Doing business the paperless way

Black Enterprise, Nov, 1996 by Tariq K Muhammad, Ronald Roach

GLENN H. FORD, PRESIDENT OF ASHCURT Scientific, a laboratory supply company, didn't need much prodding to adopt electronic data interchange (EDI) when he launched the company two years ago. As the computer-to-computer transfer of business transactions between companies, EDI would help Ford's Plymouth, Minnesota-based company expand its regional reach and increase the number of contracts on which it could bid. Long the province of big corporations, EDI is now helping many small and medium-size businesses, like Ford's company, increases their competitiveness.

In fact, one of Ford's prospective clients, Abbott Laboratories, required that its suppliers adopt EDI to facilitate business. Despite having to spend roughly $4,000 in start-up costs, Ford committed to EDI as part of his company's overall launch plans. "EDI costs were high, but it was a necessary investment. A major client had insisted on it." Today, Ford processes about 22% of his purchase orders using EDI.

EDI is changing the way businesses interact. For years, large corporations benefited from the greater efficiency and reduced costs of the technology. Now, many require that their suppliers, like Ashcurt Scientific, be EDI capable. Following the example of corporate America, the federal government, led by the Department of Defense, is embracing this form of data transfer, which is expected to reduce the administrative costs of the federal procurement process, encourage greater competition among suppliers and lower prices. EDI also benefits small businesses by lowering processing costs and enabling them to compete for contracts beyond their regional bases.

The combined push by private industry and the federal government is bringing small and medium-size businesses into the EDI arena. The Federal Acquisition Streamlining Act of 1994 mandates that the government go entirely electronic in its procurement process by the year 2000. The Department of Defense has already established a detailed schedule for automating trading with vendors. Under the Streamlining Act, government buyers can use point-to-point electronic trading with purchases up to $100,000; previously, the Simplified Acquisition Threshold was $25,000. At the same time, all purchases between $2,500 and $100,000 are now exclusively set aside for small businesses; this expansion in the federal market should, in turn, greatly accelerate the use of EDIs in the procurement system.

Meanwhile, Jan Zimmerman, author of Doing Business With the Government Using EDI (Van Nostrand Reinhold; $29.95), estimates an increase of nearly $10 billion in the federal government's small business allotment. This represents an enormous opportunity for companies seeking government business. But the impending EDI requirement raises the costs and barriers to doing business: More competition will mean lower profits and some companies may lose local business to distant competitors. For some companies, it'll be wise to implement EDI now, while others will be better off waiting until it reaches critical mass.

WHAT lS EDI?

EDI allows companies to transact business without the hassle and time associated with data entry and mailings, the traditional method of handling paper documents. Electronic interaction replaces paper in most business-to-business transactions. Requests for, and responses to, proposals, invoices and acknowledgments are conducted via computer. This produces lower transaction costs and quicker response time both for the customer and the supplier. It also eliminates much of the inefficiencies and possibilities for error that are traditionally a part of the manual entry and dispatch of business information.

Of course, if your current or prospective private-sector customers aren't requiring EDI, and you have no plans of doing business with the government above the $2,500 threshold, then this technology is not an immediate concern. If you have plans to sell to the government, make sure that they are purchasing your particular product or products via EDI. Most of the cu purchases via EDI are as medical and office and office furniture.

"The most important thing when considering EDI is to find out if your customer base requires it," says Paris Inman, who launched Capital Paper Express, a Washington D.C.-based reseller of paper and laser printers, along with partners Derrick Hicks and Darryl Wiggins. In its start-up phase, Capital Paper Express generated nearly $50,000 using EDI to bid on Xerox paper requests by the U.S. Army and Navy, and Inman expects that figure to increase. While the federal government is clearly moving toward EDI, Inman notes that not all agencies are compliant.

"The majority of government agencies are not yet using EDI," agrees Sunil Bajaj, director of network services at the Fairfax Electronic Commerce Resource Center in Virginia. He believes company owners should decide about using EDI with federal contracts only after finding out if the government purchases their goods in a significant volume. "Companies also have to make sure they have the capability to deliver goods to distant sites and remain cost-competitive in the process," he adds. The Electronic Commerce Information Center (800-334-3414; or Web site: www.acq.osd.mil/ec) offers business owners information on which agencies and products have high EDI transaction rates.