The Computers of Commerce
Over the past few years, Electrical Wholesaling magazine has given a lot of ink to the electrical distributors and manufacturers leading the charge into electronic commerce. But as anyone following this industry trend knows, only a handful of companies are fully committed to the concept and hundreds are waiting for others to test the ice. Despite all the hoopla, relatively few companies are walking the talk.
A Texas distributor summarized the current situation best with this observation: “It’s time to put a little fire under all this smoke about EDI and electronic commerce.”
One of the reasons electrical distributors and manufacturers haven’t gotten fired up over electronic commerce—which includes electronic data interchange (EDI), vendor-managed inventory (VMI), bar coding and online ordering over the World Wide Web—is the difficulty and expense of upgrading their computer systems to read, understand and translate the electronic information they will be expected to pump out to business partners in this new age of electronic communication. In the past, the biggest reason computers had a tough time digesting the various electronic commerce transactions was the lack of standards. That’s no longer the case. The EDIPro standards recently approved allow all participants to send these transaction sets in precisely the same format. And at press time, the National Association of Electrical Distributors (NAED), Wilton, Conn.; the National Electrical Manufacturers Association (NEMA), Rosslyn, Va.; and the National Electrical Manufacturers Representatives Association (NEMRA), Armonk, N.Y., were close to agreement on a standard for fielded databases that would allow the computer systems of distributors, manufacturers and representatives to swap detailed product information such as catalog numbers, packaging information, weights, measures and pricing in a standard format.
With the key standards pretty much in place, the focus now turns to the business software driving the computer systems of distributors, manufacturers and reps. Many industry observers close to electronic commerce in this industry say with all the attention over the past few years on setting communication standards, this important piece of the puzzle was sometimes overlooked.
“Manufacturers and distributors have ignored (software vendors) for many years,” says Ben Lazar, who manages the electronic communications activities of Hubbell, Inc., Orange, Conn. “All of a sudden a lot of people came to the realization that the software supplier is the key person in this relationship. A lot more people have been spending time with them. We have.”
Many of the key software suppliers are now busy retooling their systems so they can offer the EDIPro transaction sets as a standard feature. Until now, some software companies were hesitant to move too far into EDI until standards were set and there was enough demand for it from their users to justify the expense. Another key reason for the delay is that until the past two years, only the most progressive of manufacturers had their computer systems ready to do business electronically.
“We have customers pushing us, and we have been pushing the vendors,” says Mike Wentz of Trade Service Systems, Inc., Blue Bell, Pa., which has 25% of its 275 electrical distributor installations running on EDI. Adding EDI has meant more work for the software providers. “It wasn’t always necessarily work that we had to do. The manufacturers had to do it,” Wentz says. “The manufacturers, since they tend to have much bigger MIS departments, wanted to make sure their work was absolutely, positively perfect before they launched.
“Once we set EDI up for our first customer, we were ready for all customers,” Wentz says. “Distributors all have many of the same vendors, so it’s not like we have to reinvent the wheel every time we do this.”
Without an EDI standard, software companies didn’t enjoy having to customize EDI transaction sets for their more technologically adventurous distributors, says Jay Walther, western regional manager, Eclipse, Inc., Huntington, Conn. “If a distributor does business with a manufacturer not using an EDIPro transaction set, we have to customize it. We don’t want to have programmers sitting around doing that stuff. It’s a waste of time for everyone. It’s time on our part, but it’s an expense to the customer.”
Eclipse will soon offer the EDIPro transaction sets as part of its basic software release. Because many manufacturers and software companies were slow to commit to electronic commerce until the past year to 18 months, the distributors using EDI or bar coding fell into three groups:
•The maniacal technological converts who spared no expense to get their company up on EDI, bar coding or vendor-managed inventory;
•Distributors with the MIS smarts to custom-design their own software so that they could transmit EDI orders to the few large customers who demanded to do business electronically;
•Those companies with enough clout to command the full attention of their vendors and/or software companies to program the transaction sets for them.
Indeed, a 1996 EW survey revealed that while electronic commerce is growing in the electrical industry, relatively few electrical distributors are using EDI, bar coding or VMI. According to that survey, only 14% of all distributors use bar coding; 43% are into EDI; 24% use CD-ROMs; and 13% use VMI. The areas with the largest increases from 1995 to 1996 were CD-ROMs and EDI. The next time EW surveys electrical distributors on their use of electronic commerce, expect these numbers to jump because the EDIPro standards for EDI and the standardized fielded databases will be set, and acceptance will begin to grow.
If you want to get your company prepared for electronic commerce here are some ideas to consider:
Don’t even bother to get started if top management isn’t totally committed to the concept. If the company owner or president doesn’t buy into the project, you are toast, say several distributors who have been through the process. That doesn’t mean the top manager has to spearhead the project, but he or she must assign someone to manage the implementation and must be willing to see it through without pulling the plug.
Commit the resources in capital, training, time and personnel. It’s tough to get a ballpark estimate of the cost to a distributor of preparing his or her company for electronic commerce. The size of that company’s computer systems, whether or not those systems are loaded with the software partner’s most recent updates and other internal factors such as the accuracy of inventory records and computer capabilities of the employees all affect the cost and make it hard to generalize.
That cost also will depend on how far the company plans to get into electronic commerce. For instance, if you want to start by just communicating electronically with suppliers on ordering information, that process is not nearly as complex as setting up a VMI arrangement, where the distributor works closely with the manufacturer to develop automatic re-order points for purchase quantities, or dock-to-stock receiving, where workers check in a shipment with a bar-code scanner and put the stock on the shelves without the time-consuming task of checking order quantities.
Whichever area of electronic commerce you are interested in, you will eventually have to get up on EDI, because its transaction sets form the foundation of everything to follow. You can expect it to be a project that will impact every department in the company from the loading dock, through the warehouse, out to the counter and back in through the sales, purchasing and accounting departments—not to mention the president or owner’s office.
The key is to realize that the cost of implementing EDI and other types of electronic commerce is a recoverable investment, because of the reduction in paperwork, errors and the time it takes to process orders, says Rob Fleishman, product manager, Prophet 21, Inc., Yardley, Pa. “What generally has happened with our distributors is that it really has been a resource redistribution rather than adding a resource. It has eliminated a lot of what the purchasing function has been. Some distributors have retrained their purchasing agents to handle the electronic orders.”
Treat your move into electronic commerce as you would any other new project. The whole process must be managed just like any other new venture for your company. Jess Solomon, president, Software Solutions, Inc., Duluth, Ga., says one of the first steps is for the president to put someone in charge of the project. “This is standard stuff, but it’s so easily forgotten. If it’s done by committee it won’t get done. That person then has to ask, ‘How is this working in our industry? What benefits are we going to get out of it? What are the long-term forecasts for this technology in our industry?’
“They have to present a reasoned logical synopsis and make a business case for it. They can’t jump on the bandwagon and say let’s do it if they haven’t made a business case for it.”
Evaluate your software supplier. Start off your software evaluation by asking yourself two key questions, says Prophet 21’s Fleishman: Do you have a strong relationship with your system provider? Does that systems provider have the experience, resources, inclination and technical aptitude to do a solid job with electronic commerce?
You should also ask your software developer when, or if, they plan to change the basic architecture of their system from a batch-processing based system to one that operates on real time.
The structure of most of the business software systems now in use in the electrical wholesaling industry is based on a batch-processing concept that was first developed over 15 years ago, before the time of relatively inexpensive hard disk space and much more powerful desktop computers. In a batch processing system , data is collected and stored in separate “buckets” of information and then redistributed into the various reports or transactions as they are requested. If the information in these buckets wasn’t used by a predetermined time, it was erased.
These computer systems, often called “Legacy systems,” usually have large mainframes or minicomputers to store and process this information and send it out to “dumb” terminals with little or no processing power of their own.
In contrast, new computer systems take advantage of the processing power of personal computers by linking them in a local-area network (LAN) to a “mother” computer. The PCs handle many information processing tasks right at the desktop, while the mother computer handles larger information-processing jobs.
These newer computer systems often operate in real time, meaning all records and reports are updated simultaneously as the data is collected.
According to Jay Walther of Eclipse, which offers a system using the real-time architecture, the various tools of electronic commerce work much better in a real-time environment because all the data is updated so fast. He believes all the major software vendors will switch to real-time business software systems within the next few years.
If you are not on the current release of your business software, get it. The latest releases of some of the business-software systems now on the market offer the necessary EDI transactions sets, and if you are a couple of releases behind, you will have trouble getting into EDI until you catch up. Hubbell’s Lazar says it often gets down to the distributor wanting to spend the money to keep current.
“If the software supplier has the transaction sets on release ‘X’ and the distributor is two or three releases behind, they have to have a current release to get those transaction sets,” says Lazar. “It becomes less of an EDI issue and more of a version control issue. The software supplier can’t control that, and the distributor makes a business decision on whether or not he is going to upgrade.
“The distributor may say the next version doesn’t have anything he needs. But it’s very important that the distributor maintains the supplier’s current version of software on their system. It could lead to some downstream problems if they do not do that.”
Pick one supplier to start out with. Choose someone who has been through the EDI process before with other distributors who use the same software as your company. Electrical distributors getting into EDI at this stage of the game have some definite advantages, because many of their vendors have seen the problem areas and have smoothed them out.
It’s more than a time-worn cliché in the electronic commerce arena that distributors and manufacturers must trust each other before they can do business. This is very important in all areas of electronic commerce, but it’s perhaps most essential with VMI, when the supplier and distributor work together to set stock-replenishment points.
Carl Hall, president of Enterprise Data Management (EDM), Inc., Cincinnati, Ohio, has been around the VMI scene for over 10 years, going back to his days working with Wal-Mart in the development of its VMI system. For about a year, his company has managed the Distributor Manufacturer Integration (DMI) system originally developed by Thomas & Betts Corp., Memphis, Tenn. Hall says VMI provides a good platform for business partners to start to trust each other a little bit more.
“I have been dealing with VMI since the mid-1980s,” he says. “I can’t tell you how many times I have heard distributors say, ‘There is no way I am going to trust the manufacturer to do this.’ The manufacturer has come to the realization that if the distributor is not profitable in the long run, he (the manufacturer) is not going to be profitable. Correspondingly, the distributors have to realize they can’t beat the manufacturers to death, because they don’t have anything to sell if the guy goes out of business.”
Synchronize your inventory records. All these electronic tools are wonderful, but you will have trouble if you can’t trust your inventory records, says Wentz of Trade Service Systems. “There’s not a whole lot of preparation for electronic commerce if your inventory is in pretty good shape,” he says. “But if it’s bad to begin with, it’s going to be bad no matter how you are transmitting it. If you don’t have a good handle on your inventory and have your warehouse organized in a pretty good manner, throwing on bar codes (for instance) doesn’t solve many problems.”
EDM’s Hall was surprised at the state of distributors’ inventory-management systems. “It’s amazing to me how hard it is for some people to turn out valid inventory data on a daily basis,” he says, “Lots of distributors were weekly or monthly—snapshot kind of stuff. But if you said, ‘Okay, how many do you have today?,’ apparently, it’s almost impossible for some distributors to get that information.”
To proceed with any form of electronic commerce, your inventory files must be clean and synchronized with those of the vendor with which you want to communicate electronically, says Ed Heon, chief executive officer, Profile Systems, Inc., Holyoke, Mass. “Before you start a lick of EDI you have to have their UPC number, packaging, catalog number, pricing and units of measure. That has to be 100% synchronized.”
This is a huge job for most distributors—and for many of the suppliers they are doing business with. Some industry observers believe the synchronization of product files between distributors and vendors will prove to be the most important element of electronic commerce because of the disputes it will eliminate over pricing and quantity discrepancies.
However, the industry has a long way to go before this synchronization becomes a reality. Walther of Eclipse estimates that only 10% of all electrical distributors have truly accurate inventory records. That’s a huge concern for any distributors considering VMI, he says. “For certain vendors and for certain products VMI has the potential of being a good thing,” says Walther. “But only the smartest vendors and the smartest vendors are going to make it work. Every distributor has some kind of inventory control, but maybe 10% have an accurate inventory on their computers. Therefore, 90% of the information in the market is tainted. And how good can VMI be if it relies on the weakest link—the distributor’s inventory process? The manufacturers and distributor typically pay guys in the warehouse $5 a hour. The weakest link is the lowest-paid guys trying to make this all work.”
Another reason to clean up your inventory data and have it in a standard electronic format is that eventually you will “custom publish” this information in different formats such as CD-ROMs, paper catalogs or other media, says Pat Gibbons, marketing director, Howard W. Sams, Indianapolis, Ind.
Get ready to transmit inbound and outbound EDI documents. Only after a distributor has made the necessary management commitment to electronic commerce, has accurate inventory records and has selected a manufacturing partner to start the process, should they start thinking about EDI. EDI sets up the information packets that will carry data to all business partners. Talk with your software partner and suppliers about the first step in EDI: Getting a mapping translator and finding someone who knows how to use it, either at the software supplier, another third-party vendor or within your company. They will need this translator to build the inbound and outbound flat file procedures and programs to work with the necessary application software. They also must program the electronic interface between your application software and your purchasing and invoicing processes.
Distributors just starting out on EDI, don’t have a real clear understanding of what it takes to get started, says Tim Watson, vice president of development, NxTrend Technology, Inc., Colorado Springs, Colo. (NxTrend Technology is the new name for the joint venture between Ultimate Data Systems, developer of the SHIMs software package and R&D Systems, developer of Trends software). “There’s a VAN involved, translation software, and the operational software they are running,” says Watson. “They don’t always understand all of those pieces.”
Ask your software supplier when they expect to be ready to offer standardized fielded databases. Towering over the massive task of setting the key communications standards is a new challenge that in some ways may prove even more difficult—programming existing software to accept the standardized fielded databases that have been adopted and were close to being agreed upon at press time. This standard will allow all industry partners to transmit product information such as catalog numbers, UPC numbers, weight and measures and pricing in exactly the same format. The catch, according to several industry observers, is that it will be a horrendous job to change all of the existing data records to accommodate these standards.
Application software people will have to program product master files so they fit the new fielded database, says Heon of Profile Systems. “That is going to be a long haul for many of the software companies,” he says. “I used to be one (with R&D Systems) and I sympathize with them. Nobody says they have to do it by a certain date, but it’s a really big process.
“Right now most systems are designed so they can take what we call a Trade Service update,” he said. “The systems are designed around that. The fielded database catalog number is 42 characters. That is bigger than the space that Trade Service allows for manufacturer, catalog number and description.”
Watson of NxTrend Technology says the real issue is the space those codes take up, or “screen and report real estate.” “If we are going to take the stock number and blow it out from 24 characters to 40 or 50 characters, you are basically doubling that field,” he says. “If you have single- or double-line reports or some tight screens, it becomes quite a real estate issue to change that.”
Look at your move into electronic commerce as a way to improve your customer-service level. After going through this whole process, you may be surprised at what turns out to be the most important benefit of electronic commerce. Many distributors, manufacturers and reps make the mistake of looking at EDI, VMI and bar coding primarily as a method of eliminating paperwork errors and cutting transaction cost.
Heon of Profile Systems says one of the manufacturers he is working with on VMI has found that the real key is the differences VMI can make in customer service. “One manufacturer told me, ‘You are hung up on turns and transaction-cost savings. Three of my largest distributors that I am on VMI with are singing its praises because we have raised their customer-service level. They don’t even care at this stage of the game how many turns we get. But they were sending the contractor away three out of six times they came to the counter. Now they are sending them away one out of 20 times.”
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