EDI's definitely not down for the count: Despite numerous reports that it's being challenged by an upstart Internet-based technology, electronic data interchange (EDI) is not going away anytime soon. That was the message delivered in an exclusive Reed Business Information survey that delved into companies' plans for automated data exchange. A full 71 percent of the 421 respondents to the survey said they still employed EDI for business-to-business data communication, which comes as little surprise to most consultants active in the logistics field. "I haven't come across anybody tearing down an existing EDI link," says IBM consultant Gary Cross.

For the past two decades, EDI has served as the mainstay for business-to-business data communication. But many experts believe that an alternative method of computer-to-computer communication—the use of extensible markup language (XML)—has begun to make inroads. To gauge where things stand, Logistics Management and its sister publications Modern Materials Handling and Warehousing Management surveyed readers about their future plans for data communication.

The survey respondents, who represented manufacturing (53 percent), service industries (16 percent), wholesaling (10 percent), retailing (5 percent) and miscellaneous industries (16 percent), hailed largely from small to mid-sized companies. Well over one-third (37 percent) came from companies with revenues of less than $50 million, and another 15 percent reported that their company revenues fell between $50 million and $100 million. But large corporations were well represented too. The remaining respondents came from organizations with revenues between $100 million and $500 million (18 percent), between $500 million and $1 billion (9 percent), and exceeding $1 billion (21 percent).

EDI, defined as the interchange of information from one company's computer to another's over communications circuits in standard formats, has gained a large following in the past two decades among large shippers and carriers, which probably reflects the technology's roots in the transportation field. Although EDI is used today to send general commercial messages ranging from purchase orders to advance shipment notices, the practice arose out of transportation in 1968, when a handful of transportation companies formed the Transportation Data Coordinating Committee (TDCC). Seven years later, that group published the first set of draft EDI transaction-set standards for documents used in air, motor, ocean and rail transportation.

But the TDCC was not alone in its efforts to create standards for EDI transmissions. In 1979, the American National Standards Institute (ANSI) formed the Accredited Standards Committee X12 (ASC X12), which was handed the mission of creating uniform interindustry standards. Independent of TDCC, the X12 group began developing standards for the computer-to-computer interchange of general business documents like invoices, product specifications and promotion information. In the '80s, efforts got under way to reconcile the two organizations' standards and eventually TDCC merged into ANSI X12.

Today it's estimated that 100,000 U.S. corporations use EDI, says Mike Rawlins, a consultant in his own firm, Rawlins Consulting. To engage in EDI with trading partners, companies need special software and a value-added network (VAN), which acts as a clearinghouse for messages, translating them so that they can be read by different types of computers. That's not always cheap. Although VANS offer different pricing deals, Rawlins reports that, on average, a company pays about a nickel to transmit a document. "For a very large company," he notes, "the VAN bill could reach tens of thousands of dollars a month."

Given both the VAN expenses and the very significant investment required just to get started with EDI, it's no surprise that expense was one of the top reasons cited by our survey respondents when asked why non-users had not implemented this technology. Other reasons included no visible benefit (46 percent) and the hassles of putting EDI in place (9 percent).

To get around those costs and hassles, a number of industry organizations have been looking into using the Internet as a channel for corporate data communication. One solution that has been put forward is the use of XML technology, which enables programmers to use special tags to identify various types of messages sent through cyberspace. Under this approach, a standard Web browser can quickly recognize that a sequence of numbers—say 1,2,3—refers to a purchase order or an advance shipment notice, and then direct the appropriate computer application to act upon that information.

Industry observers note that XML offers the potential to become a low-cost alternative to EDI. "XML will enable EDI to go to a broader audience," says Frank Kenney, a knowledge specialist at the Gartner Group, a market research firm. Adds Mark Crawford, a consultant with the Logistics Management Institute, "As the XML technology tools mature and as cross-industry XML standards become more readily available, we will see new implementations shifting into XML."

For XML to provide data integration between trading partners, however, companies would all have to agree upon various definitions and load common schemas for them into a Web browser. A number of industry groups have announced initiatives in this area. The industry consortium RosettaNet, for instance, is developing message standards in the electronics industry. Another organization, the Open Application Group, has a similar effort under way. And the X12 group has begun looking at ways to translate the standard EDI messages into an XML format.

Even though the standards are still under development, a number of pioneers have already forged ahead and begun employing XML to transmit data. Our survey found that 50 percent of the respondents already using EDI have also begun to deploy XML. Further, 56 percent of all survey takers said their companies planned to adopt XML in the future.

Still, nearly half—44 percent—of the survey respondents plan to remain on the sidelines for now. When asked why they had not proceeded with XML, 54 percent said that they felt the technology was too expensive. Another 28 percent failed to see any benefit from its deployment, and 7 percent said that it posed too much of a hassle.

This reluctance to forge ahead does not surprise most industry observers. Although they believe that operations managers in manufacturing and logistics can look forward to a day when companies will substitute XML messages for EDI, no one expects that switch to take place immediately. "The standards aren't there yet," says consultant Rawlins. "In the big picture, the XML technologies are immature. They haven't been implemented widely enough by vendors [to be] a realistic alternative to EDI."

For starters, XML has not turned out to be as simple to deploy as first thought. "We have a very complex set of syntax rules for building XML documents, not unlike the syntax rules of X12," says Mark Crawford, who in addition to consulting serves as the vice chairman of the X12's XML working group.

In addition, many corporations have security concerns about using the Internet as a conduit for their commercial messages. "People are concerned about sending documents over the public Internet," says Rawlins. "They're concerned about confidentiality. They want to make sure that the data aren't altered in transmission. It would take a sophisticated hacker to do that, but it's possible."

On top of that, most Fortune 500 companies have spent a substantial amount of money in the systems that facilitate EDI messaging. "There has been a significant investment in assets in order to have EDI in place and they serve a purpose if you have lots of data to move," reports Cross. "So nobody's about to get rid of it."

If companies hope to work with their supply chain partners to coordinate manufacturing and distribution activities, they'll still need to have some method of data communication. For the time being, at least, that probably means EDI. Although XML may represent the way of the future, EDI has solid support at the moment. "For the next couple of years, I would recommend EDI [for communications]," says Rawlins. "It's out there and it works. And there's a good chance [your] trading partner uses it."