The Potential of Electronic Commerce

The first generation of supply chain electronic commerce involved proprietary EDI transactions that were developed between industry segments of trading partners. Generally these partners were large companies who were early adopters of the technology, capable of making the necessary economic investment, and able to prove the business case for the technology. This first generation generally required that all trading partners connect to the same proprietary network and maintain their own internal systems based on a set of contractual agreements. Over time these agreements formed the basis of what would be considered 'industrial grade' for business to business electronic commerce solutions. As more industry segments began to realize the value of EDI there was agreement that the transaction sets must be standardized and organizations like the American National Standards Institute (ANSI), and the International Standards Organization (ISO) took up the burden of the work. This allowed different networks to interconnect with one another and extended the scope of EDI globally.

This standards based approach worked well in that it allowed for all concerned parties to have a voice in the process but it could be very time consuming and the solutions which were developed could be very expensive to deploy. The result has been that implementation of EDI has slowed because the large companies that could afford the economic investment and could justify the business case have generally done so and the small and medium size enterprises (SMEs) have stayed away. This has increasingly caused concern to the larger companies because in order to achieve additional operating efficiencies they need to conduct business electronically with all their trading partners and that includes the SMEs.

Enter the Internet
Even though the Internet has been with us in one form or another for the past thirty years it was the introduction of the World Wide Web and browser technology in the early 1990's that led to its current popularity. There have been a number of remarkable uses that this technology has facilitated and the future potential seems limitless. The real sticking point seems to be that old 'industrial grade' definition.

While business people developed the first generation EDI solutions under the auspices of formal standards making bodies, the Internet was developed in a more casual, though technically rigorous environment. Internet changes and improvements could be made very rapidly where the standards based EDI solutions required the time to gain broad consensus. The first generation EDI systems addressed issues like delivery windows, authentication and verification, network availability and security. These issues were not necessarily a major consideration when the Internet was being developed.

The point of this lesson in electronic commerce history is that the large early adopters have industrial grade business to business solutions. The road to future growth would appear to lie in a direction where SMEs could deploy Internet based solutions at a much lower entry cost. It is not clear that the Internet yet has all of the attributes necessary to support serious business to business activity but there are a number of efforts under way to rectify these shortcomings.

Transitions
We now appear to be entering a period of transition between the first and an emerging second generation of electronic commerce. There are many conflicting goals and methods that may appear in this period. First there is the question of whether the second generation Internet model should by used to simply extend the first generation or whether the Internet should be used to jump to a new business model which offers business functions that have never existed before. Next, we will have to determine whether the process, which will build the next generation, will follow the the 'Internet standards' model or the 'ANSI standards' model. Finally, will we see the rise of the entrepreneurs who are developing proprietary electronic commerce solutions, based on no existing standards set but trying to garner market share as rapidly as possible.

The answer, if there is one, seems to be that we will see all of these things occurring simultaneously. The existing EDI Value Added Networks (VANS) have developed Internet based EDI software which use smart-forms to allow SMEs to communicate in a secure fashion with the large early adopter companies. Within a short period of time these bridging solutions should begin to be accepted and should begin to extend the reach of traditional EDI over the Internet.

Corporate extranets have been growing rapidly in an attempt to extend the reach of organizations with their trading partners and to extend business functionality beyond that of traditional EDI. In each case these corporate extranets have been proprietary insofar as they have a look and feel which is unique to the enterprise that is managing the extranet. One recent exception to the rule came from the US Automotive industry when it announced the formation of the Automotive Network Exchange (ANX). ANX is intended to be a next generation electronic commerce network linking the big three automotive manufacturers with their supplier community. Any Internet Service Supplier (ISP), software or hardware supplier can participate in the ANX network if they are certified to conform to the standards set by ANX. These standards address issues like delivery windows, availability, and business practices. ANX supplies the smart-form templates, product identifications and digital certificates to assure that all electronic transactions are industrial grade. The sheer buying power of the automotive industry is sufficient incentive to assure interest in working to 'their standards'. If this sounds as if history is repeating itself it probably is. The logical next step may well be to replicate the ANX model to other industries.

Next Steps
There are many possible next steps but perhaps among the most important from a supply chain perspective is how we will define and identify products in the next generation. In the first generation product catalogs were generally proprietary. They were maintained by suppliers, manufacturers and EDI VANS in formats proscribed by fixed field lengths. In the Internet generation, image or sound as well as text can identify products. There appears to be growing consensus that the extensible markup language (XML) may prove to be a solution for product catalogs. XML acts as a common data dictionary, which describes all of the fields that can be used to define a product. Once the characteristics of a product catalog have been defined each supplier and manufacturer can populate their catalog with their products and describe them however they choose. A customer, whether purchase agent, merchant or ultimate consumer can configure their browser so that regardless of the product catalog they view the elements of the catalog will appear in the same location. There is currently an XML pilot that is being administered by the U.S. General Services Administration and it may well prove the business case for this approach.

One other next step will be to make sure that the solutions that are developed for electronic commerce on the Internet are not later harmed by changes in public policy. In the past the U.S. has adopted a hands-off policy with respect to technology and specifically the Internet. Now that there is so much attention being focused on both the Internet and electronic commerce there is an overwhelming desire, both in Washington and in Brussels for the European Union, to draft legislation. Because supply chain issues are generally global there will need to be consistent and reciprocal legal treatment of electronic commerce. There are no current agreements regarding encryption, digital certificates, taxes or a large number of other issues. The negotiations have already begun and the results may or may not be beneficial. The point is that there will likely be legal rules that have not existed in the past for electronic commerce.

CONCLUSION
The issues of electronic commerce are complex and are likely to get more so over time. The large companies are successful because of the higher levels of automation in their supply chains and will be looking either for incremental cost efficiencies or, more likely, a new web enabled business model through electronic commerce. SMEs, on the other hand, will be seeking competitive parity (and advantage) against larger firms through innovative use of new web-enabled business models. In either case, we will be living in interesting times for both entrepreneurs and established companies.

About the Author
Don Gilbert
Sr. VP. Information Technology
National Retail Federation

Don joined the National Retail Federation in April, 1995 after serving as the Director of Information Systems at the American Petroleum Institute for thirteen years. He is responsible for internal IT, industry technical committees, and public policy issues which affect the use of information technology within the retail industry.

His role within the National Retail Federation is to support the deployment of technology within the retail industry through the development of new standards, the determination of best practices, and by facilitating the interoperability of retail technologies throughout the supply chain. Currently he is directing his efforts to Y2K issues, the rapid deployment of electronic commerce and the constant rate of change in the retail space.