K'NEX Connects with Trading Partners to Take Cost out of the Retail Supply Chain

March 5, 2009 — U.S. toy manufacturer K'NEX used an EDI value-added network (VAN) to communicate with most of its suppliers during its first 10 years in business. It wasn't until one of its highest volume retail customers, Wal-Mart, implemented an AS2 software hub at its data center in 2003 that the fast-growing construction toy company began evaluating the new secure communication protocol. Wal-Mart encouraged all of its suppliers to implement their own AS2 software "spokes" to conduct business transactions with it directly over the Internet. Wal-Mart had selected nuBridges (formerly iSoft) as its AS2 software provider.

Founded in 1992, K'NEX Brands makes one of the world's leading integrated construction systems for children. K'NEX is also the exclusive distributor of BRIO trains and toys in North America, and designs and manufactures Lincoln Logs sets under license from Hasbro. The privately held Hatfield, Pa.-based company also designs and manufactures products developed for use in schools under the K'NEX Education brand. Winner of over 200 international awards, K'NEX toys are sold in over 20 countries through major retailers, online stores and independently owned toy stores. Its largest trading partners include Target, Toys "R" Us and Wal-Mart.

Interoperability a Top Priority

Tasked with looking into AS2 solutions to comply with Wal-Mart's wishes, Tony Kratowicz, K'NEX's chief information officer, decided to evaluate products based on the findings of The Drummond Group, a B2B software certification firm that certifies interoperability between software products. Interoperability was important for Kratowicz because there would be two independent data centers, Wal-Mart and K'NEX, connecting to each other, and Kratowicz wanted to make sure that the AS2 software they selected would interoperate seamlessly with Wal-Mart's solution.

According to Gary Palgon, nuBridges' vice president of product management, Kratowicz' strategy is a sound one. "There are a host of AS2 solutions to choose from, and narrowing the choices to those that have demonstrated the highest degree of interoperability with other AS2 solutions is a great first step that minimizes the chance of communication difficulties with partners," said Palgon. "Drummond requires vendors to test their AS2 solutions against competitors rather than simply using a generic test case suite."

After evaluating several Drummond-certified AS2 solutions, Kratowicz selected nuBridges Exchange based on its flexibility, ease of use and price. "We found that the feature sets of the major AS2 providers are similar, but what it came down to for us was how easy it was to install and configure nuBridges Exchange," said Kratowicz.

Palgon explained that all AS2 software performs the same basic function: providing a secure and reliable way for suppliers and trading partners to conduct business over the Internet. However they differ in small but important ways. "Solutions vary on how easy they are to install and how easy it is to set up new trading partners as well as the degree of visibility they provide into your business transactions," he said. "Features and functions vary on the ease of generating reports, whether they issue real-time alerts and notifications, and on the level of monitoring provided."

"Huge Cost Savings"

Initially adopting the software to communicate with Wal-Mart U.S. and Wal-Mart Canada, K'NEX quickly appreciated the benefits of using AS2. "As soon as we set up nuBridges Exchange to communicate with Wal-Mart, we realized a huge cost savings," said Kratowicz. "With AS2, the costs are fixed once you're set up, and it's a highly secure point-to-point communication. It reduces the cost of communicating with our trading partners significantly and makes it much easier to budget, because AS2 eliminates the variable per character transmission fees charged by VAN providers."

Quickly sold on the technology, the company decided to establish its own hub, converting its other trading partners to AS2, starting with its largest volume partners, including Target and Toys "R" Us. "It is very easy to add other AS2-capable retailers with nuBridges Exchange," said Kratowicz. "We simply exchange private encryption/decryption keys with each partner by e-mail and enter the keys into nuBridges Exchange. Just as important, because nuBridges Exchange complies with the Drummond Group's requirements for interoperability with other AS2 applications, compatibility has never been an issue when we add new trading partners."

Moving its retail trading partners to AS2 has become a frequent event. Taking advantage of nuBridges Exchange's scalability, K'NEX upgraded its original five-user license to 10-user license, then to an unlimited license last year, and is adding new partners on a regular basis.

It wasn't long before nuBridges Exchange became K'NEX's de facto communication standard for external EDI data exchange, which includes orders, order acknowledgements, order changes, advance ship notices, invoices, payment remittances and point-of-sale transactions. Today, the company communicates with 80 percent of its retail partners using nuBridges Exchange, while a small percentage continues to order through a VAN or through reps, and several of the company's smallest customers still fax orders.

"K'NEX's situation is fairly common," said Palgon. "In most supply chains, the 80/20 rule applies. In general, 20 percent of trading partners generate 80 percent of a company's revenue. Under a hybrid strategy, this supplier would manage its high volume business partners using direct AS2 connections and conduct business with its smaller partners using third-party VAN providers or other methods."

Palgon noted that many companies along the supply chain — both suppliers and retailers — have replaced their insecure FTP connections with AS2 because it is an inherently secure protocol. "Those using an EDI VAN — few of which are secure — are moving to AS2 for both cost and security reasons. For those companies that have adopted the hybrid approach, we recommend choosing a secure EDI VAN provider that provides the same data transfer protection for business transactions that AS2 provides."

ERP Integration

K'NEX runs nuBridges Exchange on a Windows Server with a dedicated Internet connection. The cost to implement AS2 for K'NEX was the cost of the server hardware, the license fees for typical Windows Server software and nuBridges Exchange, and the ongoing costs of the Internet connection and annual software maintenance fees.

"With AS2, our costs are upfront and fixed," said Kratowicz. "When we compared that to the previous per character charges of using a VAN, we found that our costs with AS2 are a fraction of what our per-character costs were."

Kratowicz found that nuBridges Exchange integrated effortlessly with K'NEX's enterprise resource planning (ERP) system to automate the order process. "Because AS2 communicates much like a VAN or FTP communication, it was very easy to receive the data coming through nuBridges Exchange in a format compatible with our ERP system," he said. "It runs 24/7 and requires no manual interaction."

Kratowicz occasionally calls nuBridges technical support when tasked with accommodating a special configuration or requirement to add a new trading partner. "A nuBridges customer support technician has answered the phone every time I've called and, without exception, they've answered my questions on the first call," said Kratowicz.

"To say the cost savings of using nuBridges Exchange is 'much lower' than using other VAN vendors to communicate with our trading partners doesn't sum it up," said Kratowicz. "Our costs to drive our business through a VAN were quite high, and with each retailer who adopts AS2, we're seeing a corresponding decrease in EDI operating costs. To put it into perspective, we recently converted a trading partner a few months ago where our share of the charges for data transmission with that one customer over a VAN for a single month was more than the cost of the license fee for nuBridges Exchange."

For many trading partners, AS2 software presents an opportunity to benefit from EDI without relying on a third party to handle communication between business partners and incurring transaction-based VAN fees.

"The way we do business, using nuBridges Exchange for AS2 communications is a big, big cost savings," said Kratowicz. "There are no technical problems. There are no supplier issues. At the end of the day, nuBridges Exchange does exactly what it's supposed to do."

SIDEBAR

Best Practices for Selecting an AS2 Solution





1) Interoperability www.drummondgroup.com

2) Suitability

3) Vendor Support

4) Breadth of Offering

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