They're Still Sold On EDI

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September 22, 1997

CONSUMER GOODS:
They're Still Sold On EDI

The consumer-goods industry is in no rush to abandon EDI for Net-based solutions
By Tom Davey
IW 500 slug lectronic data interchange, the formatting standard for sending business forms over private networks to customers and suppliers, will remain the dominant means of conducting commerce for consumer-goods companies over the next few years.
While other industries are touting intranets and Web-based commerce as the wave of the future, consumer-goods companies are taking a more cautious approach. IS managers in this staid industry plan for the next few years to continue running electronic data interchange (EDI) over so-called value-added networks, which typically transmit data using older protocols such as IBM's Systems Network Architecture.
Even internally, many consumer-goods companies are still replacing paper-based communications and documents with computer applications. Most are not rushing to set up intranets or extranets.
Although EDI has been used for two decades, regular improvements are shortening product cycles and bringing new products to market more quickly. Major retailers such as Wal-Mart Stores Inc. have invested large sums in EDI and insist their business partners-including manufacturing partners-adopt the same standard.
"Kraft has to have an answer for Wal-Mart, or someone else's cheese is going on Wal-Mart's shelves," says Jeff Smith, a managing partner specializing in consumer goods at Andersen Consulting in Chicago.
Large consumer-products companies are refining and extending their EDI sys tems beyond the realm of standard purchase orders and invoices. Products from SAP and other back-office software vendors can now read EDI transmissions.
EDI is also being combined with retail bar-code scanning. This lets stores transmit consumers' buying habits in individual stores back to the manufacturer. In this way, manufacturers can keep tabs on consumer demand for various products. Merchandise can be delivered to more closely match individual and regional tastes, says Smith-thus goods move more quickly off shelves.
Whirlpool Corp., the world's largest appliance maker, plans to stick with EDI for dealing with its large customers, such as Sears, Roebuck and Co. "EDI is here to stay, at least for the short term," says Monique Hines, VP of enterprise resource planning for Whirlpool, in Benton Harbor, Mich. "You can help customers manage their inventory and smooth out peaks and valleys in the product cycle with EDI."
Adds Bill Swanton, director of research for plant operations at Advanced Manu facturing Research in Boston: "Smart players are extending what EDI will do. Procter & Gamble has done a great job with EDI at the warehouse level in category management. EDI will be there as a core processing technology for some time." He also notes that in the grocery business, EDI provides a tight feedback loop for inventory management, which is critical for stocking shelves with perishable items.
"Using vendor-managed inventory with EDI, we can receive information daily," says LeRoy Allen, VP of reengineering for VF Corp., a $5 billion Reading, Pa., manufacturer of clothing lines, including Lee and Wrangler jeans. "We can now replan our capacities in our plants daily." Over the last 10 years, VF has reduced the product cycle from work order through shippable goods from more than a month to just five days.
To make such tight product cycles a reality, speed and flexibility on the factory floor are also critical. "The number of SKUs [stock-keeping units] is rising dramatically, and product runs are s horter and less predictable," says Advanced Manufacturing's Swanton. "So plants are becoming more agile and equipment is more flexible." Integrating EDI with product cycles on the factory floor is handled with tools from companies such as Wonderware Corp. in Irvine, Calif.
"We went from more than a 14-week lead time to less than two weeks," says John Stevenson, CIO of Lennox International Inc., a manufacturer of heaters and air conditioners in Dallas. Information from the factory floor, such as staff size, the flow of raw materials, and the number of model types on an assembly line, can be ported to Lennox's SAP modules to be used throughout the enterprise. Lennox started with the SAP general accounting module in 1994, ramped up with manufacturing in 1996, and plans to complete the suite next year with sales and distribution applications.
Lennox is in no hurry to set up a comprehensive intranet or an extranet to deal with business partners over the Web. "We're making a pitch for a corporate intranet, but it will be mainly for 401(k) and corporate communications," says Stevenson.
Big Players First
The move toward sharing information with business partners over the Web will start with the biggest players. Wal-Mart, SAP, and pharmaceuticals company Warner-Lambert are conducting a pilot project that uses the Web to forecast sales and eliminate excess inventory. Ultimately, partners in all stages of the supply and distribution chain will gain by eliminating the need for proprietary equipment. Delivery cycles will further tighten as data is conveyed on a real-time basis instead of once a day.
Tracking SKUs on the Web helps ease the data management chore that consumer goods companies are facing, says Andersen Consulting's Smith. For example, Kroger Co., a Cincinnati-based food retailer with 2,000 stores, has more than 50,000 SKUs. One store may sell several million items a year. "You add it all up and you've got a huge data-management issue," Smith says. "The Web allows you to drill down to a granularity level in one place."
Other consumer-goods companies are also inching toward business-to-business communications to private Internet Protocol networks and, ultimately, to the Web.
"We're still using EDI to reach customers and suppliers," says Joel Wolke, director of corporate information services at Brunswick Corp., a Lake Forest, Ill., manufacturer of boating and bowling gear. "But some of our customers are moving to Internet applications. EDI over the Web is just a modification of the delivery system. We like some of the Web front ends much better." A Web front end would require less maintenance than his EDI links-but moving to the Web would involve challenges such as security and convincing business partners that it's the right approach.
Whirlpool has Web-based communications with customers that can't afford EDI. "For smaller customers who need a self-service environment, the Web is OK," Hines says. "We're in information-sharing mode with them now and will be conducting Web tran sactions in a year."
Though consumer-goods companies have reservations about dealing with business partners over the Internet, they are less timid about interacting online with consumers.
At some point, most business-to-business transactions will move to the Web, but it won't happen overnight. "If you're doing dealer-based transactions, you want the same security as you would through any other transactions," says Lennox's Stevenson. "I'm not sure if Web tools are bulletproof."
Analysts take a cautious view, too. "The euphoria of business-to-business E-commerce has been tempered a bit," says Andersen Consulting's Smith. Most manufacturers won't be making wholesale trades over the Web for at least three years, he predicts. Aside from the pain of dismantling a legacy infrastructure, companies have other concerns such as security, bandwidth constraints, and a dearth of industrial-strength Web applications.
Interactive communications over the Web will be preceded by corporate intranets, which cons umer-goods companies are beginning to set up. But extending information outside the corporate firewall to suppliers and customers via the Web is another matter.
Instead, Armstrong World Industries Inc., a $2 billion maker of furnishings and textile products in Lancaster, Pa., is taking on an intranet look and feel through the use of Lotus Notes groupware, says CIO James Sabino. "We've built Web pages for business units and are building commerce applications," he adds.
Since most consumer-goods companies are reluctant to give up their tried-and-true technologies, they'll likely make their way to the Web through the vendors with whom they have long-standing relationships. As the EDI, database, and business-application vendors adopt technologies that offer Web integration, the consumer-goods companies will follow suit. Very cautiously, of course.

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