Are You Ready for Electronic Partnering?

Many large companies are pushing their suppliers into electronic data interchange. If you're prepared, that can be good news

After 10 years of selling her product to giant retailers like Sears, Roebuck and Co. and JCPenney Co., Lorette Sobel-Konezney had earned a reputation for reliably filling orders. Her routine was simple: customers faxed in purchase orders, and she sent the goods and mailed out an invoice. Delivery was prompt, and nothing fell through the cracks. That's why the owner of Pen Notes Inc., a $1.3-million designer and manufacturer of children's writing guides, based in Long Island, N.Y., was annoyed when JCPenney wanted her to abandon her fax machine and go on-line for ordering and invoicing. Now, after two years, $10,000, and countless hours of frustrating software fiddling, Sobel-Konezney is finally able to receive purchase orders on-line from JCPenney. "It seemed ridiculous," recalls Sobel-Konezney. "But the message was clear: you either do it or die."

The Cedar Works Inc., in Peebles, Ohio, got pushed on-line too. Five years ago Wal-Mart told the then $4-million manufacturer of aromatic bird feeders and mailboxes that it had to start taking orders and sending invoices on-line. The company's experience with information technology at the time went no further than two stand-alone Macs. Nevertheless, Cedar Works' owners were enthusiastic about mastering whatever technology was necessary to keep a big customer happy. Today, Cedar Works is an $18-million company, on-line with no fewer than 10 major retailers, including Home Depot Inc., Target Stores, and Nature Co. Inc. Roy Willman, one of Cedar Works' owners and its vice-president, says it's been a win-win situation. "We've improved cash flow and customer satisfaction," notes Willman. "And even if we were losing money, customer satisfaction alone might justify being on-line."

Whether companies are ready or not, the age of electronic partnering has arrived. For many that will mean replacing conventional order-taking, shipping, and invoicing processes with electronic data interchange (EDI) systems, which hook computers together via telephone lines to swap information. Large companies and companies that serve consumers may be able to pick and choose when and with whom they set up EDI relationships. But growing companies that supply large organizations aren't likely to have much say in the matter.

Giant retailers, big manufacturers, and the U.S. government are pushing EDI harder than ever. That's because they can save millions with EDI by placing and processing orders faster and more accurately. In addition, by sharing critical point-of-sale, inventory, and forecasting information with suppliers, large companies can carry smaller inventories and still run out of items less frequently.

But for growing companies, the prospect of going on-line with a large customer can be a double-edged sword. On the one hand, many smaller companies say they lack the time and expertise to set up EDI properly. And some business owners complain that even when they do get a system up and running, they find that all the benefits of EDI accrue to their heavyweight partners -- not to them. On the other hand, growing businesses that embrace EDI as an opportunity to leverage investments in technology find that the process provides a chance to cut costs, speed order turnaround, boost cash flow, improve sell-through, and cement lucrative relationships.

There's strong evidence to suggest that EDI doesn't have to be a burden to smaller companies. In a recent survey conducted by the EDI World Institute, in Montreal, only 8% of 149 small businesses claimed that EDI had weakened the company's financial performance. Fully half saw improved profits, while almost a third had better inventory management.

But deriving the full benefits of EDI isn't easy, notes Snehamay Banerjee, associate professor of decision sciences in the College of Business at Clark Atlanta University, in Atlanta, and a specialist in EDI. "Long-term benefits come from integrating a company's internal network with an EDI system," he says. "Small businesses usually aren't capable of that."

Getting Dragged into EDI
No wonder some businesses treat EDI like a disease. Consider Pen Notes. Despite a number of notices from JCPenney informing her of coming changes, Sobel-Konezney spent the better part of two years trying to avoid going on-line, mainly because she lacked technical know-how. Not only was she unfamiliar with EDI, she had never used a computer. Sobel-Konezney didn't bite the bullet until JCPenney sent a letter in mid-1993 stating that if she wasn't EDI-capable by January 1, 1994, she'd be dropped. JCPenney was too valuable a customer to let go: it brought in $40,000 a year in sales and through its Christmas catalog got Pen Notes' products in front of more than 14 million people.

Between running a small factory and producing artwork for the books she manufactures, Sobel-Konezney had neither the time nor the inclination to research EDI requirements herself. So with less than three months left to meet her January 1 deadline, she took the list of technical specifications that JCPenney had given her and went to her local computer store. By the end of the month, she had a 486 PC with a 9600-baud fax modem and an account with General Electric Information Systems (GEIS), a service that provides software and telephone-based communications links to companies that want to hook up on-line.

Sobel-Konezney then dutifully signed up for an EDI training course with GEIS. It's not a fond memory. "Let's just say I had trouble keeping up," she says. While she was struggling with such computer basics as using a mouse, JCPenney was counting down the days until the on-line-or-out deadline. Sobel-Konezney hadn't even realized that orders would be sent to her computer; she had expected to type them in after receiving them by phone. "It was humiliating," she recalls. "I had made it all this way in business, and now I was like a kindergartner."