Electronic Data Interchange: Next Phase in Computerizing Graphic
NEW YORK (AP) _ Now that most major companies rely heavily on computers, the next step in the computerization of industry involves getting these computers to ″talk″ with each other.
Such linkups among computers at different companies are called electronic data interchange, or EDI. Though EDI has been around for years, it has yet to become widespread outside of a few industries. But once it does, U.S. industry could save billions of dollars a year, experts say.
EDI systems can automate much of the routine business between companies and their customers and suppliers. Electronic messages passed between computers can replace purchase orders, bills of lading, shipping slips and other paperwork.
″We know in 10 years this is going to be the way companies operate,″ said Thomas P. Colberg, an EDI consultant at Price Waterhouse, a large New York accounting firm.
One leading EDI user is Levi Strauss & Co., the San Francisco-based jeans maker.
Through EDI, a computer at a retail store can automatically reorder goods from Levi’s based on what has been sold. In turn, a computer at Levi’s automatically ships the goods and bills the store for the items. Little or no human intervention is required.
EDI also can be linked to an automatic payment technique called electronic funds transfer. Through such a system, for example, Sears, Roebuck and Co. pays for shipments from Levi’s by having its computer automatically credit a Levi’s bank account.
Soon, Levi’s plans to add another layer of EDI, in which its computers will automatically reorder raw materials such as fabric and thread based on the orders from retailers.
″It’s as if that entire chain - the retailer, the manufacturer and the supplier to the manufacturer - as if they are one company. The consumer buys and it goes right through to the manufacturer,″ said Paul Benchener, who is in charge of Levi’s EDI system.
″It’s exciting. It’s changing the way that business will be done in the future,″ he said.
EDI is not the same as electronic mail, in which a computer’s human users send electronic messages to each other. With EDI, the need for humans is greatly reduced.
EDI slashes the time required to reorder goods, and because goods arrive more quickly, it can dramatically reduce the amount of goods that must be kept on hand in warehouses.
The technology also virtually eliminates the errors that can crop up when orders are entered into computers by hand.
At Levi Strauss, computers order up production of jeans at the company’s plants to match incoming orders. Because of the precision in ordering jeans, Levis’ can order the exact amount of cloth, zippers and thread needed to make jeans to replace those just shipped.
That has allowed Levi’s to drastically reduce the amount of supplies stored at sewing plants. ″In some cases we don’t have any supply on hand,″ Benchener said.
In turn, some Levi’s customers have been able to sharply reduce their storage space devoted to jeans and other items because of the speed and precision with which they can get new supplies delivered. The ability to quickly reorder popular items in the most-wanted sizes and colors is a particular benefit to retailers, Benchener said.
These delivery techniques, called just-in-time inventory control or quick response, were popularized by Japanese manufacturers.
Sears says that due mostly to EDI, the retailer has reduced the storage space in newer stores to 20 percent of total area, vs. 50 percent once set aside for storage.
″We no longer are going to be using the stores as warehouses,″ said Lance Dailey, who runs Sears’ EDI operation.
The savings in paperwork have been just as dramatic, Dailey said.
″About half our invoices are electronic. It would be reasonable to expect that if we didn’t have EDI we’d have to have double the staff to process our invoices,″ he said.
Benchener said Levi Strauss implemented EDI more as a way to boost sales than to cut costs, but the company has benefited in both areas. The main advantage is that it freed up much of the time salespeople once spent completing customer orders by hand.
″What we’ve done is increased our sales but with the same (number of) sales reps,″ Benchener said.
About 40 percent of Levi’s orders now come in electronically, he said.
One hurdle in establishing an EDI system is getting companies accustomed to the idea of paying for goods without a slip of paper, or invoice, proving they received them, said Colberg. This practice is upsetting to some accountants and auditors, who like to have paper receipts to verify accounts.
David Atlas, an analyst at International Data Corp., said concern about paper documents may be misplaced. ″Just because you have something electronically doesn’t also mean you can’t have paper copies,″ he said.
In addition, electronic transactions usually are recorded on magnetic tape or computer discs.
A bigger obstacle preventing more widespread adoption of EDI is that industry has yet to agree on a standard for the systems, said Guy Fisher, EDI marketing manager for General Electric Co.’s GE Information Services, the nation’s largest EDI network.
As a result, he said, incompatible EDI systems are used, meaning a company using one system usually can’t exchange electronic documents with a company using another without first translating it through special computer software.
Analysts said EDI has gained wide acceptance in a few industries, such as aerospace, autos, retailing, pharmaceuticals, oil and banking. But when compared with the overall volume of routine business transactions, EDI remains a small fraction.
Input, a Mountain View, Calif., market research firm, says the domestic EDI market totaled about $280 million last year, including fees for use of EDI networks, related software and professional services. Input projects the market will grow about 40 percent a year through 1994.
Input’s figures do not include the in-house EDI systems established by the three major automakers and several large retailers.
Fisher predicts the next major industry that will adopt EDI widely is transporatation and shipping. He said the paper-based system this industry uses is ″a monstrosity″ that could be substantially streamlined through EDI.
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