AS2 for EDI Hubs – The Value Proposition

I would like to move all of our EDI business documents, which represent 90% of our business, from our reliable EDI VAN for communications to communicating these business documents using the
Internet?

In 1999, if an MIS Director had gone to his executive with such a proposal, he would have been laughed at or more likely fired. In the year 2007, many large Electronic Data Interchange (EDI) Hubs
such as Wal-Mart, Hyundai, Covisint, GMAC, Lowe’s, Meijers, Michaels, Food Lion, Kohls, Winn-Dixie, etc. have switched from VAN communications to using the Internet for the transmission of
business critical documents. “Internet EDI transaction volume has been increasing steadily during the past six quarters at a 50%-60% growth rate,” said Carl Lehmann, vice president of
technology research services at META Group. 

Why did they switch? Cost is one reason. Hubs are constantly trying to find ways to reduce costs. Companies such as Do-It-Best have found that cost of EDI via a VAN is expensive, with a charge
reaching $15,000 per month. Piggly Wiggly Carolina Co. has cut their costs by 70% since going from a VAN to AS2 with 20 of its 600 trading partners, according to Kathy Davis, a lead systems analyst
at the Charleston-based grocer. In addition, the use of EDI is increasing. Ken Vollmer, an analyst at Cambridge, Massachusetts-based Forrester Research, estimated that EDI represents 80% –
90% of the total business to business traffic, and the number and cost of EDI transactions is growing at 3 – 5% per year. At J.C. Penney, the growth rate was 17% from May of 2003 to May of
2004 as EDI was expanded into the logistics and transportation processes. For a supplier such as Coty to conduct business with a typical midrange customer over a VAN costs about $300 per
month.  “There seems to be a constant flow of requests for internal business owners as well as customers to increase the amount and type of electronic information exchanged using EDI and
everyone wants automated, seamless interfacing of data” says Cynthia Wilson, EDI coordinator at Dallas based Morningstar Foods. As retailers expand to EDI intensive initiatives such as VMI,
CFPR and Scan-based trading, the flow of business documents transmitted will expand even further in the future.

Another reason for the switch from VAN to EDI over the Internet using AS2 was for the speed and security of transmission. While EDI VANs employ a “store and forward” mailbox approach,
which requires that trading partners sign on to a mailbox to receive their documents, direct connections using the Internet immediately transfer the document to your trading partner. When the
Internet Engineering Task Force (IETF) defined the standard for EDI over the Internet (EDIINT) AS2, it allowed for direct connections that transfer securely (using HTTPS). The AS2 standard is a
specification that describes how to create a connection and securely transport an EDI file over the Internet. AS2 provides security for the transport of HTTP packets through digital signatures and
data encryption. AS2 also provides for non-repudiation – proof that a transaction was performed at a certain time and by legitimate parties – through the use of Message Delivery
Notifications (MDN).

Another key reason that many retailers have come on board with AS2 is the critical mass of suppliers using AS2 to communicate. Driving the trend to Internet EDI were mandates from influential
companies – including Wal-Mart which has required that all of their 14,000 suppliers communicate their EDI documents via AS2. The following is a partial list of large companies who are
communicating via AS2 today:

  • 3M
  • ACE Hardware
  • Army / Air Force (AAFES) 
  • ASDA
  • Cardinal Heath
  • Covisint
  • Food Lion
  • General Mills
  • GMAC
  • Giant Eagle
  • Gottschalks
  • Hannaford
  • Hyundai
  • Home Depot
  • KB Toys 
  • Kohl’s 
  • Kraft 
  • Lowe’s 
  • Microsoft
  • McKesson Drugs
  • McLane 
  • Meijer
  • Procter & Gamble
  • Target 
  • Toys R Us 
  • Wal-Mart 
  • Winn-Dixie 

Another reason for the move to AS2 was to be able to manage the movement of any business documents (not just EDI formatted documents). Although the AS2 standard has come from the EDI world,
it is in fact payload agnostic and the message could be anything. It could be a private message format or could be one of the many XML-based standards. The message could be a financial transaction
between clients and brokers or banks and their clients. It could be confidential data between healthcare companies and insurance companies, or it could be inter-store sales data or merchandise
transfers. Spawned by major retailers’ endorsement of EDI-INT AS2 Internet transport technology and the recommendation that its suppliers move toward UCCnet’s GlobalRegistry for product
item synchronization, most consumer packaged goods (CPG) organizations and retailers are seeking improvement in their B2Bi  (Business to Business via internet) strategies and techniques. All
of these documents which cannot be transferred via traditional EDI VANs can be communicated via AS2. Companies are also starting to use AS2 to secure data as it moves within corporate boundaries
– such as between legacy processing platforms.

Switching to an Internet-based infrastructure for communications requires that a company have a solution that can duplicate the “management/audit” functionality of VANs. To understand
this need, one must go back to the advent of EDI to understand the value proposition that EDI VANs made for their existence. At that time, there was a need for an infrastructure to communicate EDI
documents (there was no Internet), plus they needed a way to manage the flow of EDI standard business documents between trading partners. In essence, the VAN provided the universal access to
trading partners and a way for the retailer and supplier to exchange EDI-only business documents and be confident that the EDI business document:

  • Had been sent once and only once
  • Had not been intercepted and viewed on route
  • Had not been altered on route
  • Had been delivered to the intended recipient and no one else
  • Had delivery confirmed to the sender
  • Had been  re-queued if the document was lost or partially sent to the supplier

The immediate value proposition of moving away from VANs is to:

  • Eliminate monthly VAN fees currently being paid by both parties of the transaction (sender/receiver), generating an immediate cost savings and hard ROI.
  • Automate business processes by enabling dynamic data interchange, generating substantial efficiency gains for mid-market companies and their trading partner community.
  • Reduce costs to monitor, audit and manage the movement of business information between a company’s internal systems and their trading partner community no matter how the documents are
    formatted.

  • Increase the speed of the flow of business information to a companies supply chain.
  • Reduce the time and effort to identify “problem” business documents.
  • Eliminate “lost” transactions by the use of Message Delivery Notifications reconciliation. 

Companies are making the switch to EDI over the Internet using products such as SoftCare’s TradeLink because they can integrate and manage electronic business document processes internally
and among trading communities while combining e-business process integration, trading community management, network configuration and management tools, and secure multi-protocol Internet
communications required for hundreds and thousands of trading partners and customers while reducing their bottom line costs of doing business.

To learn more about EDI, B2B Commerce, Scan Based Trading and eCatalogs for Retailers, Suppliers & Manufacturers, see the numerous company case studies at www.softcare.com/whitepapers.

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About Mike Cobban

Mike is the Director of Business Analysis at SoftCare EC Inc. He has worked as an information systems professional for 26 years with 19 years of experience in implementation consulting and design of EDI, electronic commerce solutions and enterprise level business process re-engineering. He has extensive experience in the design and implementation of business-to-business solutions in retail and retail supply chain, and data mining experience in the banking, insurance and financial industries. Prior to working at SoftCare, he worked as the EDI Manager for Woodward’s Stores Ltd. where he designed their EDI system from the ground up. Mike can be reached at mike@softcare.com.

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