[From iSource Business, April 2001] Before e-commerce was synonymous with the explosion of Internet-based technology, e-commerce meant Electronic Data Interchange (EDI). EDI, which enables corporations to exchange data electronically with their suppliers, is a technology that has been in use for over 20 years, a technology upon which major manufacturers, retailers and others have spent tens of millions of dollars annually.
Now, as a new generation of Internet-based technology emerges, promising to improve the supply chain, many leap to the conclusion that EDI is on its way out. Most likely, this is a premature forecast. Commenting on a February 2000 report from Giga Information Group, Giga analyst Ken Vollmer says, From the look of things, [EDI usage] is not going to slow down anytime soon.
So what is the future of EDI in light of the emergence of new applications that are e-commerce-enabled, such as Supplier Relationship Management (SRM) software? Will SRM replace EDI, or will it help extend EDI's usefulness? To answer these questions, it's necessary to understand where EDI works and where it doesn't.
Talkin' Bout My Integration
EDI has made it possible for corporations to streamline an array of procurement and supply chain processes. But the crux of EDI's major problem lies with the possibilities it created: EDI without integration into business systems is just another, costly tool that runs parallel to the company's existing systems, like fax machines. The consequent imbalance in costs versus benefits is why EDI only extends into 15 to 20 percent of a company's trading partner community. That minimal level of e-communication makes it impossible to achieve the collaborative, streamlined supply chain that today's global marketplace demands.
This gap in e-communications is where the Internet offers a solution. SRM, mentioned earlier, does not directly threaten EDI where EDI is successful; instead, it promises to bring the huge majority of suppliers who have rejected or ignored EDI under the e-communications umbrella.
EDI is a format for data (as is XML), while SRM is a business application. Thus, where EDI physically structures the data, SRM extracts meaning from the data content. Analogous to Customer Relationship Management (CRM) software, SRM is a business application that builds a bridge between a manufacturers' Enterprise Resource Planning (ERP) software (and other business systems) and the supplier. SRM allows the supplier and manufacturer to exchange information about planning, scheduling, shipments and payments with barcode integration over the Internet in real-time. While these are the traditional features and functions of EDI, SRM takes all of this several steps further, providing management and analytical tools and links to CAD/CAM drawings for collaboration on design.
If this were all SRM had to offer, that would be a lot, since it would enable manufacturers and suppliers, no matter their size, to collaborate across the supply chain and participate in strategic flow and lean manufacturing initiatives. SRM's value to the manufacturer is only half the story, however. Where EDI fails, it fails for two reasons: (1) It's cost prohibitive and too complex for many small- and medium-size suppliers to implement and maintain, and (2) it offers few bottom-line benefits to most suppliers. So, most suppliers can't or won't adopt EDI, and they continue to use more labor-intensive, manual processes.
SRM addresses both issues. With an SRM solution, the expense of the software is generally borne entirely by the manufacturer. Suppliers need only a PC and Internet browser to use the system so their costs are minimal. At the same time, SRM enables suppliers to manage their business better. As a result, suppliers who couldn't afford EDI, or who complied only reluctantly, eagerly embrace SRM.