Business-to-Business E-Commerce
Ken Jeanos, director of inside sales and operations with Panasonic Industrial, once believed the Internet would make his company more efficient. The company, a multibillion-dollar division of Matsushita Electric Industrial, distributes electronic components, storage devices and semiconductors, among other products, to original equipment manufacturers and electromechanical subcontractors. Panasonic Industrial had used electronic data interchange—a standard means of exchanging purchasing information—for more than 15 years, and it worked well for the company. Nevertheless, the Internet promised to streamline some business processes that weren’t EDI-enabled and to generally help the company meet customer needs more quickly, at a lower cost.
However, just as Jeanos’ expectations for the Internet were rising, a handful of Panasonic’s customers asked him to stop using EDI altogether and to use their extranets exclusively to exchange purchase orders, invoices and forecasts. Jeanos understood why. According to industry analysts and CIOs, shifting to extranets can allow a company to shut off its EDI networks, and save as much as several hundred thousand dollars a year on fees for value-added networks (VANs), the private network providers that lease communication lines for EDI, map data between trading partners and test systems.
But the move to extranets from EDI is not nearly as advantageous for Panasonic Industrial. In fact, extranets are eroding efficiencies Panasonic gained from EDI, because extranets create more manual work for Panasonic employees. "I have people spending all day on one customer, going to their website to confirm purchase orders and post advanced shipment notifications and invoices," Jeanos says, adding that if Panasonic’s customers continue to force him to use extranets, he will have to increase his headcount up to 10 percent in the area of customer service.
For example, if a customer requests a forecast from Panasonic, one of Jeanos’ demand planners has to go to the customer’s extranet to find the information the customer wants in the forecast. The demand planner then has to type that information into Panasonic’s ERP system. Once the ERP system creates the forecast, the demand planner has to manually enter the forecast into the customer’s extranet. With EDI, that entire process had been automated. Jeanos says integrating Panasonic’s ERP system with each of its customers’ extranets isn’t an option either, due to the expense. Even if integration were financially feasible, some of Panasonic’s customers wouldn’t allow it because of security concerns.
Like Panasonic Industrial, many manufacturing suppliers feel increasing pressure to abandon EDI, and they’re experiencing plenty of pain as a result. The trend has affected the electronics and high-tech industries most acutely, although it has emerged in other industries as well. According to David Sommer, vice president of e-commerce with CompTIA, an electronics industry association, OEMs want to ditch the mixed transaction environments in which they currently operate (where they use some combination of EDI or B2B portals and multiple data formats, including XML and Excel files) and to standardize on one electronic transaction method to save money. Portals have become their system of choice because they are Web-based, and therefore the OEMs think they can cajole all their trading partners into using them. Portals also give OEMs "a cheap way to collect data," according to Sommer, because the portal puts the onus for data entry on suppliers. A CompTIA survey on B2B e-commerce last fall found portals are becoming more widely used: 31 percent of respondents said they had done more trading using portals in the previous year than ever before.
Although standardizing on one trading platform sounds sensible in theory (who wouldn’t want to reduce their costs and their technical complexity?), the idea that buyers could force their trading partners to dump EDI strikes some CIOs and e-commerce experts as preposterous. Abandoning EDI "is a giant step backwards," says Ranga Jayaraman, CIO of Hitachi Global Storage Technologies, a $4.2 billion disk driver maker. "It doesn’t make sense," says Steve Phillips, CIO of Avent, an $11.1 billion electronics manufacturer and distributor. "If you already have EDI set up, the cost of switching is prohibitive."
Not only that, but it could be bad for business. Forcing suppliers to the Web could cost buyers in the long run, as suppliers pass their increased costs back up the supply chain, according to Bill Swanton, vice president of research with AMR Research. Furthermore, one platform can’t realistically support every trading partner and every business process. "We usually give our clients a shortlist of five different solutions for getting their trading partners onboard electronically, including a portal, file transfer, XML, EDI and Web services," says Benoit Lheureux, a research director in Gartner’s architecture and infrastructure group. "That way, they cover their bases and will be a good company to do business with because they’re not being myopic."
In other words, for the foreseeable future, most companies will have to operate a hybrid trading environment and make the best of it. For OEMs, this means resisting the urge to drop EDI because it’s so entrenched in the supply chain. For suppliers, it means compromising with customers, perhaps by using third-party B2B integration providers to send and receive information. For both, it means the challenge of finding other ways to control costs by building a system for converting data from one format to another or by outsourcing this work to someone else.
