Wal-Mart Dictates Technological Terms

Wal-Mart Dictates Technological Terms

Larry Barrett

It would be as if the guy who runs the town’s biggest market started telling farmers which roads they had to take to get to him.

Like the farmers, suppliers accustomed to developing their information-technology strategies around what they think is the best way to run their business are coming up against a harsh new reality, one in which key customers are setting the agenda and deciding what systems the suppliers ought to use.

From discount retailer Wal-Mart to the United Parcel Service transport company, businesses that are technology leaders are forcing their suppliers, and in some cases their head-on competitors, to follow their lead. How can you be sure that the changes being imposed on you by this power shift are good?

Take Wal-Mart stores. Last month, the $218-billion discount retailer announced in a memo to each of its 14,000-plus suppliers that if they wanted to continue doing business with the world’s largest retailer, they would have to do it on Wal-Mart’s technical terms.

The company said it would now require its vendors to use new data transmission proto- cols known as EDI-INT (Electronic Data Interchange-Internet Integration) and AS2 (Applicability Statement 2) for all purchase orders, billings, invoices and pricing correspondence. The protocols allow data to be exchanged directly between partners via the Internet rather than routed through an e-mail server.

Do It Best, a building materials, lumber and hardware consortium with 5,500 member retailers including Home Depot, Lowe’s Company and Dixie Line Lumber, is also requiring that each of its suppliers conduct business via Internet EDI within a year.

“This is the story of EDI,” says Frank Kenney, an analyst at technol-ogy market research firm Gartner Inc. “When a huge company like Wal-Mart says it’s no longer going to take fax orders or invoices, you have to do what they want or else you risk losing your biggest customer. That’s the clout that Wal-Mart has.”

Wal-Mart says it no longer wants its suppliers to use traditional EDI technology and expensive value-added networks (VANs) provided by the likes of IBM, GXS and EDS to guarantee the security of business-to-business communications over the Internet. Until the AS2 protocol was developed, business partners needed VANs, which use the communication services of other commercial carriers to securely transmit data between two or more partners, to guarantee the secure exchange of information.

The AS2 standard, on the other hand, allows business transactions to take place securely in standard Web communi- cations. AS2 places a document in an envelope and encrypts it with digital certification—whether it’s a simple Excel spreadsheet, say, or a document written in XML, a language designed to improve the functionality of the Web by providing more flexible and adaptable information identification. When the document arrives at its destination, the software on a user’s desktop decodes the document.

Softening the Blow

To make life a bit easier on its suppliers, Wal-Mart is partnering with secure trading-software developer iSoft Corp. to provide trading-community-management software at a discounted price to Wal-Mart suppliers. Wal-Mart also has teamed up with software vendors IBM and Sterling Commerce to provide integration services for the IP-based secure communications infrastructure.

“This isn’t to say that suppliers have to use iSoft or the integration partners Wal-Mart has recommended,” Kenney says. “The point is, if you want to do business with Wal-Mart, you have to figure out what strategy and partners best suit your needs.”

Determining which vendor and technology package best fits your organization is the real challenge.

“There are as many ways to do it as there are businesses,” says Sterling Chief Operating Officer Sam Starr. “We’re talking about integrating a transport mechanism into a company’s back office.”

Suppliers have until next October to comply with Wal-Mart’s demand. But that still doesn’t make them happy.

“It’s not such a big issue for large suppliers because most of them are already using AS2 with their own suppliers,” says one industry analyst who asked not to be named. “But for the mid-tier and smaller companies, this is a real pain in the neck.” Other leading retailers such as Kmart and Target will likely watch to see how well suppliers and Wal-Mart adapt to the new standard before requiring it of their own suppliers, according to Kenney.

Meanwhile, at FedEx Corp., it’s the competition that has set the pace. The company last month announced that it had finally installed the software needed to manage all of its procurement services and transactions electronically. The company says its invoicing process has been reduced from seven steps to three fully automated steps, and that it expects to see a substantial return on investment within the first year.

This commitment to e-procurement comes after competitor UPS completed its own electronic overhaul, which consolidated more than 84 separate financial centers into one main hub with 15 smaller satellite centers.

“Today we have about 18,000 users on Oracle’s workflow and self-service purchasing system,” says UPS spokeswoman Donna Barrett. “We had more than 70,000 U.S. vendors and desperately needed to streamline our financial and purchasing operations. We realized that it was almost impossible to keep track of costs using a mix of electronic and paper records.”

The pressure to keep or set the pace in an industry with so few major competitors, or so few major customers, is the single greatest challenge facing technology managers, analysts say.

“We absolutely knew we had to be aware of what our competition was doing and perhaps even become a pioneer,” Barrett said. “It was the obvious next thing to do when the technology was available to do it. I’m sure we’ll see more of this as the technology evolves.”

What You Should Do if You’re Following Someone Else’s Lead

Use What You’ve Got

Find applications in your existing infrastructure that you can put to use with any new technology you’re considering.

Reuse

Find ways to reuse or reconfigure applications and technology you have to avoid extensive hiring and retraining.

Get Smarter

Talk to vendors and even to their vendors to see what everyone else is using—and what lessons can be learned from their mistakes.

Re-Commit

Determine just how important this customer is to your long-term business objectives before pursuing the project it is pushing.

Copyright © 2002 Ziff Davis Media Inc. All Rights Reserved. Originally appearing in Baseline.