From the number of applications available that are touted as the solution to all the world`s supply chain woes, one would think integrating systems and data from different companies partnering in the production and sales of goods would be child`s play. Of course, it is not.
"Even for companies using the same business applications, the process of managing their supply chain is a difficult task requiring time, effort and some magic," says Julian Field, MD of CenterField Software. "When it comes to the financial aspect of the supply chain, things only become more complicated."
Electronic data interchange (EDI), a mechanism to facilitate the reliable and secure transfer of data between companies, has been around for 20 years and is a key element of all e-procurement and supply chain solutions.
According to IDC, EDI growth in Europe will continue at more than 15% a year over the next few years, reaching lb809.9 billion in 2006. The analyst firm adds that the total value of goods bought through EDI commerce in Europe in 2002 amounted to lb712 billion.
Traditionally, EDI data was transmitted using an X25 network to exchange data directly between trading partners. The advantage was there was no delay, which is important in just-in-time (JIT) manufacturing and procurement. A second technique has been to use a VAN (value-added network) as an intermediary.
Unfortunately, EDI, no matter which option is chosen, is an exclusive club only available to larger companies able to afford the high costs of the technology.
"EDI costs are so high that independent companies have been formed with the sole purpose of providing EDI solutions," explains Field. "A good, profitable business if you have clients with money, but a rather elusive deal for smaller companies not rolling in cash or willing to join an e-business community."
Of course, there have been numerous ideas devised to make EDI work in as many situations as possible, but the snag has always been costs. The mass adoption of the Internet has presented a new cost-effective option for EDI, but it has also presented new problems, such as the lack of security and vendors` inability to guarantee unaltered delivery of data.
This is no excuse, however, especially for smaller companies dealing with industry leaders. Field says many larger companies are insisting on having all their procurement partners interact electronically with them. The message from the top is: "Ensure your business systems can handle standard electronic transactions if you plan on doing business with us in the future.
"What`s needed is an EDI-enabler that does not take a physics doctorate to implement and that small organisations can afford," adds Field.
IDC says traditional EDI will remain a steady driver of EDI commerce value.
"Adjacent to this development, the traditional EDI trading backbone is functioning as a fundamental access point for healthy growth in commerce value based on Internet EDI," says Rogier Mol, research analyst for IDC`s European B2B strategies service. "Far from succumbing to the slow death many predicted, EDI in conjunction with e-commerce and emerging technologies is still in the process of changing the speed and cost of doing business."
An affordable EDI solution for smaller businesses will be able to take different systems into account and act as a translation interface. In other words, it can take financial data from one system and deliver it to another in a format the second can understand. The second will return a receipt message, which will be translated back into a format the original can understand. Both systems will have their financials updated immediately without any human interaction - the ultimate goal behind supply chain optimisation is to get the wheels of commerce rolling without involving people.
"This process is not too complicated for two systems, but when it comes to multiple systems, the EDI enabler must be able to handle translations quickly, accurately and seamlessly," Field states. "It must also be completely configurable, allowing the transmission of messages by both old and new protocols, but with an emphasis on open standards to avoid the problems of legacy EDI solutions that rely on proprietary communications methodologies."
Solutions that deliver secure EDI solutions at less than half the price of legacy technology do exist. However, Field warns there are also many would-be solutions with limited scope. "The trick is finding the one with a history of success and clients able to vouch for its effectiveness."
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