Wal-Mart Taps IBM for Internet EDI

Proponents claim cost-saving Internet EDI has arrived.

• By Stephen Swoyer
• 10/15/2002

IBM representatives and other industry watchers speculate that Wal-Mart's move, among the largest to date for a retail player with significant global operations, could be a sign of things to come.

EDI, or Electronic Data Interchange, describes an industry standard for a set of services that facilitate the electronic communication of business transactions among businesses. EDI traffic usually consists of order invoices and receipt invoices, along with message delivery confirmations. EDI also provides an integrated security model.

Not surprisingly, EDI has traditionally exploited telephone lines or proprietary leased-lines as its mode of transport. EDI traffic is typically routed to business customers by means of so-called Value Added Networks (VAN), which are hosted communications networks that provide services such as message forwarding, protocol conversion, and error detection and correction.

According to Scott Cosby, a manager with IBM's WebSphere business process integration unit, traditional EDI is a costly proposition precisely because of its largely proprietary model. "For example, you have a dedicated phone line for getting to the VAN, [which] makes sure that [your data] gets delivered once and only once to the right destination. It's a hosted approach, so you pay per message."

For a company the size of Wal-Mart, Cosby says, the costs associated with conventional EDI can become increasingly prohibitive. "Wal-Mart, with the number of suppliers that they deal with (which I think is around 16,000), has seen these VAN charges become pretty significant for them, so moving to an Internet mode of sending that data makes it much cheaper."

Cosby cautions that Wal-Mart doesn't plan to immediately move from its existing VAN. Instead, he notes, IBM will provide VAN services to Wal-Mart and its suppliers for at least the next 12 months. "We're offering to be able to let people run the VAN in parallel during the migration, during the testing and trial period, whatever fits the supplier's needs," he observes. "It wouldn't be a long-term thing. It would be a month-by-month arrangement."

Cosby indicates that IBM's Global Services Unit will provide software and services to Wal-Mart during the move. IBM is expected to integrate AS2 with its WebSphere Business Integration Connect software.

The Rise of Internet EDI
Internet EDI has been around for several years now, says Carl Lehmann, vice president of electronic business strategies with consultancy Meta Group. At the same time, Lehmann acknowledges, Internet-based EDI technologies—which rely on sending encrypted or, on occasion, unencrypted data across the public Internet—have in the past been viewed as suspect.

"What put the value-added in a [Value-Added Network] was the ability to do authentication, verification, non-repudiation and audit-trail. On top of that was the security of the dedicated infrastructure. The only thing [Internet EDI] doesn't have is the dedicated infrastructure," Lehmann observes.

According to Dave Michaud, vice president of marketing with Advanced Data Exchange (ADX), a provider of outsourced Internet EDI solutions, the success of Internet commerce has helped to pave the way for the acceptance of Internet-based EDI among business customers.

"That's obviously been one of the value-adds of VANs, that they've provided security up to the point where people now have gotten comfortable with [Internet standards such as secure HTTP], and are now doing literally billions and billions of dollars in business on the Internet every year," he points out.

In addition, proponents say, the development of standards such as the AS1 and AS2 protocols gives business customers a secure infrastructure they can exploit to support business-to-business Internet EDI.

"These business-to-business protocols are the same ones that … Wal-Mart has adopted, and these are really secure ways to send information over the Internet," says Meta Group's Lehmann.

Trickle-Down Effect
For his part, IBM's Cosby expects that Wal-Mart's decision to embrace Internet EDI could inspire copy-cat maneuvers on the part of competitors such as Target Corp. and K-Mart Corp. "I think that especially in the retail industry, the effect of this Wal-Mart move is going to have a trickle-down effect, because the suppliers who work with Target and K-Mart also work with Wal-Mart, and they're going to have to install these new [Internet EDI] systems," he says.

Outside of the retail space, ADX's Michaud predicts that more businesses, especially smaller organizations, will begin to evaluate Internet-based EDI solutions over the next several months. He argues that because Internet EDI technologies cost much less than traditional EDI implementations, the business benefits associated with doing EDI are increasingly difficult to ignore.

"It's just like what Wal-Mart is trying to achieve by having a tighter integration with its suppliers, and those benefits include—right off the top—very hard dollar cost savings associated with doing things electronically as opposed to with paper," he explains.

Companies need not switch over completely to Internet EDI. Wal-Mart, for example, will continue to maintain a backup VAN during its transition. Meta Group's Lehmann suggests that EDI will increasingly comprise a mixture of traditional, encrypted Internet and unencrypted Internet traffic.

"What were seeing companies do is put together a hierarchy of transport services. [For example,] really high-risk, high-value transactions would still go over either a VAN or a VPN or a dedicated link. Moderate-risk value transactions would go over Internet EDI, and low-risk transactions would just go [unencrypted] straight over the Internet," he says.