There’s no questioning it:
EDI has changed.
Over the last 20+ years, EDI has changed. A communication method originally inspired by developments in military logistics in the late 1940’s, EDI is still in wide use today even though the internet had been predicted to eventually replace EDI at a point. Even though the transmission methods have changed, the EDI documents and related standards are still around – and important.
In this blog post, we revisit a blog originally published in late 2014 to examine EDI and the trends surrounding it over the past 20+ years.
EDI Trends: An Updated Perspective
Originally Posted on January 31, 2014
To close out what was a month of EDI-themed blogs back in January 2014, we decided to take a broad look at overarching trends in the EDI world. We at VL have been doing EDI for over twenty years (since 1994), and we have seen lots of changes in that time. So I dug out my crystal ball and polished it up, and peered into the great unknown to ask about EDI’s future.
In defining trends, you have to look at both sides of the trading partner equation; both the hub and the spoke. A Google search reveals precious little in terms of things that can help management and IT people situating EDI in the message layer. My crystal ball came up with five key trends that I think have shaped EDI, and for each I offer my opinion on how I see these trends changing in the future.
Trend 1: Compliance Testing
Compliance testing is like a bad hangover that just won’t go away to many in the EDI world. In the early years of EDI, when there was a lot of DIY translators and companies were less than serious about EDI, compliance testing was a huge issue. In those days, compliance testing was about the syntax of the EDI message. ‘Hubs’ had EDI departments that went through a testing regime with their ‘spokes’ to ensure their EDI syntax met the hub’s specifications.
At some point, someone got the idea that you could outsource testing and downsize the hub’s EDI department. The spoke in the trading relationship now had to pay for the testing. Today, compliance testing is a simple money grab in most cases. With the maturity of systems, EDI syntax testing is irrelevant. Anyone with a serious EDI translator can generate a syntactically correct message with minimal effort. What I see changing, however, is that compliance testing is now more and more about process and procedure testing. It is working with the spoke through a series of tests that mimic the real live flow of transactional data and less and less about pure EDI syntax.
The major trend I see is that these hubs have started to get serious about real transactional process testing in order to ensure proper data flow.
The issue however is perception. Unfortunately, there is a large supplier base that is disenchanted and jaundiced with past testing practices and the associated stick based money grab. This perception is increasingly important as retail shifts to more and more of an ecommerce model, which is not only more complex in its EDI transaction requirements, but also in its touch points. The perception will be slow in changing but compliance testing has to move beyond a glorified money grab and evolve to proper process testing.
Trend 2: Web Portals
Remember the days of rip and read EDI and the glorified fax? Well, the web portal is the 21st century, internet-reincarnation of the old EDI tools like STX-12, GE PC EDI, and Gentran Director. One of the first sites we did at VL was sold on the basis of integrating the EDI data flow into the company’s accounting software and eliminating the two week backlog in the order entry department. Wow, those days are long gone! But the rip and read analogy still stands.
Web portals have traction because they are cheap, provide for easy compliance and usually don’t require the IT department’s involvement. The issue I have with web portals is they are costly, slow, and cumbersome, and do the square route of nothing to optimize the supply chain. They cost money because nothing is integrated. They are slow and cumbersome because with any volume they require a huge investment in data entry to complete tasks and supply chain optimization well its not even on the radar. I won’t even talk about data entry errors and compliance charges.
With prices in a downward spiral, end user service expectations are high because of retailer compliance requirements and little enhancement to the supply chain. I don’t believe the web portal as a data entry tool has a long term future. The business model is increasingly difficult to sustain given the downward pressure on prices. The trend here is that the smaller service bureaus will close down or be swallowed up by large companies that have the economies of scale. If you are a service bureau user, make sure you have a plan B.
Trend 3: Non-VAN Communications
We are at tipping point. EDI was traditionally transacted through VANs (Value Added Networks). Then along came AS2 and point to point internet based communications. Today the traditional EDI VAN is dying a painfully slow death and it can’t come fast enough. The current EDI VAN providers have technology that is on average 10 to 15 years old. Its technology that is increasingly difficult to maintain so that when the underlying technology does fail, it fails in grand fashion. There is also huge downward price pressure on VAN services. This is further compounded by the fact that point to point communications over the internet are increasingly more and more common now that we have gotten over the stupidity of certifying things.
Why is the VAN going to die? Simply it makes zero economic sense in today’s world. Its more efficient and cost effective to use point to point AS2 connectivity. AS2 however has its time period also. Web services and the increased use of APIs will eventually kill the VAN completely and limit the use of AS2. So if you rely on these two communication types, start planning now to ensure you fully support web services in the future.
Trend 4: Transaction Complexity is Increasing not Decreasing
Transaction complexity is on an exponential growth curve, and has been for some time. Remember the hockey stick curve? Hubs are looking to do more and more EDI transactions because their supply chains are more and more complex. In the early days of EDI, you might have done a PO (850) and an invoice (810). Later retailers added an advanced shipment notice (856) and associated labeling. Today you might be asked to do a PO (850), PO change (860), PO confirmation (855), PO change response (865), inventory (846), invoice (810), advanced shipment notice (856), as well as they associated labeling. There are also the financial transactions remittance advice (820), credit note (812) and finally the organizational documents (816), and text message (864).
Of course, these are retail EDI transactions, but each vertical has its own complexity. I often get asked how much integration is going to cost, as if like magic I can pull a number out of my hat by knowing who the partner is. What transaction complexity means is that the cost of setting up an integrated flow takes longer and may require multiple data sources within an organization. This means it will cost more and require more complex decisions within an organization.
Trend 5: Lack of Knowledge
As transaction complexity increases, so to does the amount of required knowledge about the retailer’s supply chain and the associated data. This puts tremendous pressure on personnel within a company to be up to speed on the vendor compliance manual or their partner’s procedures and practices. Unfortunately, many companies pay lip service to the vendor manuals and pay the price in charge backs and compliance charges and botched relationships.
What is more serious, however, is the lack of knowledge of the technical requirements and the lack of management investment in critically important pieces of a company’s ecommerce infrastruture. The number of companies we see who are still using obsolete technology to transact 80% to 90% of their EDI business and think that’s OK is mistaken. Would you drive a car where, at any time, the wheels could fall off because the bolts are rusted out? I doubt it. But that lack of knowledge means organizations are not investing in keeping their infrastruture current and its directly related to lack of knowledge. This has to change because the world is getting more and more complex from a data perspective and change is happening faster than ever before.
An Update for 2016
While 2014 doesn’t feel like it was that long ago, plenty has changed in the EDI and web portals worlds. Most of the above trends are still in force today, but plenty of businesses (‘hubs’ and ‘spokes’ included) have finally seen the light of these trends and are starting to adjust their ways to accomodate the 21st Century (finally).
With enough big-box retailers and powerhouse companies (hubs) still use EDI and enact EDI compliance on their trading partners (spokes), we’ve also seen the increase in popularity of web portal communication in parallel with EDI – because EDI will never truly fade away into history so long as the big guys are using it.
Instead, data integration has only become more complex with a variety of communication methods and types used by a suite of applications that now live both on-premise and in the cloud. Looking to tie everything together? VL’s VL OMNI service is your answer.
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