Remember EDI: Experts Advise Caution with XML and E-commerce

Business-to-business (B2B) e-commerce and XML may seem all therage, but they currently only touch 4 percent of operations. A recent study byGE Global Exchange Services estimates that there are 120 billion transactionsper year that take place between companies worldwide, but this "mostlyconsists of fax or phone transactions," said Otto Kumbar, vice presidentof B2B services at GE Global Exchange, at the recent Electronic Commerce Worldconference in Orlando, Fla. Only about 5 billion of these transactions have beentruly automated, he estimates.

Kumbar and other e-commerce industry experts speaking at theconference warn that e-commerce and XML may follow the same torturous path thatElectronic Data Interchange (EDI) did early. More than a decade ago, EDIpromised massive efficiencies and savings in supply chain transactions.Traditional EDI works well in companies that painstakingly deploy it, but thecosts and efforts involved in building and organizing the system limits thereach and potential of the technology. The same could hold true in today'se-commerce and XML-based implementations.

As with EDI, companies that deploy e-business technologies merelyas a cost-saving strategy -- rather than as a strategic market imperative --are doomed to fail, warns Paul Silverman, chairman and CEO of Ixata Group.While the value proposition of EDI was "simple and seductive" --cutting purchase order costs by 90 percent -- it was a losing proposition,Silverman says, who had been active in EDI deployments since the 1980s."Many ventures failed. Losers viewed EDI as paper displacement. Winnersrecognized that EDI created new commerce channels and changed processes, notjust displaced paper. It's better to increase costs to speed up processing --not try to cut costs. The folks building exchanges aren't thinking this way --they're focusing on commoditizing products."

Kumbar warns that few B2B vendors are actually delivering trueback-end B2B integration. In most cases, he says, they're floating pressreleases that "promise that you can take a pile of B2B applications andsimply combine then with XML." Currently there have only been twosuccessful ways of making money from e-commerce -- transaction processing,where the returns are negligible, and online auctions. The real challenges lieahead, Kumbar states. Companies require help with this realigning processes tonew e-business realties, as well as bringing data out of and into back-endlegacy systems -- such as material requirements planning systems.

Vendors that have worked in the EDI space are aware of the trapsthat may trip up e-business and XML deployment efforts. For example, Joe Baran,chief technology officer at Extol Inc., warns that the XML standard is fallinginto the same traps as EDI did a decade ago. There are about 334 XMLinitiatives under way among various industry groups, but most of these replicateEDI work, Baran says. "Most are just document-focused, establishing theformats and routines for XML transactions between companies. 'This is how we'regoing to make a ship notice,’ or ‘This is how we're going to send a purchaseorder.'"

With the fragmentation that is taking place between separate XMLefforts, "we're repeating a lot of mistakes we made with early EDI,"Baran warns. In addition, these issues with XML implementation are the samethat drove up the costs of EDI. "Day-to-day transaction processing is notthat hard or expensive," he says. "Setting up and integrating withbusiness processes is the hard part."

Other industry experts, however, see the XML glass as half full,.Dave Darnell, president and founder of Systrends and veteran EDI proponent,observes that XML is becoming more widely used for enterprise applicationintegration between internal systems, as well as for external B2B transactions.Darnell predicts that next year will see development of more XML repositoriesand tools that support interchange syntax, or schemas. Within the next twoyears, XML will appear on large-scale implementations, Darnell predicts.

Indeed, the potential of XML and B2B e-commerce is enormous,agrees GE’s Kumbar. Within the next 10 years, companies will be saving"trillions of dollars" in supply chain management costs.


GE Global Exchange Services,Stamford, Conn.,

Extol Inc.,Franklin Lakes, N.J.,

Systrends Inc.,Phoenix, Ariz.,

Ixata Group Inc., SanDiego,