One of the speakers
at the TUG Meeting of Members on
Copyright © 2003
All rights reserved
EXTOL International, Inc.
Larstan Business Reports,
an independent editorial firm
Lane F. Cooper
Over the next time
frame through to 2004, we expect to see a surge of activity in “strategic EDI”
initiatives among mid-sized companies – defined in this white paper as
companies with annual revenues well under $1billion, and which find themselves
under serious IT resource constraints.
In so doing, we will see a new dynamic at work in the adoption of EDI in
Traditionally, mid-sized players have reacted to the demands of their large customers, and have done little to harness the capabilities of EDI to achieve strategic results from their investments in this technology.
But maturing enterprise applications, along with new offerings from technology partners, and a better understanding of the competitive imperatives and opportunities that EDI offers to mid-sized enterprises is changing this dynamic. In so doing, the mission of EDI has evolved beyond simply supporting traditional transaction sets based on the American National Standards Institute's X12 committee (ANSI X12), or the United Nations EDI for Administration, Commerce and Trade (UN/EDIFACT). The EDI of the immediate future must have software-based intelligence that can dynamically support inter-corporate business operations under a variety of business and technical settings, while interacting intelligently with myriad flavors of eXtended Mark-up Language (XML) that are becoming a standard element in major enterprise application systems.
As a result, EDI is providing mid-sized enterprises with a strategic opportunity to increase the quality of service they can provide to their buying community and increase their communication with their own supply partners. Simultaneously, strategic implementations of EDI are saving these companies millions of dollars.
This white paper provides a brief overview of the issues and success factors that must be taken into consideration by mid-sized enterprises exploring strategic EDI, and presents a close up on how one innovative company has implemented this technology to advance its strategic objectives.
Strategic EDI and
Electronic data interchange (EDI) has reached a stage of development in corporate America in which it is finally offering powerful proactive opportunities for mid-sized businesses—defined in this white paper as companies with annual revenues of between $75 million and $1billion, and which find themselves under serious IT resource constraints.
Until recently, the growth and development of EDI has revolved around the “hub-and-spoke” dynamic in which large and influential players in a channel of distribution persuade smaller trading partners to adopt this form of electronic commerce or risk losing the opportunity to do business with these hubs.
This has in essence created two tiers of EDI players:
But a combination of factors that revolve around maturing technologies, services and business conventions are interacting to create extremely powerful opportunities for IT resource-constrained organizations striving to do more with less in a more effective manner.
Falling integration costs, maturing standards and the increased flexibility offered by developers of inter-enterprise technology are providing companies with the tools to harness EDI to achieve strategic business objectives. Fifteen years ago the costs of undertaking an enterprise-wide initiative to integrate incoming transaction sets (highly structured documents like invoices, purchase orders and advanced ship notices) would have been too costly, required more technical skills than were available, and created a level of corporate disruption that would have been difficult for many mid-sized enterprises to cost-justify.
“There appears to be a level of convergence happening between the integration technology market and the application server market. Indeed, many companies are asking their EDI vendors to address these integration challenges with a single product. Customers are not concerned about whether this integration is done through transaction management at the presentation layer or if it’s done through an EDI server or through XML to an application interface. The business problem for customers is the same,” says John Derome, an analyst with Boston-based Yankee Group.
The commercialization of the Internet, and the growing trend toward “web-enabling” most, if not all, mission critical enterprise applications has created a technical environment that has drastically reduced the communications costs, integration complexity, and time required to accomplish substantial integration of enterprise applications. This has reignited interest in the benefits promised by EDI among these companies.
“That is why mid-market enterprises view EDI as a new strategic opportunity to increase the quality of service they can provide to their buying community or increase their communication with their own supply partners,” says Derome.
Indeed, today’s mid-sized enterprises have focused their technology dollars on proven technologies and are looking for ways to get more out of the existing technology investments. Both EDI and the Web fit the bill as proven technologies nicely, making the idea of strategically combining the two technologies to solve the problem of “expensive integration” an enticing one.
But what exactly does it mean to implement EDI strategically?
Instead of reacting in a tactical manner, which generally entails installing a translator in the network to meet a customer’s purchasing demands, companies are focusing on:
· The process of communicating with their suppliers; and/or
· The process of providing superior service to customers.
In other words, these companies are asking strategic questions like:
Instead of focusing on the transaction sets (at best a tactical area of interest), these companies are now focusing on a higher level of abstraction. If the reactionary – or tactical – approach to using EDI on the supply side revolves around reducing the cost of sending purchase orders and invoices, then the strategically-focused company is more interested in building a system that allows them to extract information, send it to partners and make EDI a transactional component of a broader business solution.
This strategic focus is having a dramatic effect on the actual mission of EDI. There is decreasing interest within this segment of the market to implement software that simply converts traditional transaction sets based on the American National Standards Institute's X12 committee (ANSI X12), or the United Nations EDI for Administration, Commerce and Trade (UN/EDIFACT) to a flat database file.
"The EDI implementations of the immediate future must be sophisticated enough to dynamically support the seamless flow of business transactions under a variety of business-rule-based settings. Moreover, they have to interact intelligently with the different flavors of extended Mark-up Language (XML) applications that are becoming a standard element in major enterprise management systems," says Charlie Scasserra, Vice President of Sales for EXTOL International, Inc., a provider of EDI transformation and business integration solutions.
Many of the mid-tier companies that are making strategic investments in EDI today are companies that have been involved with EDI for some time. Most were required to implement EDI solutions by large trading partners early on. They invested in tactical point EDI solutions and are now making more strategic, long-term decisions.
These companies are no longer implementing EDI simply to respond to a large trading partner’s demand—they are interested in improving the efficiency and accuracy of data exchange with as many of their trading partners as possible.
“In does not matter what industry you are in—healthcare, banking, manufacturing consumer goods or industry supplier—EDI-enabled business solutions can deliver strategic benefits by pursuing 'best-practice' business-to-business e-commerce initiatives. This means they must combine data from disparate sources and access applications across platforms within and between corporate boundaries to harmonize processes so that people throughout an inter-corporate community of interest can do their jobs more effectively and efficiently,” says Dennis Bonagura, President of EXTOL.
This view is borne out by analysis from the Yankee Group, which contends that there are seven functional categories critical to achieving successful business-to-business integration programs (see chart).
Without this strategic approach to EDI companies will find themselves engaged in an endless loop of duplicated and unnecessary manual processes and data entry that is prone to delays and error. But beyond the substantial clerical/administrative benefits, EDI technology often plays a critical role in broader strategic solutions. For instance, mid-sized companies in the retail or wholesale industry can leverage their EDI investments by enabling direct shipments from their web sites.
Strategic entry into EDI provides mid-sized companies with an opportunity to increase the quality of service they can provide to their buying community and increase their communication with their own supply partners. Simultaneously, strategic implementations of EDI are saving companies millions of dollars in time and overhead costs.
· Dynamic Communications Recovery
· Multi-Network Communications (VAN, Internet, Direct)
· Script-driven Communications
· Guarantees delivery of information
· Improves EC system flow
· Leverages evolving communications technology
· Minimizes implementation costs
· Eliminates dependency on specialized expertise
Reporting and Audit
· Real-time Tracking
· Comprehensive Auditing and Reporting
· Graphical Analysis Tools
· Improved management control of business processes
· Online resolution of discrepancies by business users without IT involvement
· Standard-to-Standard Conversion
· Archive and Restore
· Browser-Based access
· Multi-level Security
· Wizard-based set-up and administration
· Resource-free migration of standards lowers cost of ownership
· Wizards and browser access lower deployment costs, reduce IT Support workload, and improve customer-service levels
· Multilevel security protects sensitive information and provides positive control of user access
· Support for Multiple Environments
· Platform Interoperabiity
· Support International Standards (eg. EDIFACT, TRADACOMS)
· Increases system reliability
· Safeguards system availability
· Fast information delivery
· Ensures customer satisfaction
· Eliminates processing bottle-necks
· Protects EC System investment
· Reduced IT Administration costs
· Facilitates global deployment
· Compliance Checking
· Content-Based Routing
· External File Lookup and Record Update
· Business Rules-based Processing
· Guarantees transaction integrity (including XML)
· Optimizes business processes
· Reduces transaction cycle-time
· Automates information flow and maximizes system efficiency
· Accesses corporate knowledge base to improve efficiency
· Speeds deployment and reduces implementation cost by easily accommodating your business process
· Automated Notification
· Electronic Reconciliation
· Real-Time Processing
· Messaging Support: FTP, e-mail, EDI, application-to-application
· Proactive knowledge of delivery information
· Expedites problem resolution and maximizes customer satisfaction
· Accelerates real-time web-based commerce
· Speeds deployment and reduces implementation and custom programming costs
· Application Program Interface
· Legacy Conversion Utility
· Proprietary Format Support
· Support for all X12 transaction sets
· Support multiple versions of ANSI X12 transaction sets
· Any-Many Mapping Technology
· Automated Mapping
· Improves technical and process productivity
· Speeds time to market
· Open access to EC data
· Leverages investment and lowers cost of change
· Reduces complexity and need for custom programming
· Expands control to all business transactions
· Speeds implementation time by eliminating custom programming
· Maximize business opportunities
An Implementation Impact Analysis
As mid-sized companies evaluate how best to implement EDI in their organization, analysts say that executives should always consider their long-term goals and the business objective for the connectivity solution. As a rule, companies should first consider the impact that the EDI implementation will have on core competencies rather than worry about which transaction sets should be automated. Companies should understand the business problem they’re trying to solve by asking questions like:
Companies that are truly looking for strategic returns on investment from EDI should also aggressively analyze what new business capabilities are going to be enabled as a result of the implementation. According to Paul Lemme, Senior EC Consultant, Connective Commerce Corporation,:
“Many IT groups fail to remember that a lot of people and many departments in the organization can benefit from having more timely and accurate information at their fingertips. Customers often lose sight of this when they are merely meeting supplier requirements. While an EDI implementation will undoubtedly affect the relationship with suppliers, it will also have an effect with many in the organization, including customer service, accounting and material acquisition,”.
This makes selecting an EDI technology partner extremely important. Analysts recommend that companies consider their prospective vendor’s ability to integrate EDI with existing application infrastructure. They should carefully assess a technology partner’s ability to quickly deal with mapping and connectivity challenges, since this will determine how effectively the EDI initiative can grow as the enterprise infrastructure evolves. This is also critical for establishing digital relationships with as many trading partners as possible as quickly as possible.
There are a number of steps companies can take to successfully implement and manage ongoing EDI initiatives. We sat down with Tony Baran, Chief Executive Officer of EXTOL, who outlined the following guidelines.
…Measuring Progress of Strategic EDI
In terms of tracking performance of an EDI system, one important performance metric revolves around the amount of time it takes to implement an EDI solution. There’s obviously a big difference between technologies that take six months to a year to implement and those that require three to six months.
Also important are the number of people it takes to implement a product and whether outside consultants are required. Questions mid-size enterprises may want to ask include:
Another measure of the success of an EDI implementation is the management of the system after it has been installed. Once it’s up and running, the issue of maintaining the system should be self-sufficient and require minimal staff involvement.
Mid-market companies must, in short, find strategic technology partners who can not only address technical issues associated with translating EDI transaction sets and mapping them to flat files; they must find a committed partner who understands and appreciates the business imperatives of the extended enterprise, and help develop and support a strategy the feeds EDI data into mission critical enterprise applications.
Krispy Kreme Bakes Waste out of Business Process with EDI
Krispy Kreme's committment to high product quality and sound business management has translated into a balance sheet that has rapidly made it a darling of Wall Street. It has been refreshing for investors to see a company post real profits with tangible deliverables. Consequently, the company is seen today as an innovator in a mature and established industry that is not known for innovation.
A case in point: when the industry dismissed the idea of nationally distributed freshness as fanciful thinking, Krispy Kreme stuck with it. The company put in place a production and delivery system that guarantees the freshness of the 3 million baked goods it makes per day (over 1.3 billion a year), at any of its own stores or retail partner outlets throughout the country.
The secret to the company's success has revolved around how it harmonizes the competing interests of product quality and profitability. By delivering only what each outlet can sell within a four-hour shift, and then following up with fresh shipments a few hours later as demand permits, the company has rendered the notion of a stale Krispy Kreme product an oxymoron. That has taken care of product quality.
The quest for profitability has pushed the company to become a very sophisticated supply chain management operation. But as the company’s products exploded onto virtually every regional market in the country, Krispy Kreme executives sought to implement best-in-class e-business strategies to help automate and manage their aggressive national roll-out without sacrificing quality.
Krispy Kreme's freshness imperative produces astronomically high volumes of transaction traffic. The tidal wave of invoices, purchase orders and remittance information that are processed every day—often several times per day—has stressed both the IT and financial management infrastructures of the company. For instance, just one of its major grocery partners, Kroger, generates over 10,000 invoices per week, nationwide.
…EDI in Financial Operations: Reducing Days Sales Outstanding
But when executives decided to develop a next-generation electronic data interchange (EDI) strategy to address the transaction-intensive challenges of its national expansion, Krispy Kreme once again bucked conventional wisdom. Rather than automating the documentation associated with product flow (purchase orders and invoices) which is how the vast majority of companies first jump into EDI, Krispy Kreme pursued a more sophisticated—but more impactful—effort to automate its financial operation.
The effort—and the risk—paid off. Six months after launching its very first full-fledged enterprise-wide EDI initiative by tracking remittance data, the ensuing acceleration of cash flow produced a 100 percent return on investment (ROI)—including all costs associated with the acquisition of iSeries computer platform hardware and software.
Krispy Kreme attributes almost 50 percent of its ROI to time saved in posting of checks and processing remittance information from its banks. Specifically, the company has cut its days sales outstanding (DSO) from between 7 and 8 weeks, down to 2 weeks.
Moreover, the company is taking advantage of new management tools available to the market that allows the finance and accounting staffs to process a greater percentage of its transactions in a completely automated fashion, even as it puts in place technology-enabled processes that let staffers handle transactions which do require human intervention in a more efficient and accurate manner.
"When one check from wholesale customers covers an average of 1,000 invoices, accuracy, accountability, and time spent waiting means a lot," explains Greig Radford, Manager of AS/400 Technology at Krispy Kreme.
The company automated and centralized the accounts receivable (A/R) process using the EXTOL Integrator, an EDI transformation software application product designed for the AS/400 platform by EXTOL International, Inc. The new automated and streamlined process has allowed the company to manage rapidly growing transaction volumes with the same accounting staff.
"Fewer procedures means less errorsand less time wasted. Krispy Kreme has been able to reallocate much of their A/R staff to more profitable activities for the company, and is now able to post money through its banks, and clear transactions from its books more quickly," says Radford.
With a major bottleneck removed through automation enabled by EDI, the company then turned its attention to the challenge of getting its trading partners, some of which are literally "mom and pop shop" retail operations, to do business with Krispy Kreme electronically.
…Reducing Errors/Cutting Time
Prior to the EDI initiative, Krispy Kreme's corporate and retail partner stores kept sales records on uncoordinated PC systems. Weekly sales reports would be printed out and mailed to customers individually. “The process took a long time, left room for lots of mistakes. Tracking and auditing records was complicated and unreliable,” says Radford.
around time at corporate headquarters in
With 205 stores (and climbing) spread through out 30 states, and outside distributors (like supermarkets), Krispy Kreme needed an e-business solution that could trade transactions across a variety platforms.
…The EXTOL Solution
Krispy Kreme needed an EDI solution that could be quickly implemented, and was easy enough for its personnel and trading partners to start taking advantage of right away.
“We selected EXTOL because it was a proven product for the iSeries environment, and it could integrate EDI data with our existing applications, including internally designed systems,” says Radford.
EXTOL’s Integrator accommodates Krispy Kreme’s dial-up connection method, and allows the company to process transactions with all of its vendors, customers, and financial institutions. The installation of EXTOL's Integrator was completed in a matter of days, because the application's user friendly interface didn’t require extraordinary IT staff resources to set-up.
About the Sponsor
About EXTOL International, Inc.
EXTOL International, Inc. has become the market leader in electronic commerce software for the mid-market enterprise by delivering business integration solutions that are rapidly deployable and have a low cost of ongoing ownership. EXTOL has established a reputation as a leading provider of comprehensive B2Bi software applications for the AS400, NT and Unix platforms by delivering e-business software applications featuring superior integration, communications, commerce management, and end user access features.
EXTOL Integrator is a high performance EC system able to execute the critical partnership management, processing, and integration requirements necessary for a competitive advantage in a wide array of industry and business settings including traditional X12 or EDIFACT-based EDI, the new frameworks of the XML initiatives and web transaction management. EXTOL Portal utilizes IP technology to deliver partner connectivity and management at less than half the cost of traditional VANs. EXTOL Secure provides the internet communications supporting most popular security standards, including AS1, AS2, Secure Sockets Layer (SSL) and digital certificates.
With over 600 customers, EXTOL has been named to the Inc. 500 two consecutive years, ranked in the Software 500, and recognized by Deloitte and Touche for three years in a row as a member of the nation’s Fast 500. EXTOL is also an IBM Business Partner. Additional information about the company can be found at www.extol.com.