A Case Study of Internet EDI in the Retailing Supply Chain

For many large retail companies with many suppliers, the utopian vision of total paperless trading offered by traditional Electronic Data Interchange (EDI), with its attendant efficiencies, has not been realized. Many small, but operationally important suppliers, lack enthusiasm for traditional EDI because it is expensive, complicated and they stand to gain little from it. This non-compliance prevents the large organization from realizing some of the most significant tactical benefits of EDI such as advanced supply chain reforms. This paper presents a case study of a large retail organization which is approaching this problem by integrating Internet based EDI with its existing traditional EDI systems using an “intelligent gateway” concept. This will allow them to leverage their considerable existing EDI investment by providing a relatively low cost data display and entry system tailored to the needs of small suppliers. In this way, greater benefits should accrue from existing investment as 100% EDI compliance eliminates duplication, but more importantly, enables advanced supply chain reforms such as “cross docking”. We argue that this way of using the newly available Internet EDI products may have the greatest economic impact on the retailing supply chain at least in the near future. Introduction Many large retail companies have enthusiastically pursued Electronic Data Interchange, EDI, with their suppliers for the reduced transaction cost, increased accuracy, and timeliness that it offers (Johnston, 1998; Mak, 1998). Many have even reached the stage where a large proportion of their replenishment transaction value is controlled by EDI. But the familiar Pareto principle applies: 20% of their suppliers, by number, account for 80% of the transaction value. However a large proportion of suppliers, by number, usually small to medium-size enterprises (SMEs) supplying small ranges of products, remain outside the electronic replenishment system. These suppliers often lack the computer expertise and resources to implement EDI using the traditional approach using the services of a Value Added Network (VAN), expensive translation software usually provided by the VAN, and private wide area networks (Iacovou et al, 1995; Mak, 1998; Ritchie, 1994; Scala and McGrath, 1993). Furthermore, with relatively simple business operations and a small number of trading partners, they have little to gain from the integration and connectivity that EDI offers (Mak, 1998). This makes it difficult for the large customer to achieve 100% EDI compliance, leaving them supporting both electronic and paper based systems, and creating a barrier to implementation of advanced supply A Case Study of Internet EDI in the Retailing Supply Chain chain and logistics management techniques. Evidently, the traditional approach to obtaining compliance by threatening “desourcing” (Zinn, 1988) has not been effective with small suppliers. These key EDI players are increasingly looking to the Internet as a means to solve this nagging problem. The Internet is a world-wide network of networks with excellent throughput capabilities. Internet transmission charges are low compared to those of a VAN and do not depend on the amount of data transferred. More importantly, the Internet provides simple and widely understood new methods for information exchange (Kalakota and Whinston, 1996; Hruska, 1995). Non-EDI-enabled trading partners can use a web browser to fill in a form based web page representing a business document, in order to comply with their EDI-enabled trading partner’s information requirements. To access the Internet, they need only a personal computer, a modem and an Internet Service Provider (ISP). They require little more computer expertise than is now becoming common knowledge. The research reported in this paper addresses the issue of how the particular characteristics of the Internet can be used to draw small suppliers into a large retailer’s Electronic Commerce network, and what such an Internet based EDI system can contribute to the overall Electronic Commerce aims of the retailer. The paper reports a case study of Australia’s largest retail chain, Coles Myer Limited (CML), and its proposed new EDI infrastructure which is aimed at solving this problem. Recognizing that there is a significant investment in traditional VAN-based EDI with large suppliers, and also significant barriers to drawing small suppliers into this network, CML is proposing to adopt an “intelligent gateway” between its own diverse systems platforms and its suppliers which will allow the flexible routing of electronic documents via various media (private VAN networks, Internet, Fax, direct lines) using various formatting standards (traditional EDI standards, flat-files, web forms, etc.) based on supplier characteristics. In this paper, “web forms” denotes all forms of web-based message including those not formatted using traditional EDI standards. An important part of this new infrastructure is an Internet based document exchange system for use by small suppliers with little IT experience and at minimal cost to them. The idea is to use the Internet-based system not to replace the existing system, but rather, to leverage the investment in existing systems with the benefits of near 100% supplier EC compliance. The case study illustrates a number of decisions a company must make in choosing an Internet EDI strategy, based on the part it is expected to play in their total Electronic Commerce (EC) system, and the functionality it must support. Case Study Methodology Two major types of research activity were undertaken in this case study: 1. A semi-structured interview (and follow-up communications): this was conducted with CML’s Electronic Trading Coordinator, Mr Dave Botherway, to establish the business problems within CML’s current EDI infrastructure, the requirements of their new EDI infrastructure, and the proposed solution. 2. Participatory research: one of us (HCM) participated in CML’s “Proof of Concept” project as an observer, and in the product and Internet EDI strategy evaluation for CML’s front-end Internet EDI system as an independent evaluator. For the “Proof Of Concept” project, CML was working with software vendors to evaluate a number of EDI products with which to implement the proposed EDI infrastructure, in order to prove that their proposed EDI infrastructure is feasible and to determine which product best satisfies their business and technical requirements. Data collection for the case study was based on interviews and e-mail discussions with Mr Botherway, study of company documents, participation in the “Proof of Concept” project as an observer, and participation in product evaluation for the front-end Internet EDI system. Whenever a case study is conducted, there is always a concern about whether the findings are supported by enough data, so that they can be applied to other businesses and industries (Galliers, 1992). There is no point in conducting case study activities if the results are too specific and cannot be generalized. There are various options for case study activity (Yin, 1989), such as a multiple case study (or a multiple company survey) or a single in-depth case study. In this case study, the single indepth case study option was chosen for the following reasons: 1. A detailed single case study can provide deep access to real business problems, which a less detailed multiple case study may not. A Case Study of Internet EDI in the Retailing Supply Chain 2. At the time of this case study, there were not sufficient Australian companies in the position of developing Internet EDI systems, to conduct a multiple company survey. 3. CML is a leading-edge company in this area, due to their extensive involvement with EC. They were in the process of designing a new EDI infrastructure to leverage their existing EDI systems at the time of the study. Given the company size and the scope of their electronic commerce implementation, CML is in a unique position to provide significant and reliable data. Coles Myer Limited Profile Coles Myer Limited (CML) is Australian owned, and is the largest retailer in Australia. CML’s head office is located in Melbourne, Victoria, and operates eleven retail brands over 1,800 stores in Australia and New Zealand, including Coles, Bi-Lo, Myer Grace Bros, Myer Direct, Kmart, Target, Fosseys, Liquorland, Red Rooster, Katies and Officeworks. It is Australia’s largest non-government employer with over 148,000 staff, and annual sales of over $A19 billion. CML spends over $A15 billion each year on buying merchandise and services (Coles Myer Limited, 1997). It has more than 15,000 suppliers (including merchandise and service suppliers): 1,800 suppliers use the traditional EDI approach, while the rest use conventional paper-based document processes via regular mail, phone calls or fax, to exchange business data with CML. With the proposed new EDI infrastructure, CML expects to handle all their merchandise suppliers (approximately 10,000 suppliers) through a single centralized EC system. CML’s Current EDI Infrastructure CML has various business applications for different retail brands, running on different system platforms. Different types of suppliers require different message formats, for example, EDI-enabled suppliers require EDI formats, and non-EDI-enabled suppliers require paper-based formats. CML uses multiple EDI translators to translate the various types of flat files generated by their in-house business applications into EDI formatted documents and to transmit the formatted data to their EDIenabled suppliers on a store and forward basis via third party VAN. For their non-EDI-enabled suppliers, CML has to run a parallel manual process to exchange paper-based business documents. A typical document exchange process in the manual system is that CML sends a Purchase Order (PO) to their non-EDI-enabled supplier by regular mail or via fax. Th