EDI at the crossroads

Traditional VAN vendors are shifting to Internet-based trading exchanges

By -- Industrial Distribution, 5/1/2000

While the meteoric rise in the NASDAQ stock averages bears mute testimony to the exalted status of technology in the United States, unfortunately all technology is not created equal.

One area of electronic technology whose success has historically been less than stellar is Electronic Data Interchange. Although EDI has been on the scene since the mid-1960s, it has never managed to totally capture the hearts and minds of industrial distributors.

The strongest incentive to adopt EDI occurred in the 1970s when the Big Three auto companies began to require their suppliers to be EDI capable.

By 1984, the governing boards of the National Industrial Distributors Assn. and the Southern Industrial Distributors Assn. (the two groups that merged to form the Industrial Distribution Assn.) together with the American Supply and Machinery Manufacturers' Assn. officially endorsed Redinet, a joint venture of Control Data Corp. and AT & T, to provide distributors with EDI network access.

But for most distributors, EDI represented an almost textbook example of a "push-through" technology. If customers demanded it, distributors reluctantly complied. Left to their own devices, many were not convinced of EDI's benefits, particularly when its implementation came with a price tag that some considered excessive.

However, with the advent of the Internet and its inexpensive and global access, the Value-Added Network that has been the backbone of traditional EDI is rapidly turning into an expensive anachronism.

Even venerable GE Information Services, once a leading VAN vendor, announced in February that it will restructure its organization to create two entities: GE Systems Services and GE Global Exchange Services.

The former will focus on back-end software and services to migrate GE's current customer base from proprietary networks to open systems. And the latter unit will implement e-commerce systems, including Internet-based trading exchanges.

Harvey Seegers, president and CEO of GE Global Exchange Services notes that: "The Internet is key to enabling millions of small and medium-sized businesses currently without e-commerce capabilities to join the global trading community."

In fact, virtually all VANs now see their best chance for survival in the new century being the migration of their EDI customers to an Internet-based system.

Brad Sharp, president and COO of Sterling Commerce-formerly Sterling Software, another veteran VAN provider-is quoted as saying: "For us, our EDI applications are mostly historical and most of our offerings are now Web-based." Sharp's remark is particularly significant because in 1991 Sterling acquired Redinet.

In 1981, the Big Three formed the Automotive Industry Action Group to create uniform EDI protocols from the welter of proprietary and incompatible EDI standards. And suddenly "it's deja vu all over again" in the auto industry, but this time the subject is the Internet.

Late last February, General Motors, Ford Motor Co., and DaimlerChrysler agreed to create an Internet exchange that will be open to other auto companies in addition to the three founders and their suppliers. Vendors will also be able to use the new exchange to sell goods and communicate with each other.

But you don't need a VAN, a LAN or a WAN to send your comments to Doug Harper at: harper.d@att.net.