the British Computer Society). For all the retail sample, decentralization of this sort was a cultural change for computer management, who had to develop new IT skills based on managing projects with a mixed discipline team, using new interpersonal skills, close liaison with other functional areas, and training field staff to operate procedures remotely and unsupervised.

Running EPoS forced all retailers in the sample to improve their internal systems by overhauling their product files (retail price, purchase price, internal coding structure and product details). Previous systems were frequently inconsistent or incomplete, with a number of data fields ignored by buyers and merchandisers. By 1986, consistent systems had been introduced, usable by store operations, DP, and by buyers.

By 1986, EPoS data was being collected automatically overnight from EPoS master terminals or store computers via PSTN or dedicated telecom lines by all the sample (except D, E and F) and used to produce management summaries for the next day. This rapidly became a matter of routine, with developments in computer and EPoS software handling automatically problems such as failure to transmit, or line fall during transmission. Thus the confidence and expertise of the computer manager in communications became established.

Retailers became familiar with the concept of EDI, aware of its uses and how to access the system, it became standardized and codified, while DP departments became confident of their ability to handle complex change, exchange data with remote computers, and had been forced to develop consistent internal systems across the company.

In terms of Rogers'[17] views, by 1986 EDI had developed a relative advantage over conventional methods of ordering, existing IT systems had changed, making EDI compatible with retailers' systems, and retailers had developed the expertise to introduce EDI successfully.

Decision-making Criteria

EDI decision making was not a distinct prior process but was entwined with implementation. For example, two retail companies ran a trial with one supplier before approaching the board for authority to proceed. The financial gains to be derived from EDI were expected to be strong; perceptions among retail opinion leaders were that EDI would produce considerable competitive advantages. Hence EDI was brought into the general pool of technological options with considerable management enthusiasm.

Financial appraisals of EDI were carried out by all businesses, although the trials (on which the appraisals were based) provided little information about cost savings. The following forecasts for four companies, projected over a three-year period of the EDI-produced savings in direct labour, telecommunications and paper/printing against EDI's capital cost, EDI telecommunications, VAN fees, computer time, interest and management project time show clear DCF surpluses. These benefits are calculated on the basis that 55 per cent of suppliers would use EDI.

It thus became relatively simple to justify EDI. Retailers argue that the gains from stock reductions exceed the direct gains by a factor of four, although this is a difficult to prove in view of several influences which have combined to reduce stock levels.

Implementation followed an incremental path. Initially, retailers chose one supplier and a product group on which to concentrate. They all used Tradacoms as the standard. The trial became a pilot as other suppliers and products were included. For all except Companies A and E, the "pilot" continued for more than a year, because technical problems with files and data communications kept EDI on the level of each retailer exchanging data with only a handful of suppliers. Retailers were also concerned about data security and integrity; with six of the companies this held up the project at board level, even though the amount of expenditure involved was small. A lengthy delay in committing the firm to a system was also typical of the same firms when they were deciding to convert their stores to EPoS. The organizations were evidently probing and learning from a series of partial commitments rather than through making a total commitment to a strategy at an early stage (e.g. [31]).
Table II.
Projected DCF Return on EDI by Four Retailers, Three-year Period

Retailer           Performance (%)

1                       350
2                       610
3                       480
4                       520

Based on 55 per cent of orders being received via EDI

Perhaps also, for the board and senior managers, EDI became a metaphor for a range of supply chain enhancements, EPoS links with automated RDCs, supply partnerships and quick response -- making such a powerful image difficult to deny.

During this period, perceptions of environmental pressures for change, particularly among key factors (which according to Kantor[32] can be more significant than actual environmental change) underlined the significant of EDI, assisted by reports from the USA of Quick Response (see, e.g.[33]). "Adaptivizing" companies[34] (A-C, E and H) used this period to develop systems of EDI-based stock replenishment. The weakening of the UK economy after 1989 provided additional emphasis towards a sustained EDI commitment as a means of reducing costs.

EDI implementation was approached using the project management methodologies developed for EPoS. The project teams were run by relatively junior staff but consisted of representatives of key functions including the buying teams, distribution, and store operations. Internal staff were trained in the new methods,help desks were set up, and senior management support was negotiated to set and achieve targets.

With the technical and security problems overcome, retailers created a large network of other EDI users. All companies negotiated a discounted VAN entry fee and EDI software. Three companies provided a manual, a newsletter, and subsidized training courses. Two companies simply provided the name and address of 'INS. All companies used the implicit threat of delisting for unco-operative suppliers and none were prepared to provide guarantees of continued business to manufacturers who installed the preferred EDI system.

Organization and Systems Required to Maximize Strategic Benefits of EDI

The EDI Process

EDI, like most innovations, is not purely, a technology coterminous with EDI equipment. For the retail sample, innovation has been not a single event but several. EDI has been the culmination of a series of changes including "cleaning" up the product master files, developing an unambiguous coding structure, implementing EPoS data capture devices, developing merchandise systems incorporating space management and stock control systems, and developing RDCs and stock replenishment systems.

Managers' experience of rapid IT change in 1980s made them more receptive, provided confidence, methodologies, new operating procedures and skills. Teece[20] and Pavitt[35] argue that there are two characteristics of the long-lasting innovative firm: its continued success is associated with a cumulative learning in the area in which it gained an early comparative advantage, and second, the acquisition or access to other areas of competence constitute a set of "'complementary assets' for the continued exploitation of areas of initial competitive advantage". Honey and Mumford's learning cycle[36] provides a framework by which organizations and managers can understand and assess the ways they learn from their experiences and reflect on them, perhaps by applying lessons learned in one context to a related one.

Operational Logic of EDI

Loveridge[21] argues that implementing new technology goes through two stages. Stage One involves making the new system work -- operationalizing of new techniques. Attitudes in Stage One are focused more on preventing disruption to internal processes and systems than in deriving the strategic benefits. The early years of EPoS, particularly with companies B and C (EPoS produced a worse performance than ECRs in the first 18 months) bore this out. Stage Two requires the discovery of a new "operational logic" based on the innovation, via systematic application to the central workflow of the organization and the design of outputs. Management learning is cental to both activities -- both operationalizing in Stage One and the deeper organizational response in Stage Two. However, although retail use of EDI has tended to concentrate on only two trading documents, the order and the invoice, there has been a strong emphasis on achieving strategic benefits (i.e. Loveridge's Stage Two) as quickly as possible. However, for strategic progress there needs to be direct links into applications software to drive the stock replenishment system, by sending and receiving a wider range of documents via EDI, and developing new administrative systems -- an example being supplier self-invoicing. As stock levels, including safety stock, are driven downwards, attention focuses on the distribution systems required to keep stores replenished -- and the contribution of EDI in driving those systems.

Davies[37] draws a distinction between entrenching and altering or radical process innovation. The entrenching innovation may be easily adopted providing a rapid payback; the altering innovation (e.g. EPoS) may take much longer to learn, need new skills to be developed, and require a series of cultural and system changes before becoming effective. EDI can be introduced as an entrenching innovation (limiting its strategic focus), but is probably best understood as an altering one.

The EDI Mutual Organization

The leading retailers in the sample have chosen to develop an EDI network or user community, which (at its best) can act as a mutual organization learning to work together and at its worst can produce cynicism. The EDI networks have preferential access to software, collectively codify, develop procedures, identify and overcome issues. There is an expectation of joint development, and of cost sharing rather than cost shifting from retailer to manufacturer. Suppliers will usually be members of more than one retailer's network, thus enabling learning to occur between supply chains. EDI is a technological enabling device for supply chain partnership, although the enforced adoption of EDI by many suppliers is a poor basis for a working marriage. Several manufacturers claim to have received little benefit so far from EDI, as a result of the mixture of systems different retailers use and the short lead times now imposed. The most substantial benefits for suppliers would, however, be access to sales forecasts and current sales data; this would enable manufacturers to plan their own manufacturing and supply chain and, perhaps, improve service levels to retailers. Four companies in the sample are providing forecasts for a limited number of suppliers. The manufacturers interviewed believed that their own sales forecasts by category were often more accurate than retailers' forecasts.

It can be argued that retailers will also profit from seeking to provide their suppliers with clear EDI benefits. However, retailers are clear that close relationships can, for practical purposes, only be developed with a limited number of suppliers (see [38]). For example, Mothercare is concentrating on 150 suppliers and SPAR on only 50. Understanding and applying the full implications of EDI may therefore prevent competitive disadvantage even if it does not provide competitive advantage.

The Manufacturers' Experience and Operational Logic

The manufacturers found that the EDI technology could pull electronically-transmitted orders into their central computer system easily using software interfaces at either end which converted application software into flat files according to the specified EDI standard. These could then be run on the manufacturer's computer in the same way as directly-input orders. Eight of the manufacturers interviewed needed to make major changes to their product coding system for finished products and exchange product master files with retailers to ensure that retail codes pointed unambiguously to the manufacturer's internal codes -- EAN codes were (with the exception of one retailer) inadequate for this purpose. Internal coding for intermediate goods and purchases also had some major inconsistencies which needed rectifying. This meant that EDI had to be seen as a major project (not a small piece of software) requiring substantial commitment to enable it to occur. Thus the manufacturers' experience was analogous to that of retailers.

It is possible to argue that for many retailers and suppliers the saving of 24 or 48 hours from using EDI is irrelevant. However, the time-saving can act as a focusing device, assisting the retailer to commit to EDI even though time may not have a clear economic benefit. EDI-transmitted orders had a much greater impact on manufacturers who were mainly supplying ex-stock (e.g. canned grocery or produce) than those (such as clothing and textiles) where one or more stages of manufacturing or processing were involved before delivery could be made. In grocery, EDI could reduce the lead time from three days to 12 hours. Receiving all stock replenishment requirements at one time, saving time in order input, and a reduced number of last minute order amendments, speeded up the system, enabling manufacturers to pick and ship orders more quickly. It was much more difficult to achieve time savings where manufacturing or finishing was involved. The nature of the manufacturing/scheduling systems meant that it could take between 12 hours and seven days for a change in requirements to affect what was being produced. For the clothing and textile companies, EDI offered little advantage in practice over the facsimile machine or telephone in view of the fact that computerized commercial systems were not interfaced directly with the scheduling systems and had to be input separately.

The new "operational logic" of EDI for manufacturers certainly involves a fast response to retail needs, based on redesigning manufacturing operations and integrating the stock/order systems with scheduling and forecasting, while retailers share EPoS/stock information and adapt their inward logistics to move incoming deliveries to point of sale with minimum delay. With permitted lead times being forced down by retailers, manufacturers need to anticipate retail demand, being prepared to hold a wider range of stock lines and intermediate materials, and rescheduling work much more regularly.

Textile companies in particular need to squeeze time out of their long production cycles, by developing a good internal integrated DP network, operational redesign, and developing DP/planning of their suppliers so that changed customer requirements can quickly flow out to the third party commission hemmers, dyers, printers and packaging companies that are part of the value chain. For a number of suppliers, EDI has been a routine innovation concerned with ordering speeds and formats with little other strategic implication.

EDI is a widely available, low-cost technology. As Benjamin, et al.[13] argue, EDI must be regarded for most companies as simply a requirement of doing business rather than the source of competitive advantage. Low entry barriers to EDI mean that the technology can only deliver competitive advantage when the firm is innovating continuously in the use of EDI to reconfigure the value chain, preventing competitors from catching up. The scale of the investment of both retailers and manufacturers in inventory mean that these benefits may be more substantial in stock replenishment systems than on reducing administrative costs.


It has been argued that the decision to invest in EDI results from a process of inter-organization learning through retail innovation networks, the creation of a dominant design by the ANA, its embodiment in computer and telecommunications hardware and software, improvements in cost and performance, and extensive management learning about retail IT, communications and project management.

EDI is not a single event or activity; the retailers in the sample only adopted EDI as the culmination of a series of changes to their internal systems based on item level information. As a result of these changes and the high performance of EDI products, EDI installations have proved to be very profitable for retailers.

To maximize strategic benefits, EDI is best seen not as a technology but as one means of developing new retailer-sUpplier relationships, based on operational and organizational changes made by both parties. The "operational logic" of EDI enables close co-ordination of stock levels and distribution arrangements to occur, based on retailers sharing information about sales and forecasts and suppliers re-engineering their processes to be able to respond to changing retail requirements.

EDI should not, however, be regarded as either a necessary or sufficient condition of supply chain partnerships, rather as an enabling mechanism for firms wishing to adopt closer relationships.


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Author:Bamfield, Joshua
Publication:International Journal of Retail & Distribution Management
Date:Mar 1, 1994
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