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Managing Electronic Interchange of Business Documents


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Business-to-business electronic transactions and electronic document exchanges are growing rapidly. Such transactions may involve direct exchange of business documents using either Web-based or more structured electronic data interchange (EDI) transactions, or using an intermediary for handling all or part of the buying/selling transaction. Here, we use the term electronic business document interchange (EBDI) to include all business documentsstructured or unstructuredtransmitted over dialup networks or the Internet, including EDI, for business transactions with or without intermediaries. Many larger organizations have already committed significant resources to build the technological infrastructure, recruit and train personnel, and modify business processes for implementing EDI. However, the relatively high cost of value-added network (VAN)-based EDI has limited its use by many small businesses [2]. Many companies will not realize the full benefits of their investments unless many of their small- and medium-sized trading partners also exchange business documents electronically.

In 1997 about 100,000 U.S. companies used some form of EDI [3], but there are two million additional companies with 10 or more employees that may embrace some form of EBDI if costs are lowered. The expected savings for a large firm from such electronic integration can be significant. It is estimated that an automobile factory producing 200,000 cars per year can save about $20 million per year by connecting suppliers electronically [10]. The popularity of the Internet has encouraged Internet-based EDI (IEDI) and other intermediaries such as Ariba and Net Market Makers to provide many alternatives for EBDI. VANs are lowering costs and providing IEDI services to stay competitive. They are likely to coexist with the Internet since their reliability, security, scalability, processing power and support may outweigh the Internet's low cost for some users [4].

Some EBDI alternatives can integrate both business and individual customers using one platform. Individual customers are important as they represent a sizable portion of the expected $327 billion trade over the Internet by 2002 [3]. Therefore, proper selection of EBDI alternatives to handle requirements of diverse trading partners while meeting the strategic needs of the company is very important. Designing a suitable portfolio of EBDI applications is a complex problem and requires consideration of multiple factors, including the existing level of EDI use, power and trust between trading partners (TP) [5], organization size, perceived benefits, and organizational readiness of TPs [6].

There are many different technology choices for implementing EBDI. Electronic document exchange alternatives have been classified from different perspectives [8, 12] and different intermediary options (hubs) have been identified [7]. Here, we have classified electronic document exchange alternatives based on their capabilities and limitations for intercompany document exchange and not on the technological details (such as enveloping issues, programming language, and so forth). This classification helps us group a wide variety of technological alternatives based on their capabilities as seen by an end user. Technical details, which affect a wide range of economic and security issues, are very important at the implementation stage. But, such details have limited impact on aligning EBDI strategies with corporate strategies. Such separation of capabilities from technical details helps a decision maker focus on appropriate capabilities without unnecessary distractions (much like a stepwise refinement process.)

Recent research [9] suggests that EDI use is a multidimensional construct with depth, breadth, diversity, and volume (which is based on depth, breadth, and diversity) of EDI use as measures of understanding EDI use in organizations. We use the concepts of depth, breadth, and diversity to present a framework to develop and evaluate a portfolio of EBDI technologies based upon organizational readiness, business objectives of the company, and desired growth strategy for electronic document exchange. We believe this framework will help decision makers summarize a vast amount of relevant information and identify appropriate EBDI technologies for the organization; we present an example illustrating this framework.

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Measuring the Use and Growth of EBDI

Masseti and Zmud [9] presented the concepts of volume, depth, breadth, and diversity to measure EDI use in an organization. Depth is a measure of the extent to which electronic data is mapped into existing applications. Breadth is a measure of the number of trading partners that have established electronic document exchange capabilities with the firm. Diversity is the measure of the range of electronic documents a firm can exchange with each of its trading partners.

Increasing depth involves increasing the level of integration between EBDI and business processes of the organization. Such integration may require significant investments in software, training, and process changes and modifications. Benefits of such efforts include improved information sharing and process coordination, which results in benefits such as lower inventory, better quality, and reduced shipping costs. However, it may not always be desirable or possible to increase depth. Bargaining power and trust between trading partners play a major role in increasing depth. Financial benefits resulting from greater depth with few trading partners could offset the decrease in bargaining power associated with having a smaller number of trading partners [1]. Hence, there is a tradeoff between depth and breadth when it comes to electronic transactions with suppliers.

Increasing breadth requires additional trading partners to use EDI. This may require providing financial incentives, technical support, and training or coercion [5]. Increasing breadth would increase the volume of electronic document exchange and in turn reduce data entry and mailing costs. Increased breadth may be achieved by adding suppliers or customers, and could be limited if only EDI is used. Internet-based EBDI technologies and the use of intermediaries or hubs [7] may help to increase breadth.

Increasing diversity involves identifying additional transaction sets that can be electronically exchanged between trading partners. This may involve additional programming or implementation efforts and possible process changes. Increasing diversity could, in turn, increase EBDI transaction volume and thus reduce costs. Hubs may be able to increase diversity for the larger trading partner without imposing any changes on the smaller trading partner. Such flexibility can make hubs more attractive to both large and small trading partners.

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Business Objectives and EBDI

Organizations have business objectives (such as raw material inventory reduction) that depend on organizational factors such as size and resources, and environmental factors such as industry structure and nature of competition. As discussed in the previous section, it is clear that depth, breadth, and diversity have different effects on business objectives. Table 1 illustrates some major business objectives and the relative importance of depth, breadth, and diversity on these objectives. The descriptors LI (less important), I (important), VI (very important) are used to illustrate how business objectives can be related to EBDI use. We realize there may be some subjectivity and differences between organizations in relating business objectives to EBDI use. Table 1 illustrates the relationship between EBDI and business objectives that can help organizations identify and prioritize the relative importance of depth, breadth, and diversity for their specific needs.

For example, quick response to changing product demand and new product introduction may require highly integrated computer applications (depth is very important) so that changes in demand can quickly change production schedules, release of new purchase orders, and shipping of finished goods. Breadth is also important for this in order to include required trading partners. Diversity is important since multiple types of documents (shipping notices, purchase orders, and others) may be involved. However, depending on the demand and supply patterns, some trading partners and some kinds of transactions may be more important than others.

A business objective such as reduced data entry cost can be achieved with a lower degree of depth than the quick response situation discussed here. On the other hand it might require a higher degree of breadth and diversity to include a significant portion of all transactions.

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EBDI Infrastructure Alternatives

The infrastructure alternatives for electronic business transactions are evolving rapidly. One alternative is to use EDI that could be dialup, VAN-based, or Internet-based. The Internet may offer support for form-based documents (Web forms) including XML, proprietary format documents, or EDI documents with proper enveloping. It is possible to have a third party provide some of the required services for document exchange, or the larger trading partner may assume the responsibility to run a server and maintain appropriate forms and other software (for example, encryption) in its server. Recently, many third parties (intermediaries), such as Ariba, Net Market Makers, and I2 Technologies have started providing a wide range of services that go beyond merely facilitating document exchange [7]. We have classified current EBDI infrastructure alternatives first into three broad categories based on the use of and services provided by the third parties and then further classified them based on their capabilities as discussed previously (see Table 2).

Each of these alternatives may differ significantly in terms organizational readiness required for successful implementation, and have different implications for continued growth of EBDI use in terms of depth, breadth, and diversity. Table 2 compares these alternatives with respect to expected organizational readiness. Here, DLTP refers to the dominant or larger trading partner and OTP refers to the other trading partner. The terms low, medium, and high are subjective, but are nevertheless useful in understanding the similarities and differences between technology alternatives.

Table 3 presents the impact of technology alternatives on EBDI growth strategies (with respect to depth, breadth, and diversity of document interchange). Some of the EBDI infrastructure alternatives that require further description are explained here.

Web forms maintained by a third party require a third party to develop all required forms and maintain a Web site on behalf of DLTP. OTPs can access Web sites to post and/or retrieve information. The third party could convert data entered into Web forms into standard EDI transactions to be processed by the more sophisticated trading partner. This third party is not necessarily an Internet service provider (ISP) but an entity providing required services for form creation, translation, and so forth. Initial and operating costs are insignificant for the OTP because the DLTP is expected to absorb the cost of the third party. The third party is expected to create a wide variety of forms and translators to attract more business. This can potentially increase breadth and diversity of larger trading partners. Some key issues in this arrangement that need close attention include mailbox facilities, archiving and error handling issues, acknowledgment and retransmission issues.

Web forms maintained by the larger trading partner could have differing degrees of complexity. They could range from simple Web sites with forms to sophisticated extranets. This alternative typically does not use standard EDI transaction sets, requires medium to high technical skill levels for DLTP and low technical skill for OTP. It requires significant initial cost from DLTP and, therefore, requires medium/high degree of management support for the DLTP depending on the complexity of the implementation, but low for OTP. It allows DLTP to develop high-depth applications (extranets).

Internet EDI (IEDI) typically involves standard transaction sets over the Internet and requires a different type of software compared to VAN-based EDI (for example Internet EDI products from Peregrine; www.peregrine.com). This software typically has a browser interface, relatively easy mapping features, and features for security and control of transactions. IEDI may be very appealing to those DLTPs that have a large number of international trading partners where the cost of document exchange may be prohibitive, especially for OTPs from developing countries such as Southeast Asia. IEDI may provide a very inexpensive way of document interchange for these OTPs because it offers a high degree of expandability in terms of depth due to several mapping features available in software. Diversity of Internet EDI applications may be limited by security considerations and hence is lower than the degree of diversity that can be achieved by VAN-based EDI for all parties concerned. A discussion of IEDI security issues is presented by Segev et al. [11].

Vertical and Functional Hubs (such as www.ariba.com) are the third parties (intermediaries) that facilitate transactions between businesses. These provide a wide range of support including electronic transmission of documents. Vertical hubs have industry focus, deep domain-specific knowledge, and facilitate vertical integration in a specific industry. The functional hubs provide similar products and services to a wide cross section of industries [7]. However, many of these intermediaries require their customers to choose from the technology alternatives for the document exchange between the hub and the company linking to the hub. For example, refer to the www.Ariba.com Web site for a list of their document exchange alternatives.

Network Auction Type Hubs (such as www.netmarketmakers.com) are intermediaries that facilitate sporadic or spot buying by bringing buyers and sellers together. Some technology choices for document exchange may have to be made for these hubs too.

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A Framework for Designing E-Business Document Interchange Architectures

An overview of a systematic framework for designing appropriate portfolios of EBDI alternatives is shown in the figure on page 101. Organizations would benefit from analyzing business objectives and evaluate EBDI requirements relative to these objectives in terms of depth, breadth, and diversity (see Table 1). This analysis would help examine technology alternatives appropriate for the planned levels of depth, breadth, and diversity (see Table 3).

Decisions about appropriate levels of depth, breadth, and diversity are also likely to be significantly influenced by the degree of power and trust the organization has with its trading partners. For example, high-depth applications require a greater degree of trust between trading partners. Technology alternatives can then be analyzed relative to technical resource requirements, financial resource requirements, and degree of management support required and nature of trading partners (see Table 2). Existing EBDI infrastructure, security considerations, technical performance requirements, environmental and regulatory factors, and economic considerations may also influence technology choice.

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Illustrative Example

This example illustrates how the framework described here (see the figure) can be used by managers to systematically analyze and guide decisions regarding EBDI strategies. It is based on data collected from a real-world chemical conglomerate, in the context of a broader study; the actual identity is not revealed for reasons of confidentiality. The company is currently engaged in VAN-based EDI with a few high-volume suppliers who have a high degree of organizational readiness for EDI use. The EDI transactions include advance shipment notices that can then be routed to the production department, which in turn will arrange for quality control personnel to be ready when the material arrives. Also, standard invoices are sent by suppliers and are electronically validated against material receipts. Payments are then made electronically. Automatic purchase order generation and the ability for suppliers to check inventory levels are also included.

The company considers cost reduction in purchasing and inventory management to be an important goal to remain competitive. Raw material inventory costs are the most significant portion of manufacturing costs. Management also feels there is significant scope for improved efficiency in purchasing by reducing the costs of processing and monitoring purchase orders.

The company is seeking to expand EDI use to include other suppliers who vary considerably in terms of technological sophistication and financial resources. The company believes that high-depth applications with limited diversity and medium breadth are desirable; Table 1 would be relevant to its goal of material and purchasing cost reduction. Depth for the proposed system is high since the application is similar to the existing applications, with the exception that electronic payments are not required. Diversity is limited to the set of transactions required to support the purchasing cycle (and does not include electronic payments). Breadth is medium since the company has a limited number of suppliers who account for almost all inventory costs. It is therefore seeking an EBDI portfolio, which supports high depth, medium diversity, and medium breadth (see Table 3). The vendors for the company are medium- to large-size organizations. The degree of organizational readiness for EDI use varies considerably among these suppliers, and many of them do not have EDI applications. Many vendors realize integrating EDI transactions with their applications can reduce data entry and paperwork but are concerned about the difficulty of integrating applications with EDI. Internet EDI, which provides relatively easy-to-use tools for application mapping (see Table 2) and lower telecommunications costs such as Trusted Link (www.peregrine.com) is a potential alternative for this environment. Also, the chemical company has the power and trust required to specify the required security method (encryption standard and digital signatures) to be used. The total cost (software, hardware, telecommunication, and other implementation costs) is likely to be lower than a VAN-based alternative, especially if the number of messages between the trading partners is high (a large number of low-quantity, just-in-time shipments).

While the Internet EDI option is suitable for some suppliers who are relatively superior in terms of technical and financial resources and organizational support, there are others who find that the technical resource and/or financial commitments are high. In such cases, the organizations are encouraged to fill out Web forms maintained by a third party who then converts the forms into standard EDI transactions over the Internet. The chemical company prefers to use a third party, since the number of its potential suppliers is not high and in-house application development resources are tight.

Hubs such as Ariba are being considered for purchase of low unit cost, high volume purchases. The primary benefit of such a purchasing service is the availability of online product catalogs from a variety of vendors, catalog maintenance services, and efficient processing of orders from these catalogs.

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Conclusion

Many organizations have adopted some form of EBDI and are looking for ways to derive business benefits. Also, new EBDI alternatives and intermediaries with enhanced functionalities and services are emerging rapidly. Designing a portfolio of EBDI applications requires systematic analysis of a variety of technology and organizational factors, and we have presented a framework to aid managers in systematically analyzing these alternatives. This framework could also serve as the basis for additional empirical research on how organizations manage their EBDI portfolios relative to their business goals.

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References

1. Bakos, Y. and Brynjolffson, E. From vendors to partners: Information technology, incentives, and the optimal number of suppliers. Journal of MIS 10 (1993), 3753.

2. Banerjee, S. and Golhar, D.Y. Electronic data interchange: Characteristics of users and nonusers. Information and Management 26, 2 (Feb. 1993), 6574.

3. Blane, E. Sizing Intercompany Commerce. Forrester Research, July, 1997

4. Edwards, B. Will EDI survive the Internet. EC World (May 1998), 3844.

5. Hart, P. and Saunders, C. Power and trust: Critical factors in the adoption and use of electronic data interchange. Organization Science 8, 1 (Jan.Feb. 1997), 2342.

6. Iacouvou, C., Benbasat, I., and Dexter, A. Electronic data interchange and small organizations: Adoption and impact of technology. MIS Quarterly 19, 4 (Dec. 1995), 465486.

7. Sawhney, M. and Kaplan, S. Let's get vertical. Business 2.0 (Sept. 1999); www.business2.com/articles/1999/09/content/models.html.

8. Mak, H.C. and Johnston, R.B. Tools for implementing EDI over the Internet. EDI Forum: The Journal of Electronic Commerce 11, 1 (Jan. 1998); 4456.

9. Masseti, B. and Zmud, R.W. Measuring the extent of EDI usage in complex organizations: Strategies and illustrative examples. MIS Quarterly 20, 3 (Sept. 1996), 331345.

10. Mukhopadhyay, T., Kekre, S., and Kalathur, S. Business value of information technology: A study of electronic data interchange. MIS Quarterly 19, 2 (June 1995), 137156.

11. Segev, A., Porra, J., and Roldan, M. Internet-based EDI strategy. Decision Support Systems 21, (1997), 157170.

12. Senn, J.A. Expanding the reach of electronic commerce: The Internet EDI alternative. Information Systems Management (Summer 1998), 715.

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Authors

Snehamay Banerjee (snehamy@crab.rutgers.edu) is an associate professor in the College of Business and College of Arts and Sciences at Rutgers University, NJ.

Ram L. Kumar (rlkumar@email.uncc.edu) is an associate professor at The Belk College of Business, University of North Carolina at Charlotte.

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Figures

UF1Figure. A framework for managing EBDI portfolios.

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Tables

T1Table 1. Relating business objectives to depth, breadth, and diversity of EBDI use.

T2Table 2. Comparing EBDI technology choices.

T3Table 3. Impact of EBDI infrastructure of growth of electronic business transactions.

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