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EDI, E-COMMERCE AND THE INTERNET ... WHERE BUSINESSES DO BUSINESS

Written by: Andy Marken

Article Overview: Don't simply jump into Internet business without knowing the strengths and pitfalls. Learn the ins and outs...then attack!

EDI, E-COMMERCE AND THE INTERNET ... WHERE BUSINESSES DO BUSINESS

For more than 20 years, electronic data interchange (EDI), the platform for true electronic commerce, languished. Because it was expensive, difficult to work with and usually proprietary, only a few government agencies and very large companies ever implemented EDI. In fact, according to market analysts at Stamford, Conn-based Gartner Group, less than one percent of U.S. businesses ever deployed EDI.

Everyone agreed on EDI's fundamental concept: a set of computerized forms that automate common business transactions such as purchase orders, invoices, shipping notices and requests for proposals. The objective was that a set number of vendors, distributors and suppliers that frequently do business together could save time and money by using EDI to reduce paper transactions.

The problem was that in order to use EDI, organizations had to buy special software that would translate business data to and from the EDI format and integrate it into their existing business applications. In addition to revising all of their forms, information and business processing companies had to work with value-added network (VAN) providers who charged monthly and per-transaction fees. Firms with several trading partners operating on different VANs usually needed different software, network connections and processes.

The solution, while noble, simply wasn't worth the trouble.

Internet EDI Emerges
About 10 years ago, the global information interchange infrastructure began to take form. The Internet, with its low-cost entry and ease of use, quickly changed how information was exchanged and removed the distance barriers for business partners.

The Internet not only provided businesses of all sizes with a level playing field in every corner of the world, it slashed transaction processing time by as much as a factor of ten and simplified the trading process.

Initially, however, despite all of the time and dollar savings that Internet EDI offered, firms were reluctant to embrace it because of issues such as transaction security and the very reliability of the Internet. Even today, it is estimated that less than 200 U.S. firms have fully embraced Internet EDI, but acceptance is growing. And no wonder, organizations can conduct business worldwide, around-the-clock for the price of a local phone call. According to Northern Business Information, a NYC-based research firm, implementation will increase more than 25 percent per year over the next three years, and service sales will top $15 billion by the year 2003.

The reason is simple--doing business on the Internet provides so many cost and time-saving advantages that it won't be long until it's a necessity for companies that want to be globally competitive.

Easy, Reliable, Economical
Forums of network designers, operators, vendors and researchers are moving aggressively to make Internet EDI easy-to-implement, reliable and economical. For example, the Internet Engineering Task Force (IETF), based in Reston, VA, is coordinating the development of common elements of Internet EDI. A consortium led by IBM, Sprint, MasterCard International and Visa International has published specifications for the Secure Electronic Transaction (SET) standard, a method to secure bankcard transactions on the Internet. Other cross-industry standards groups are also developing guidelines for the many interoperability issues associated with Internet document transport.

Meanwhile, companies of all sizes are using existing Internet capabilities to expand their marketing and sales efforts while laying the groundwork for moving sales on-line. Because Web EDI requires a secure Web site to translate documents between HTML and EDI formats, the sites are usually located outside the individual company's own network at a highly-reliable Web hosting facility. The servers used by these facilities incorporate Net e-mail, encryption and digital signatures to make it easy for a firm to work interactively with a large number of constantly changing vendors, distributors, channel partners and customers.

Outsourcing the Web site hosting not only reduces the organization's round-the-clock operations and maintenance costs, it protects the firm's mission-critical databases from improper access or corruption.

The most reliable Web service providers monitor the Internet connectivity and server activity continuously to identify and resolve potential problems before they impact their customers'
sites. For example, tier 1 providers monitor server farms activity around-the-clock, around-the-calendar; and traffic statistics are automatically updated every five minutes so that potential Web-related hardware, software and connectivity problems are identified before they occur.

Direct Connection
For performance and security reasons, it's important to have the site hosted by a provider that has fully redundant Web farms that are directly connected to the Internet. Direct connection not only ensures faster access, it reduces the potential points of penetration. Depending upon the software used, organizations can easily access the Web site that is attached directly to the Internet backbone to retrieve EDI documents. Increasingly, these documents are translated into HTML format, or the user can access forms that can be translated into standard EDI.

For partner-to-partner communications, the most reliable means of sending information between different organizations and different computer systems is the use of TCP/IP (Transmission Control Protocol/Internet Protocol) the protocol upon which the Internet is based. With the ubiquitous connectivity of the Internet, even small firms with a PC and Web browser can access the Web site, fill out purchase order information, provide verification of credentials, complete secure transactions and receive confirmation from trading partners--all within minutes. The secure transaction servers encrypt and authenticate transactions and messages sent over the Internet.

Increased Productivity, Profits
Web EDI is also being used to speed communications with distributors and resellers. Resellers can use the site to determine product availability as well as the inventory on hand at the nearest distributor's location, before placing an order. If the distributor is temporarily out-of-stock, the order can be passed directly to the manufacturer with the distributor receiving credit for the sale. When products are drop-shipped to the reseller and the distributor, an automatic request for their stocking requirements can be generated. Orders are encrypted for Internet transmission and then converted to EDI format for internal processing.

Because of the global nature of business today, e-commerce is now conducted with a mixture of organizations that many firms didn't view as trading partners just a few years ago. The new
relationship has coined a new word in the business world, "coopetition," which reflects that firms are both competing and cooperating with other firms. In fact, according to a recent study by Newton, MA-based Cahners Research, 40 percent of the transactions being conducted are with competitors.

With Web-based EDI and e-commerce capabilities, these business partners are able to economically process purchase orders electronically, saving an estimated 80 percent over manual processes. In addition, they can invoice, transfer funds and gather valuable sales/usage data to improve their marketing efforts and customer relationships.

On-line Consumer Shopping
While most agree that business-to-business commerce over the Internet will produce the greatest return-on-investment for firms in terms of productivity, cost savings and faster, more accurate response to an enterprise's constantly changing needs; most of the excitement surrounding electronic commerce is directed at consumer sales.

An increasing number of multi-national organizations are posting catalogs on secure Web servers or placing their consumer goods on Internet mall servers. Prospective customers can access the Web site from anywhere in the world, peruse the current product and service offerings at their leisure, and initiate their purchase requests. HTML requests are received by a financial institution, verified, translated into EDI format and automatically debited and credited to the appropriate accounts. All of this is carried out quickly, in a secure environment with minimum transaction charges.

Virtual Organizations
As organizations and individuals become more comfortable with Web EDI and e-commerce, many industry analysts envision a dramatic change in the corporate structure toward more virtual corporations. Information will be more widely distributed to partners and suppliers through the company's Web site so that existing business processes can be optimized. With improved registration and authentication procedures in place, organizations and individuals will be able to receive customized information based on their profile.

As Web EDI gains wider acceptance for fast, secure transactions and reliable service, we may soon see entire industries transformed as extended enterprises emerge. Many companies have already gone beyond simply publishing marketing and sales information on their Web site and have re-engineered their business processes so they can be tightly integrated into an on-line solution. The next step, which is already underway, is one-to-one marketing where information is tailored to company and individual profiles.

Web EDI has already begun to reduce trading partner costs and expand the global reach of companies of all sizes. By almost every measure available, Web EDI has gone beyond being just "acceptable" to safe and reliable. As the opportunities and potential for Internet EDI and e-commerce continue to expand, the companies that don't equip their sites with EDI capabilities will be like the companies that don't have a Web site today ... they will be conspicuous by their absence.
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