A New Shipping Route

Major retailers begin to require online transactions for suppliers.

Business-to-business online commerce is entering a new phase of acceptance and adoption as heavyweights such as Wal-Mart Stores Inc. and Do It Best Corp. begin to require suppliers to transmit transaction information over the Internet.

Wal-Mart, which conducts more than $217 billion in transactions annually, earlier this month told its 14,000 suppliers that if they want to do business with the Bentonville, Ark., retailer, they must do it electronically. A memo sent to the suppliers said that within a year, they must use the EDI-INT (Electronic Data Interchange-Internet Integration) and AS2 (Applicability Statement 2) data transmission protocols.

The goal is to save money by moving from traditional EDI and expensive VANs (value-added networks) to the EDI-over-the-Internet transaction protocol, supplemented by transport standards AS1 and AS2.

To help, Wal-Mart is encouraging suppliers to use iSoft Corp.s Commerce Suite software, which provides trading community management, public-key-infrastructure technology and an IP-based secure communications infrastructure. Data transmitted using the AS2 standard will be digitally signed and nonrepudiated.

By implementing AS2, Wal-Mart will enable suppliers to send and receive electronic data globally, without the use of VANs.

EDI-INT, introduced about five years ago by the Internet Engineering Task Force, allows secure communications over IP-based networks such as the Internet.

Sara Lee Corp., which has five product lines, considers Wal-Mart one of its most important customers—as does just about every other manufacturer and supplier in the consumer-packaged-goods industry.

Sara Lee, an early purveyor of B2B e-commerce transactions with its scan-based trading technology, was approached by Wal-Mart to be part of its EDI-INT/AS2 pilot program.

"Today, everyone does a direct connect—we dial in to their mainframe," said Martha Uhlhorn, executive vice president of e-commerce and category management with the Sara Lee Bakery Group, in St. Louis. "[Wal-Mart] has multiple points of contact with Sara Lee, and they want to send and receive information from a single point. That means we have to make an investment [whereby] instead of the Bakery Group dialing mainframe to mainframe, well have to route that data package to a staging area, if you will, and that mailbox will hold that information until we communicate that to Wal-Mart, so its one mailbox to one mailbox."

Uhlhorn said Sara Lee will test the system next quarter. "Wed already made the technology investments for other purposes, so well be able to leverage that," she said. Even with an additional investment in programmers and IBMs MQSeries integration software, Uhlhorn said the Wal-Mart mandate is worth the effort.

"We hope its at least cost-neutral, though I have not seen the [return on investment]," said Uhlhorn. "Its worth our time to do business with Wal-Mart. They are just about everybodys largest customer today. And people play pretty close attention to their biggest customer."

Uhlhorn is anticipating a residual effect in the industry. "Because so many of our customers watch Wal-Mart, my guess is they will begin to replicate [Wal-Marts B2B efforts]. Oftentimes when they make a decision that affects a lot of suppliers, certainly with their power they can affect a de facto standard."

While Wal-Mart is the first large retailer to require the use of the AS2 standard, it is by no means alone. Do It Best, a building materials, lumber and hardware consortium with 5,500 member retailers, including Home Depot Inc., Lowes Company Inc. and Dixie Line Lumber Co., is requiring that each of its suppliers conduct business via Internet EDI within a year.

To aid suppliers—some of which are none too happy about the transition—Do It Best is providing a low-cost connection service through Advanced Data Exchange and Cyclone Commerce Corp. "Cyclone is the transport between us and ADX—how to get data from A to B—and the Cyclone product keeps the VANs out of the picture, so we dont have to pay that character volume charge," said James McLauchlin, EDI analyst with Do It Best, in Fort Wayne, Ind.

McLauchlin applauded Wal-Marts mandate to use the AS2 standard because it will make his life a lot easier as he further automates his suppliers transactions.

"Most definitely there is resistance [from suppliers toward using Internet EDI]. But we cant afford to do [traditional] EDI anymore," said McLauchlin. "We want our members to get the data they need. And papers out. But we just got to do it. And were certainly not the first—were one of the last."

Sara Lees Uhlhorn said she hopes that moves such as those by Wal-Mart and Do It Best will help her persuade the 40 percent of Sara Lee customers that do not use Internet EDI to make the switch.

"We have approached every single one of our customers about that," Uhlhorn said. "In some cases, its not the same priority for us as it is for them. In the EDI world, its the sender that pays for transmission, and theyre sending us a lot of data. They just have bigger fish to fry than Internet EDI."