Of all the electronic B2B sales channels, the oldest and still the biggest workhorse is electronic data interchange. EDI allows companies to exchange such standardized business documents as purchase orders and invoices via electronic networks.
In 2019 EDI accounted for 78.4%—$7.00 trillion—of all B2B electronic sales, according to data and analysis in the 2020 B2B Ecommerce Market Report, a new forthcoming research report from Digital Commerce 360 B2B. EDI in some form has been around since the 1960s and remains a dominant sales channel in industries that range from automotive and retail to healthcare, among others.
Even in a B2B ecommerce market that is growing increasingly online through ecommerce sites, log-in portals and marketplaces, EDI still has a big role to play. In this question-and-answer series with Forrester Research Inc. senior analyst for ecommerce and digital transformation Joe Cicman, he looks at the current intersection of EDI and B2B ecommerce and why the two electronic sales channels will become even more interconnected—now and in the years ahead.
DC360: Why is EDI still accounting for the vast majority of B2B electronic sales?
Cicman: When you step back from EDI, you see that it’s more than just a delimited file format. It’s actually two enterprise resource planning (ERP) systems talking to one another. That ERP is planning production runs or is crunching the retail replenishment data. So, EDI will be around as long as ERPs are doing planning. When you zoom-out from the value chain, you find that anything that gets sold retail or procured by a business gets manufactured. And when you imagine all the steps in the lifecycle of a product (all the way back to raw materials) you notice that several ERPs talked to one another.
Will there ever be an alternative? Yes—and I’m beginning to meet some very innovative companies that are helping ERPs talk to one another differently.
DC360: How is EDI intersecting with B2B ecommerce?
Cicman: Sometimes an electronic purchase process was put in place years ago when EDI was the only option. I’ve come across more than a few situations where an ad-hoc procurement process had been force-fit into EDI. I hear stories from Ariba implementations where companies moved purchasing from EDI to application programming interface (API) via Ariba. Editor’s note: SAP Ariba is an electronic network and procurement software that B2B buyers and sellers use to collaborate on contract management, financial supply chain management and related digital transaction functions. Each year the SAP Ariba network processes more than $3.2 trillion in total B2B transactions.
DC360: What does the future hold for this intersection?
Cicman: EDI has its place in a lot of processes and it’s optimized for that. Big retail replenishment, logistics and tendering, and multi-modal status notifications for automotive assembly are some examples. It’s good for that. There are other purchasing activities outside those core ones that are being optimized. Indirect spend analytics—any of the levers a chief financial officer can pull to “land the plane” at the end of an accounting period to meet targets.
When I ask myself “what’s the future hold for EDI?” I ask myself: “Where’s the waste or opportunity in the business process that EDI facilitates?” Imagine a retailer being accountable for food safety, but not having 360-degree view of the entire food supply chain. Is there a solution out there that adds so much value to every participant that they’d be compelled to re-tool away from ANSI EDI?
DC360: What’s driving growth in EDI sales?
Cicman: The economy. A rising tide lifts all boats.
DC360: Is EDI just for the large manufacturers and distributors? Are they investing less in EDI going forward and more in B2B ecommerce?
Cicman: When I look at the spread of EDI, I look at the power map in a supply chain. The buyers like Walmart and Ford have the power. They mandate that their suppliers adopt EDI. That’s how it spreads. Remember the Sham-Wow guy? Or Billy Mays the OxyClean guy? Before those showed up in Walmart, someone went to Bentonville to do the pitch.
When the deal got signed, the Sham-Wow guy got a supplier compliance packet that told him exactly how the orders would come through, the case pack factor, how the shipping label needed to be formatted, and the EDI standards to comply with. Sham-Wow had to implement EDI in order to get the Walmart business. That’s a simplified version of how EDI spreads.
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