Introduction
EDI (electronic data interchange) technology has brought significant changes to the way business has been done. High benefits from EDI systems have captivated the attention of industry of various types and sizes and this has indirectly caused widespread usage of EDI systems throughout the world. However, although EDI systems were able to provide huge benefit to the implementing company, industries from the small to medium enterprises (SME) sector have not seen the brighter side of EDI systems. The SME industry perceives EDI as a technology that requires large investment while offering low benefits back to the industry. This factor has contributed to the EDI adoption slump among companies that fall in the SME category. On the other hand, Internet-based EDI technology has been developed to compensate the disadvantages contain in traditional EDI systems. Internet-based EDI systems have the ability to bridge the gap in traditional EDI systems. This has opened up the possibility for companies that fall in the SME category to participate in the EDI race. Competitive advantages in these companies would also be likely to increase due to their embracement of Internet-based EDI technology. However, Internet-based EDI system would also have its own setbacks. For example, Internet-based EDI systems were plagued by security and reliability issues. Further research showed that with the advent of new technology these setbacks have been well compensated. The issue remained on which EDI technology would succeed in the near future. Perception remained optimistic on Internet-based EDI technology while facts and data gathered in this paper have shown that Internet-based EDI would likely be the successor of EDI technology in the future.
EDI technology has inherited the perception as a technology that would offer high benefits to the implementing company. Many companies, particularly large company around the world, have embraced this technology in order to increase competitive advantages, in which have indirectly lead to higher sales and earnings. Benefits gained from implementing EDI technology to a company’s business operations encompass reduce costs, reduce errors, increase efficiency, increase productivity, better customer service, increase timeliness, reduced inventory stock and storage costs, increased quality of information and closer relationships with trading partners. These benefits have contributed to the widespread usage of EDI technology. However, further research in the paper suggested that the widespread usage of EDI technology was only limited to large companies. SME industry, on the other hand, was in a dilemma on whether to adopt EDI technology into their business operations. Internet technology has provided an absolute solution to SME industry’s dilemma. The Internet coupled with EDI technology has opened a new chapter in the business world. The combination of both of this technology has created the well acclaimed Internet-based EDI technology. SME industries were more capable and competitive after adopting Internet-based EDI systems into their business operations. This paper would discuss the true benefits of EDI systems, constraints that have plagued companies from implementing it, the possibility of Internet-based EDI system to bridge the gap caused by traditional EDI system and finally determining the successor of EDI technology in the near future.
However, before proceeding to read this paper, misconceptions on EDI systems need to be clarified to avoid confusion. Many people have associated EDI with Value Added Networks (VANs). VANs EDI systems have been regarded as traditional EDI systems because this system has existed longer than any other present EDI systems. Traditional EDI systems rely on VANs as a secure and reliable transmission medium to facilitate their EDI documents transaction. The cost of usage of this service have been relatively high and further research data suggested that companies have paid a large sum of cash to these VANs services. This sum could reach an estimated value of tens of thousands per month depending on the EDI usage in the respective company. Despite of the high financial requirements for traditional EDI systems, large companies have been able to enjoy high benefits from the system and this factor has subsequently compensated the disadvantages of traditional EDI systems.
Internet-based EDI system has its own distinctive characteristics. An internet-based EDI system usually is browser-based and the Internet would be used as the transmission medium. The most common forms used by Internet-based EDI systems are e-mail or FTP (File Transmission Protocol) and preset forms readily to be filled-in and submitted by an end-user. Many of the benefits attributed with Internet-based EDI system consists of further costs saving, low set up and maintenance costs, high availability, lower complexity of administration and ease of usability. The word ‘Internet’ could not be regarded as an EDI system as the Internet simply refers to a collection of inter-networks around the globe. However, EDI systems that collaborate with the Internet can be regarded as an Internet-based EDI system. The reason behind this is, the Internet simply acts as a transmission medium and does not have the capability to process EDI information, however, information processing have to be done on a specified system, in this case, the EDI system.
In this case study, both traditional EDI and Internet-based EDI systems would be examined. Further research data and finding could be found in this paper.
1. Widespread use of EDI technology because of high benefit
EDI has been touted as the agent of change for many companies around the world. Widespread use of EDI technology has been linked to advances of technology in the information systems sector. In this case, EDI technology was developed primarily to cater an organisation’s needs for an inter-organisational system that has the capability of exchanging and transmitting business documents. The role of EDI in a company has relatively increased as they have found out that EDI has many benefits to offer.
Factors that has influenced EDI adoption around the world has been attributed to the need to reduce costs, reduce errors, increase efficiency, increase productivity, better customer service, increase timeliness, to gain competitive advantage and to comply with the vendor’s request of demand. However, further research shows that in some industries, the primary reason for adopting EDI technology was to comply with the vendor’s request or demand. Taking the Australian automotive industry for example, the primary reason for EDI adoption in this sector was because they were told to adopt by the customer. Although these participating companies have been able to enjoy benefits from EDI technology, however, EDI has been regarded as an unnecessary investment in the company. Reasons behind this was companies found out that their business operation was small and simple thus would not require a complex and costly EDI system to assist them in their business operations.
Another example of a company that has adopted EDI technology based on the customer’s request was the wood product supplier industry. Study have indicated that satisfying a customer’s request remain a predominant reason to adopt EDI in this industry. From the research, it was found out that the wood product supplier industry was closely linked to the Home Center Buyers (HCB). HCB has found out that EDI has the potential to offer many benefits and eventually brings profit the company. Thus this has made HCB to request the wood supplier industry to adopt this technology to facilitate to their respective EDI systems. The primary benefit that has captivated HCB to adopt EDI technology was reduced data errors. HCB perceive reduction of error has indirectly lead to cost reduction in areas where data need not be re-keyed and this would subsequently improve cash flow in the company. The second reason behind HCB adoption of EDI technology was increase in data accuracy. The usage of EDI technology has increased information precision because information system was able to handle information in a more efficient manner. HCB was able to enjoy reduced order cycle time also whereby customers and suppliers were able to place their orders in a faster cycle.
However, looking back into the Australian automotive industry, some company in this sector has actually regard competitive advantage as the primary benefit of EDI technology. The reasons behind this was the automotive industry in Australia were subjected to increase competition from imports while tariffs on imported cars have been gradually reduced making the local automotive industry more competitive as before. EDI technology has been used to help increase the local automotive industry’s competitive advantage by reducing order or delivery cycle time, reduce transaction and operational costs, reduce inventory and the ability of implement Just-In-Time (JIT) method.
Another similar example of a company that has gained competitive advantage was Raleigh. Raleigh was able to compete with companies much larger than itself because they were able and ready to implement EDI for purchase order (PO) transaction set. This has enabled that respective company to offer a different mix of products and services compared to their competitors. As a result, Raleigh won several contracts much larger than their Fortune 500 counterpart.
EDI has also been able to provide cost savings, in this case, in processing a purchase order. Research data from Forrester Research shows that it was estimated that it costs USD50 to process a paper based purchase order. However EDI systems could potentially lower this cost to USD2.50 to process the same purchase order. This has opened up the possibility of providing an alternative and inexpensive solution to companies to potentially lower their operation and transaction costs. For operational costs, companies might not have the need to employ extra workforce primarily to process these purchase order as this could be efficiently handled by EDI systems. As for transaction costs, savings could incur in postage because transaction would be transmitted via the EDI system.
2. Constraints and problems incurred when implementing traditional EDI systems
Although EDI systems were regarded as an agent of change, not all companies were able to participate in the EDI race. Constraints and implementation problems have barred companies from fully implement and utilizing EDI systems. These constraints encompass financial constraints, low firm cooperation to adopt, high level of complexity in implementation and usage, limited benefits gained from EDI systems in daily business operations and low presence of IS/IT expertise in the respective company.
Irrespective of the benefits that large company has gained, small and medium (SME) enterprises have mostly been affected by these barriers. High financial requirements for implementing and using EDI systems have deterred SME enterprises from fully participating via EDI systems. The cost incurred for implementing EDI systems were relatively high as it would costs the company roughly five to twenty thousand US dollars to purchase EDI software. This figure varies depending on the size of the implementation of the EDI software. Transaction fees via the EDI system would cost four US dollars per document, not forgetting a monthly subscription fee of one hundred US dollars for Value Added Networks (VANs) services. Transaction fees for transmitting documents alone have been estimated to amount to tens of thousand per month. These financial constraints would burden the SME industry because it would potentially lower the earning rate of a respective company. This would contribute another factor to SME industry to choose not to participate in EDI systems as the disadvantages have outweighed the benefits of implementing EDI systems.
High complexity in implementation and usage has also been regarded as another barrier in implementing EDI systems. Complexity might be extended to the understanding of the technical aspects of the system, in this case, to the extent of understanding the true mechanics of EDI systems that includes database codes and technical jargons or abbreviations used by the system. Although it might seem feasible to implement this sort of system in highly complex business operations in large companies, SME industries simply do not see the true benefit in the respective system. Most of the SME has a simple yet less complex business operation that does not require highly complex and costly EDI systems to handle. Moreover, some of the SME industry’s business operations were not govern by EDI systems, which meant that EDI systems have no direct impact to their core business operations. However, this would not be true to SME’s large retailer counterpart where their business would fully utilize EDI systems. However, adoption of EDI technology by SME industry would eventually take place because of the mounting pressure from the client, namely, large companies. Unwillingness to embrace this technology by SME enterprises would eventually create a hurdle for smooth usage and transaction via EDI systems.
In addition, implementation of such complex systems would require a considerable amount of expertise. To acquire such expertise to work on EDI systems would require large amount of revenue and investment in the long run. This would indirectly contribute to the disadvantages of using EDI systems in SME industry.
Given the reasons above, complication faced by SME enterprises would eventually cause low firm cooperation to adopt such technology. As have been stated earlier, SME industries simply do not see the benefit behind EDI systems. Moreover, plagued by high financial requirement, SME enterprises would regard EDI systems as high investments with low returns. This would eventually eliminate the good perception of EDI systems in SME’s point of view. Coupled by the fact of low EDI contribution to the company’s business operations, SME industry would not be able to fully agree that EDI systems has more benefits than its disadvantages.
3. Future scenario: Will Internet-based EDI system bridge the gap between large companies with their trading partners?
With the advent of the Internet-based EDI system, SME industry has been given the opportunity to participate in the EDI race together with their much larger counterpart. Internet-based EDI systems have been often been regarded as a solution to the SME industry. Among the benefits offered by Internet-based EDI were low set up and maintenance costs, high availability, lower complexity of administration, ease of usability and further cost reduction for transaction of EDI documents.
Internet-based EDI most prized benefit was the cost reduction factor. This factor could further be divided to smaller cost reduction areas such as transmission costs, set up costs, and maintenance costs. Transmission costs have been relatively high in traditional EDI systems. The costs to subscribe plus the high charging rate for EDI document transaction over the VANs have deterred SME industry from participating. Previously as have been stated earlier, EDI transaction over VANs would costs the company an estimated value of USD2.50 to USD4.00 per transaction, which if accumulated it would costs the company tens of thousands by end of the month. However, the Internet has been able to lower this transmission costs by half to an estimated value between USD0.50 to USD1.25 per document being transacted. This has reduced the amount considerably making Internet-based EDI system an attractive alternative if compared to the traditional EDI system.
Set up and maintenance cost has also been lowered in Internet-based EDI systems. Previously, purchasing a traditional EDI software would costs the company USD5,000 to USD 20,000. However, Internet-based EDI systems would just require the implementing company to pay a minimum amount of USD25 for Internet subscription while the costs of acquiring Internet-based EDI services would amount between USD500 to USD1,000. Using the figures presented above, Internet-based EDI were able to provide a great deal of savings to the implementing company. Maintenance cost, on the other hand, could be waived as the implementing company subscribes to the Internet-based EDI services from a vendor, in which the vendor bares the core hardware and software maintenance costs. Due to the fact that the vendor has the responsibility of maintaining EDI maintenance costs, this would indirectly lower the complexity of administration because the company need not employ highly skilled workers to administer the EDI system. Employing services for an Internet-based EDI service provider would help the company to faster time-to-market in the Internet while extensive customer support and services could be obtained from the service provider.
Another advantage offered by Internet-based EDI was it has high availability. Internet-based EDI services would be available wherever the Internet reaches. Any computer equipped with an Internet connection and has Internet browser capability can be used to access the Internet-based EDI services. Compared to traditional EDI, where its services were limited to the area of implementation, Internet-based EDI offers high availability that might captivate company of various sizes to implement this technology.
By referring to the facts above, usage of the Internet browser to access Internet-based EDI services has promoted ease of usability. EDI users need not know technical terminology while all the knowledge they need was to fill in the EDI transaction forms. With new technology coupled with Human Computer Interaction (HCI) considerations, this task has been gradually improved making it less complex to understand and easy to be utilized.
Conclusion
Based on the findings presented in this paper, perception towards Internet-based EDI remained optimistic. Research and findings suggested that online transaction industry would reach an estimated value of 1 trillion by the year 2003. This would put Internet-based EDI into the limelight as it could be the successor of the future EDI technology. However, before Internet-based EDI systems could be fully utilized, certain issues that have plague its growth needs to be addressed. These issues encompass security and reliability issues. The Internet was considered to be unsafe as it could be accessed by anyone and anywhere. Hackers and crackers have made the Internet as their haven for causing mischievousness with the advantage of low chance of being caught. However, due to the advent of new technology such as Secure Hypertext Transfer Protocol using a Secure Socket Layer, that has employed encryption functions, security in the Internet has increased to an acceptable level. In addition to this, new innovation and security measures being invented, in this case, password and encryption functions have made transaction over the Internet even safer than before. Coming back to the reliability issue, although the Internet has long been an unreliable transmission medium if compared to VANs, however, simple document control measures have been developed to compensate this disadvantage. EDI documents transmitted over the Internet would be ensured that it would properly arrive at the intended location. These measures have brought security to a level where the Internet could even support mission-critical documents.
Internet-based EDI’s future remained bright in this context. A success story of a company that has successfully implemented Internet-based EDI technology into their business operation was Bank of America, American Knitting Mills and A&R; Specialists. Taking Bank of America as an example, the respective company claimed that their Internet-based EDI system has given them the advantage of faster processing and fewer errors, fewer receivable disputes, lower operations costs and greater control over fraud. Disadvantages of Internet-based EDI systems have been compensated through the usage of new technology and thus results obtained from Bank of America have shown that no security violations were encountered, speed and reliability remained high, no transaction were lost and transactions did not take more that two days.
However, traditional EDI would not loose this battle without giving a fight. Traditional EDI service vendors have taken measures to ensure that their services would not be engulfed by Internet-based EDI systems. These steps encompass lowering VANs services rates to stay competitive and duel service options by VANs provider by providing both traditional EDI and Internet-based EDI services. These drastic measures would ensure that traditional EDI would stay competitive for the years to come.
Reports have shown signs of companies migrating from traditional EDI to Internet-based EDI. An example of this phenomenon was Coles Myer Limited (CML). CML have found out that Internet-based EDI was able to offer various benefits to the company. Because of this factor, they have decided to migrate from their existing traditional system to Internet-based system. However, not all of the trading partners of CML were willing to convert their system as it would incur extra costs. As a result, CML would have to implement and maintain both Internet-based and traditional EDI system to satisfy their trading partner’s request. This dual EDI system although would be able to perform various functions and offer various services, however, the implementing company would bear significant burden on maintaining both systems.
As a concluductory statement, Internet-based EDI system would much likely be the successor of the future EDI technology. However, there might be some company unwilling to fully migrate to Internet-based EDI system and as a result, a hybrid or duel system would also be eventually used in the near future. As have been said before, perception towards Internet-based EDI system remains optimistic and this technology would likely create a new horizon at the way business has been done.
