EDI, B2B and Business Network Transformation Needs a Revolution Not an Evolution

Business Network Transformation, as I understand it, means changing the way companies have traditionally exchanged electronic business data with their trading partner communities. Efforts to transform traditional EDI have been underway for many years, but I think we need a revolution, not an evolution. Why -Because the approach to B2B/EDI is out-dated and inefficient. Let's discuss some of the issues:

1. Most companies only exchange electronic business data with about 10-15% of their trading partner community because it is too resource intensive and expensive to proceed further. The ROI takes too long to achieve and the effort is too great. Companies give-up trying to connect more companies and simply fall back into a support mode and never achieve the complete ROI. The ROI is only maximized when you replace all paper processes with electronic data exchanges between trading partners. There will be a point of diminishing return on your on-boarding efforts, but many more trading partners could be transformed from paper to EDI/B2B if the cost of on-boarding were much less.
2. The ongoing improvement and development of new and more complete EDI/B2B standards is always welcome, but does nothing to resolve point number 1.
3. Great inefficiencies are built into the traditional approach to EDI/B2B, and to continue to build and grow your trading partner communities simply multiplies these inefficiencies. In the early 20th century, manufacturing companies needed to purchase their own electrical power generation systems to provide power to their own factories. They purchased giant generators, hired staff, installed fuel tanks and developed their own electrical infrastructures. This was necessary only up to the point when the electrical service was available to everyone through the power grid of the local electrical utility where shared costs and economies of scale reduced the overall costs. Once there was electricity available on power lines in front of the factory, companies could reduce their expenses and efforts by connecting to the managed utility service. EDI/B2B must adopt a similar approach.

Example of Inefficiencies:

• 100 companies all need to exchange EDI with each other and their trading partner community (business network). 100 companies all purchase expensive EDI systems for $250,000 each (total $25 million).
• Each company then needs to integrate the EDI data into their ERP. Let's estimate the integration projects at $250,000 each for 100 companies (total $25 million).
• Each company hires 5 EDI specialists and an EDI Manager for an annual total of $600,000 (total $60 million annually).
• Each company then needs to purchase hardware for the EDI system - 1 production server, 1 fail-over server and 1 test server for an estimated total of $30,000 (total $3 million).
• The total costs in this example to get EDI up and running for 100 companies the first year is $113 million.
• The $113 million is for year 1 only. If you factored all the staff costs, EDI system upgrades and annual maintenance/support costs, server costs and integration costs over 3-5 years it will be much higher.

The inherent inefficiencies in EDI/B2B today have given rise to a whole industries that thrive on EDI/B2B chaos. The more difficult to implement - the more services revenue the EDI vendors get. This is perhaps tolerable when everyone is making large profits, but in a tight market all companies are seeking efficiencies and I question if the traditional approach to EDI will survive the, dare I say - inevitable revolution in B2B?
The $113 million total is the total amount if each company purchased and implemented EDI/B2B separately (as most do today). Isn't it possible for ED/B2B to follow the example of the electrical utility industry? Can't companies view EDI/B2B as an important and necessary utility and work together to achieve economies of scale and reduce their development, implementation and support costs? Can't the business community simply organize a managed B2B/EDI service and utilize it for a monthly fee based upon use or the size of their trading partner community, rather than make large individual investments that only address the needs of a handful of their trading partner community and make achieving a positive ROI very difficult?

EDI/B2B is never simple, but there are ways it can be made much easier and more cost effective. These methods mostly involve combining information in a common repositories and centralize systems and services so each company can benefit from the combined work of the entire trading partner community and achieve the network effect. Let's look at another admittedly over-simplified but useful example of efficiencies that are available if the EDI/B2B community were to organize their efforts:

1. The 100 companies decide to support one EDI/B2B managed services business which purchases and manages an EDI/B2B system that can provide EDI/B2B services for all (saves $24.75 million).
2. This EDI/B2B managed services business develops pre-built integrations for the major ERPs and their associated core business processes. These can then be used by all 100 companies, rather than everyone incurring the expense of individual integration projects, tools and support (let's say it costs $5 million to develop the integration maps for the community, so the community saves $20 million).
3. The EDI/B2B managed services business provides 24x7x365 support and staffing and on-boarding services (reduces the expenses in each companies' IT department for a total of $50 million annually - reduce EDI staff from 6 to 1 EDI Manager)
4. The EDI community does not have to purchase and support 3 servers each (saves $3 million)
5. The EDI/B2B managed services business could be funded by small fixed priced set-up fees and monthly maintenance and support fees based upon connected trading partners only. The costs for this service could be spread out over several years so it is easier and faster to achieve a positive ROI.

These 5 areas of savings could be significant as long as the set-up fees and support/maintenance fees were reasonable, and there are still more possible efficiencies that could be recognized. I recognize that there would be service fees, but they would likely be much less than self-funding an entire EDI operation internally.

1. Let's suggest that a central repository is created (with a canonical Data Model) which enables all 100 companies to map their business processes and data requirements into this centralized repository.
2. Each of the 100 companies in the EDI community connect to 100 additional trading partners through the EDI/B2B managed services business. Now there are 10,000 companies connected into this business network.
3. The 10,000 trading partners could also be mapped into a canonical data model so their maps could be reused by others in the network.
4. Now all 10,000 trading partners are available to exchange EDI/B2B business data to all of the original 100 companies in the EDI community and each other. NOW there could be opportunities for HUGE efficiencies. Each time a new trading partner is added - it is immediately available to all 10,100 of the companies in the business network.
5. At this point a registry of the 10,100 trading partners (100 original plus 10,000 trading partners) can be established that enable all 10,100 to search through the lists of connected companies and easily connect with more trading partners. They could replace more paper based processes with more electronic connections. This produces further efficiencies and reduces processing and administration costs even more.

There are of course challenges to this vision.

• How would you organize 100 companies to work together for the common good?
• How would you cost effectively map the business processes and integration points of the original 100 companies in the EDI community?
• How would you pre-build integration maps if you don't know all the database applications that you need to support?
• This has been attempted by several industry EDI HUBs in the past with limited success. How would you improve and make it work?

The key, I believe, is in finding commonalities in the first 100 companies in the EDI community. Focus on 100 companies that all use the same ERP like SAP. Most companies, using the same ERP, have similar data requirements for common business processes like invoices and purchase orders. Focus on supporting SAP users with a subset of EDI/B2B message types and business processes. Provide a significant ROI on these. Expand support for an increasing number of business processes and EDI messages until there is full coverage. By starting with a KNOWN ERP you can effectively manage integration projects and leverage your efforts across a broad user base and keep the upfront investment reasonable which keeps the prices down for the customers of this managed service.

In this scenario - SAP is what all the 100 companies have in common. This can be an aggregation point for creating cooperation. The ability to leverage SAP work across all 100 companies is understood and well documented. SAP's support would make this all the more interesting.

The term business network transformation - changing the way things are done today in EDI. How long will companies continue to try to self-fund the entire costs of implementing EDI/B2B the old fashion and inefficient way?

If you would like to discuss this topic in more detail please contact me.