When large companies want to do business with small suppliers using electronic data interchange, sometimes they have to find a bridge to cross the communications gap.
This is a tale of two very different companies one quite large and one, well, not so large and how they traversed the electronic divide that frequently separates big businesses from small suppliers. All they needed was a little help in bridging the communications gap.
Big Business, Big EDI Challenge
St. Petersburg, Fla.-based Home Shopping Network (HSN) is certainly large by most of the measures that count: close to $2 billion in sales for 2002, a customer base of 5 million and a customer relations staff that processes more than 70 million calls a year. In short, big business.
Like many large companies, HSN has a supply base that includes a variety of smaller enterprises. In fact, because the company is continuously seeking out new and innovative products to put through its television and online channels, HSN faces the ongoing challenge of bringing small, often young suppliers into its network. "There's quite a substantial turnover in vendors," affirms Tim Weber, director of e-business for the Home Shopping Network, "so it's a weekly effort to bring on new vendors to HSN."
The challenge of integrating a new supplier is compounded when HSN elects to work with the vendor under a drop-ship model, whereby instead of stocking a manufacturer's products in its own warehouse facilities and handling fulfillment on its own, the shopping network takes customers' orders but has the manufacturer or distributor send out the product directly to consumers. HSN uses this model when the products involved are, for example, perishable or very large or stock-keeping unit (SKU) intensive. Whatever the product, the drop-ship model requires a high degree of communication with the suppliers, including sending the orders to the vendor, receiving a confirmation of shipment back from the supplier and also receiving notification of any returns sent back to the supplier.
Weber says that HSN decided early on that, in the interests of efficiency, it would handle all transactions with its drop-ship supply base via EDI. Trouble was, linking electronically with each new supplier using EDI required a weeks-long process of establishing and testing electronic connections, far too long a lead time for a company that differentiates itself by being first to market with new-fangled merchandise. "When new products come along, we have to be able to bring them to market very quickly, sometimes with only a couple weeks notice," says Weber. "We found that with the speed with which we need to bring these products to market, in a lot of cases, if the vendor wasn't already EDI capable, it was just too long of a process to get them up and tested on EDI."
The Little Guy's Perspective
On the other side of the big/not-so-big spectrum is David's Cookies, based in Fairfield, N.J., about 15 miles west of New York City. David's Cookies is typical of the kinds of smaller enterprises that HSN is looking to tap. The company, which employs about 100 people, is a purveyor of cookies, brownies, crumb cake and ruggalach, among other gourmet specialties. David's is growing, to be sure, but it is still a relatively small enterprise. In fact, until about three years ago, the company operated solely through a "business-to-business" line, selling preformed frozen cookie dough to food services that resold the dough to restaurants and cafeterias. David's began venturing into retail only when it created its DavidsCookies.com Web site a few years back to sell ready-baked and packaged goods directly to consumers.
When the Home Shopping Network approached David's about two-and-a-half years ago to begin selling the cookiemaker's goods through HSN's online site and television programs, the smaller company still did not have EDI capability, and implementing a full-blown EDI connection with HSN would have been cost prohibitive for the baker, according to Oliver Tress, who heads up the retail sales operation at David's Cookies.
But that was only half the challenge for David's Cookies because, while the company had sufficient employees to handle order entry and processing for the couple dozen orders that would be coming in daily via the HSN.com Web site, the baker did not have the staff that would have been necessary to handle the thousands of orders that could be expected to roll in on days when HSN featured the cookies on one of its television shows. "There's no way that we could manually type out thousands of orders," says Tress. "It had to be an automated process."
Have Your Cookies and Eat Them, Too
By this time, however, HSN had found a way to have its cookies and eat them too, so to speak, by linking with its non-EDI-capable suppliers through third-party EDI service providers. The providers could receive electronic data interchange messages from the shopping network and provide the information therein to the suppliers in whatever format worked for the smaller companies, and vice versa, taking communications from the suppliers and translating them into EDI for transmission back to HSN.
The advantages of such services for a company such as HSN include not only extending the efficiencies that come with EDI to a larger portion or all, in HSN's case of the company's supply base, but also reducing the time and effort necessary to connect to a large number of suppliers. That gives HSN the flexibility to maintain the natural turnover in its supply base necessary to continuously bring new products to market while allowing the company to maintain only a small information technology (IT) staff devoted to EDI-related work three people, in all. Similarly, for the smaller company involved, the advantages include the ability to do business with much bigger partners while also avoiding the need for a large IT staff, not to mention the cost of setting up individual EDI connections with different customers.
Various such services exist, and HSN has established links with several of them, including providers that could perform fulfillment for the supplier in addition to acting as an EDI intermediary. When HSN needs to on-board a new supplier that is not EDI-ready, the shopping network points the other company in the direction of several of the services and lets the supplier decide what provider offers the model that best meets the supplier's own needs. In the case of David's Cookies, the baker elected to go with a New York City-based third-party service provider called Mercury Commerce, which offers a service called VendorBridge.
VendorBridge worked best for David's Cookies for a few reasons, according to Tress. First, the cookie company had its own fulfillment capabilities, so it did not require the more expansive services offered by some of the other third-party providers. Second, David's Cookies used UPS for all its shipping, and Mercury Commerce was able to provide shipping information to David's in a file that could be imported directly into a UPS application so that the cookie company's staff did not have to rekey the data. And finally, Mercury Commerce's solution is entirely Web-based, with no software to install at David's Cookies (or at HSN, for that matter) and no upfront cost to the cookie company for the initial set-up.
Tress works with a staff of two others at the cookie company, and his team is able to go online to the VendorBridge Web site once daily to pull down all the orders that have come in that day to HSN for David's. The staff then prints out the orders for packing slips, loads the data into the UPS system and prints the UPS labels. Tress' team passes the orders off to a pair of employees in fulfillment on those days when the orders only number in the dozens. When HSN features David's Cookies on one of its television shows, typically generating thousands of orders, the company ships the orders off a production line in the back of the business.
When the orders go out the door, David's Cookies sends a confirmation of shipping, along with tracking numbers, back through VendorBridge to HSN, which receives the message as an EDI shipping confirmation. That confirmation also triggers the payment process at HSN. Should any product be returned to David's, the cookie company notifies HSN through VendorBridge as well.
Baking EDI into the Cookies
VendorBridge is ostensibly free for HSN, but David's Cookies pays a per-transaction fee to Mercury Commerce that naturally gets baked, as it were, into the cost of the company's products. While none of the parties involved volunteered to disclose the per-transaction cost, Tress does note that Mercury has lowered the fee twice as the cookie company's transaction volume has increased. And he emphasizes that David's Cookies still feels the additional cost is justified, even though the company more recently has set up its own EDI system to trade information with some of its retail store customers, such as Macy's and Linens 'n Things. "It does make a difference to the price," Tress says, "but it's still worth it for us to use them versus using our own at the moment."
Indeed, Tress admits that without a third-party EDI service, David's Cookies simply would not have been able to handle the large volume of orders that a company like HSN can generate. "It would have been impossible," he says. "It's not a luxury. We would not have been able to meet [HSN's] requirements without assistance."
For HSN, the VendorBridge connection has proved fruitful as well. HSN's Weber points to the reduction in time and effort required to start trading with new partners. How significant a reduction? "It really depends on the capabilities of the vendor," he says. "But let's say that generally the people with which we use VendorBridge would not be EDI capable, so in order for them to become EDI compliant and get tested and ready to go, it would take no less than six weeks. With VendorBridge, again, depending on the vendor's capabilities, they could be up and running within a week."
The shopping network currently uses Mercury Commerce to connect to about 100 different companies, or about one-third of the total number of suppliers with which HSN has drop-ship relationships. (Drop-ship accounts for about 12 percent of the company's total units shipped.) Most, though not all, of the companies with which HSN connects through VendorBridge are smaller companies, typically without their own IT shops.
HSN does not mandate that any of its suppliers go with any particular third-party EDI service provider. Asked what distinguishes VendorBridge from the other EDI services, Weber says that Mercury Commerce has differentiated itself by providing a variety of useful services. "For example, we have a requirement that the vendors are to ship within X number of days of receipt of the orders," Weber explains. "Mercury will send out notices to the vendors saying: 'These orders are open. I haven't received a confirmation of shipment from you. You're going to be out of compliance if you don't respond.' That in itself was a big improvement in the process."
Finding the Right Cookie Mix
Both Weber and Tress agree that using a third-party EDI service provider has been largely without challenges, technical or otherwise, to the extent that, in separate interviews, both described the connection process as "straightforward." Good thing, too, since David's Cookies believes that this retail side of its business will be expanding the company already has signed on to sell product through Macy's Web site, also using VendorBridge, and it has signed up with Amazon.com, which will require using Amazon's own site to pull down order information.
Tress acknowledges that as David's Cookies network of distribution channels continues to expand, it could be a challenge to meet a host of different connection requirements imposed by different customers, although as of yet that is not a problem that keeps Tress up at night. "Yes, it's going to be difficult to have to log into 50 different sites every day to pick up orders," he says, "but at the moment it's not something I'm worried about."
For HSN's part, Weber says the company sees drop-ship continuing to be an important component of the company's overall fulfillment process, but not necessarily a growing component. "We're really at a good mix of drop-ship versus HSN fulfillment," he says, adding, "There's a certain percentage that you want to maintain so as not to cannibalize on the capacity of the warehouses, so we really are at the level at which we would like to be."
