EDI and XML: the two faces of internet connectivity: look for peaceful coexistence rather than a fight to the death when it comes to these two document exchange systems

Frontline Solutions, March, 2004 by Larry Tuck

For years, retailers, distributors and trading partners have used electronic data interchange (EDI) to exchange purchase orders and shipping instructions. Originating in the days before the Internet became a common business tool, EDI interchanges took place over dial-up or dedicated phone lines, usually in batch mode, and were typically brokered by service providers called value-added networks (VANs).

Starting in the late 1990s, XML, an Internet-based system for electronic document exchange, was touted as a cheaper, more versatile replacement for business communications. EDI, some insisted, was dead.

Today, though, EDI is still going strong, and most observers believe that the two systems will coexist for a long time to come.

It Works

"I think that EDI will continue, particularly for the classical things that it's done," says Brian Gibb, director of standards and strategic technology, Sterling Commerce. "The buy, invoice, purchase order and shipping notice--they're not going to rip that out and change it in the name of technology. I'm confident of that. I've talked to a lot of our customers, and that's what they're saying."

EDI-based commerce systems "work exceedingly well in the areas where they've been deployed, largely retail and the traditional manufacturing spaces," says John Radko, chief technology strategist, Global Exchange Services, a large EDI VAN. "They're here, working. If I were to try to build an ROI case around eliminating the EDI formats in favor of XML formats, it simply cannot be done."

Indeed, most larger retailers and distributors have built extensive networks with trading partners that would be difficult and costly to replace. "We've escalated our EDI trading partner community from one 14 years ago to close to a thousand unique trading partner IDs," says Eric Falls, eBusiness manager, Fastenal Co., a distributor of fasteners and other industrial supplies. "We've got EDI relationships with our freight and telecommunication vendors, with various e-marketplaces and e-portals that we are also involved with."

XML Growing

At the same time, many companies are also investing in XML. In some cases, they're using it to build lower-cost connections with smaller trading partners; in other cases, to automate new business processes, especially those that involve real-time transactions, for which EDI is not well suited.

Although established companies are disinclined to scrap existing investments in EDI, Gibb says, they're starting to realize that some of their business problems cannot be addressed by EDI because the technology's characteristics don't always lend themselves to solving the problem. So in those cases, they're going to implement XML.

For instance, initiatives such as collaborative planning, forecasting and replenishment (CPRF) are good prospects for XML implementations. "When my inventory runs out, I would like to have that event trigger a message to my supplier to order more of the product," Gibb explains. "EDI is not as good at handling event-driven scenarios like that. XML and the Internet are much better technologies for handling those kinds of things, where you have an ad hoc or unplanned event that will affect your business cycle."

For planned and predictable scenarios, EDI is "more efficient than XML in a lot of cases," Gibb says. "XML is likely to be used for [such] new scenarios, and EDI is likely to remain in place for the things that it does and does well. It is likely that companies will bring those together in a platform that understands both and is agile in handling both technologies," he predicts.

Working with Partners

Some large companies that use EDI find it advantageous to give smaller trading partners an XML-based solution (rather than asking them to invest in an EDI system) that can accept information for transmission to the larger partner in XML and then translate it into EDI.

Bob Spence, project manager, B2B, at electronics parts distributor Future Electronics, says his firm does just that, providing customers with an XML-based purchasing program called First. "Basically it's a replenishment system or a materials management system that we can give to a customer preloaded with parts that they normally buy from us. The buyers can launch an order or an order release from wherever they are."

Fastenal gives its customers a similar option by letting them communicate with the distributor in XML. "We've got probably around 20 or so customers up and running on some flavor of XML. We really find ourselves using both EDI and XML for the same goal--being able to exchange common business data in a format that's reliable and easy to use for both parties," Falls says. "There's definitely a place in our industry for both."

Making the Choice

Given that EDI and XML will coexist, how does a company choose between these technologies? For smaller companies, there may not be a lot of choice. "If I'm a small business and I need to exchange business

documents electronically with, say, a Wal-Mart or a Target, I'm going to probably receive their purchase orders via EDI, send invoices via EDI and send ship notices via EDI," says Nick Marchetti, vice president of B2B Services at Global Exchange Services. "But if I'm going to do something new--such as publish product and pricing information to a central repository managed by a third party--that's probably going to be in XML because that's a process that's new to the retail industry."