E-commerce study: EDI still popular among distributors

By Staff -- Purchasing, 2/22/2001

Despite growing popularity of the Internet, distributors and manufacturers alike continue to see electronic data interchange as an effective e-commerce tool for sending and receiving transactions.

So finds new research, E-Commerce Study: An Industry Baseline for E-Commerce and Supply Chain Integration, by the Thomas A. Read Center for Distribution Research and Education at Texas A & M University for the American Supply & Machinery Manufacturers' Association (ASMMA) and the Industrial Distribution Association (I.D.A.).

Preliminary findings were presented by Brian Reynolds, associate director, Thomas A. Read Center for Distribution Research and Education, to members of NAPM 's MRO Buyers Group attending an annual meeting in San Diego recently. Findings were also shared with ASMMA and I.D.A. members attending the groups' annual fall convention held in Chicago.

ASMMA and I.D.A. co-sponsored the study to explore current and expected use trends of electronic commerce, EDI and bar coding in the industrial supply channel. The ASMMA /I.D.A. Joint Electronic Commerce Committee provided guidance and direction.

The project's objective was to determine and understand the impact e-commerce technologies will have on the structure of I.D.A. members' businesses and on the distribution practices of ASMMA members. Other objectives included an assessment of the status of electronic data interchange implementations and the extent of bar-coding usage. (Last month, PURCHASING reported on findings related to use of the Internet and e-commerce.)

Mail surveys were sent to all ASMMA members and I.D.A. members. In addition, a follow-up fax was sent to members of both groups. Telephone surveys were also conducted by the research team.

ASMMA members are classified into three categories based on annual sales volume. ASMMA members with annual sales of less than $5 million are classified as small; those with annual sales of $5 million to $20 million are medium-sized; and those with annual sales of more than $20 million are large. Thirty-five percent of respondents fall into the small classification; 30% are medium; and 35% are large. The percentages are fairly representative of the overall ASMMA membership with respect to size, although somewhat skewed toward the larger firms, report the researchers.

I.D.A. member respondents are also classified into categories based on annual sales volume. Small size is for members with annual sales of less than $5 million. I.D.A. members with annual sales of $5 million to $20 million are medium-sized; and large-size members have annual sales of more than $20 million. Thirty-eight percent of respondents are small sized. The medium-size category contains 34% of respondents, with the remaining 24% of respondents being large sized. Again, the percentages are representative of total membership, but slightly biased toward larger member firms.

Almost 40% of responding manufacturers and 62% of responding distributors report using EDI technology. Of those currently using it, close to 90% of responding ASMMA members and 94% of I.D.A. members have been using it for more than two years. Forty-two percent of ASMMA members and 58% of I.D.A. members have been using EDI for more than five years.

At the same time, only 12% of ASMMA members and 5% of I.D.A. members indicate that they started using EDI within the past two years. There may be a reluctance to implement EDI because of uncertainty of which transfer mechanism will be used to utilize EDI transactions in the future.

Size of the member firm does appear to impact use of EDI. Large firms, for both manufacturers and distributors, are more likely to use EDI. Seventy percent of large-size ASMMA members, 31% of medium-size ASMMA members, and 13% of small-size ASMMA members use EDI. Similarly, 93% of large-size I.D.A. members, 77% of medium-size I.D.A. members, and 28% of small-size I.D.A. members use EDI. Given the cost of implementing EDI, this result was not unexpected, say the researchers.

Of the respondents that use EDI, 77% of ASMMA and 89% of I.D.A. members use value-added networks (VANs). Only 31% of manufacturers and 25% of distributors report using the Internet for EDI transactions. Small and medium-size firms (both ASMMA and I.D.A. members) are more likely to use the Internet for EDI transactions than large-size member firms. This is probably because almost 60% of large firms have been using EDI for more than five years, and they have both the investment and experience with traditional VANs. Within the next two years, most users of EDI expect to use both the Internet and VANs as a transfer mechanism for EDI transactions.

Purchasing drives EDI use

Of the 90% of I.D.A. members using EDI technology with their customers, on average, the total transactions done via EDI with their customers is 10% currently and is expected to reach 15% within one year. On the other hand, only 4% of I.D.A. respondents' customers are using EDI with distributors, and that is expected to increase to 7% in the next 12 months. About 13% of I.D.A. respondents' total business-dollar volume with their customers is done via EDI. This number is expected to reach 17% within one year. EDI transactions with customers are expected to increase within the next year. Overall, the customers that do use EDI account for a larger percentage of business-dollar volume.

The most commonly used transaction sets via EDI are purchase orders (83%), purchase order acknowledgements (64%) and invoices (63%). The largest increases in use within the next 12 months are expected to be in the use of payment order/remittance advice (19%), shipping order/manifests (13%), and price sales catalogs and invoices (10%).

Fifty-eight percent of ASMMA members and 62% of I.D.A. members report having their EDI system integrated into their host/main computer system. Large members of both organizations are more likely to have their EDI system integrated into their host/main computer system. Thirty-six percent of ASMMA members' and 40% of I.D.A. members' EDI transactions are integrated into their host/main computer system. These numbers are expected to increase within the next year to 46% and 49%, respectively, as manufacturers and distributors enhance the capabilities of their host/main computer systems.

When the same question was asked regarding suppliers, the numbers were somewhat different. Only 19% of EDI transactions with suppliers were integrated into the ASMMA respondents' computer systems as opposed to 35% of I.D.A. responding members' systems. The I.D.A. respondents expect a higher percentage of these transactions to be done with one year from now, about 44%.

When asked to name the five most important primary motivators for engaging in EDI, the ASMMA respondents indicate pressure from customers (77%), reduced errors (68%), customer retention (63%), decreased labor costs (47%), and need/desire for more accurate information (47%) as top reasons.