XML OR EDI? Tracking the evolution of the two technologies is one of the biggest challenges facing the supply chain, particularly when XML standards are still evolving and EDI (electronic data interchange) remains deeply embedded in many legacy systems.
One company coping with the complex reality of this issue on a daily basis is global IT distribution outfit Ingram Micro and its value-add division IM-Logistics, which recently added the distribution of brand new Windows XP boxes and marketing collateral to its résumé.
But glitzy launches aside, the Californian company faces a situation common to many companies dealing with supply-chain technologies: lowering the cost of operations and improving ROI on technology investments.
But company executives revealed in an interview with ARN that XML and the dream of Web services is not yet the solution to all its problems.
"Frankly, we're not hearing from our customers that they want to go XML," said Terry Tysseland, senior vice president of US operations at IM-Logistics.
The supply-chain engine driving the company's business model is a complex home-grown EDI-based system, internally known as IM First. On the product supply side, this proprietary system connects five North American distribution centres and a multitude of international operations. On the IT product and service delivery side, it uses the traditional distribution functions at parent Ingram Micro to interface with customers such as resellers and integrators.
Ingram has spent millions linking its EDI system with the back-end systems at almost every major IT vendor on the planet and has spread the expenses across the balance sheets of those vendors involved. As a result, the dream of a unified Web-based XML world is not going to come quickly. Tysseland said widespread use of XML would only happen when it can be used to conduct "industrial strength" transactions.
Guy Abramo, Ingram Micro's chief strategy and information officer and executive vice president, explained that EDI is the company's pervasive technology of choice "because it's the technology of choice for our business partners".
But XML connectivity does exist as an option via RosettaNet protocols as a viable alternative to customers that require it, he said. A case in point is Best Buy, where IM-Logistics uses XML to link into Best Buy's IT systems, receive online orders for Ingram to deliver to the customer, and feed back real-time sales and product shipment data.
"The issue we have, as with any technology, is standards," Abramo said. In addition, he said that from the integration perspective there's little advantage between the two because both XML and EDI customer interface connections remain custom jobs. "No two companies have the same accounts payable system, for example," he said. "So the cost is fixed to some extent."
In an ideal world, the executives admit standard APIs available via the Web services model would dramatically improve the integration time and reduce costs. "But until everyone is willing to build standards in all the applications it's going to be a custom job no matter what you do," Tysseland said.
And right now, integrating its system with those of vendors according to specific requirements suits IM-Logistics just fine. The division's senior vice president and general manager, Michael Terrell, described the division as Ingram Micro's supply-chain consulting arm. The existing EDI system offers the flexibility of offering procurement management; pick, pack and ship; real-time inventory levels; and product returns without too much hassle, he said.
And the value proposition is there for vendors looking to tighten their inventories. "Big manufacturers are trying to get out of the build-to-forecast model," Terrell said.
Talking corporate efficiencies, Ingram recently posted net sales in its third quarter of $US5.83 billion versus $7.56 billion in the same quarter last year. Net income before special items, including reorganisation costs and write-offs, was just $5.4 million. Including special items, the company posted a net loss of $13.3 million, instead of the $38.9 million net income in the same quarter last year. On the upside, it says gross margins are rising and its leveraging tighter inventory and expense controls.
So if IM-Logistics is going to help its parent improve the balance sheet in a tough economic climate, it's hoping one solution will be reducing the time and cost taken to build and maintain this complex system as standards around Web services improve.
And as it stands, the company needs 400 IT people to support Ingram Micro's operations. Some industry observers believe reducing IT staff through the integration efficiencies gained by Web services is a possibility, even if it's a distant reality.
According to recent research by analyst firm The Sageza Group, enterprises are signalling a clear trend toward adoption of XML-based Web services. Of 247 enterprises surveyed deploying Web services or XML, the company reports, 180 were using EDI right now. But two years down the road only 90 still planned to use EDI, with most companies planning a complete conversion to XML in the future.
"We're in an early transitional stage," said Clay Ryder, vice president and COO at The Sageza Group in California. "XML is not going to cause an overall ripping out of EDI."
Ryder agreed with Ingram's comments that EDI remains a stable platform, to a point. "At the same time that's like saying the 1964 Dodge Dart is stable and the best car going forward for the future," he added.
EDI means you must know absolutely everything about your business partners, while XML offers flexibility, he said. But because of EDI's ability to leverage existing mainframes and legacy applications, Ryder said EDI will never be completely eliminated.
"I hate to admit it, but I'm resigned to that," Ingram's Abramo said. He believes customers will continue to drive the connectivity technology decisions, which means both EDI and XML will remain partners for a long time to come.
"One thing I'm not short of these days is work," he said.