1999 EDI on the Internet:
Room for Growth in Japan?

- by Yaeko Mitsumori -

EDI (Electronic Data Interchange) is defined as the technology that facilitates the electronic exchange of data between businesses, and although well over 20-years old, EDI is enjoying a newfound popularity recently, courtesy of the e-commerce boom. First designed by the transportation and shipping industry in an effort to reduce paperwork, EDI use branched out to the health care and insurance sectors, government procurement, and finally Internet transactions. Though never as popular in Japan as elsewhere, Japan Inc. seems set to give it another go.

At the end of November, a large conference room at Nippon Unisys' headquarters in central Tokyo was filled with engineers and procurement specialists who had come to learn more about the recent developments in Internet Electronic Data Interchange (EDI). All of the lecturers at the "Internet EDI Seminar," organized by CommerceNet Japan (CNJ), are frontline engineers from companies which are actively using Internet EDI. The CNJ is a Japanese chapter of Commerce Net, a worldwide organization aimed at promoting e-commerce (EC). Launching the Internet EDI project in May 1997, CNJ has been surveying the present status, studying technological innovations of Internet EDI, and providing education.

Newfound interest

Internet EDI is winning attention in Japan among small- to medium-sized enterprises (SMEs). The Ministry of Trade and Industry (MITI) and several industry associations have been making great efforts to introduce and expand legacy EDI for the past decade. However, due to its high initial investment, running costs, and complicated operational systems, legacy EDI never really took off in Japan. At the CNJ seminar, it was reported that a mere 16 industries have, or are about to introduce, legacy EDI.

Legacy EDI typically uses leased lines or WANs, and is operated according to precise and rigid guidelines. User companies are required to bear a large initial investment and high operational costs, which usually makes sense only for larger enterprises. A shortage of IT engineers is another reason why SMEs have tended to put off introducing legacy EDI.

But as Internet use has mushroomed in Japan, Internet EDI started winning attention as an alternative to legacy EDI. Internet EDI is the interchange of messages for business transactions between computers of different organizations using standard agreements via the Internet. Internet EDI has many advantages of Legacy EDI: it requires a much smaller initial investment, lower communication costs, and is technically easier to implement. Some skeptics, however, argue that the Internet is not a suitable medium for EDI because of potential security risks. The Internet (an open network of mutually connected computers throughout the world with no single administrator) tends to be a ripe target for hackers. But due to advances in online security, the Internet has been becoming more secure. By applying strict security measures, it is possible to prevent most instances of personification, falsification, wiretapping, and the stealing and destruction of data.

Internet EDI is an extension of the current batch-type EDI, in which the EDI message is transmitted and received in file form. There are two types: file transmission type and e-mail type. The former uses FTP (file transmission protocol), while the latter uses SMTP/MIME (simple mail transfer protocol/multipurpose Internet mail extensions).

Internet EDI can deal with audio and visual data, and requires a lower setup cost, but it cannot deal with large data volumes. Internet EDI seems to be a better solution for SMEs, especially companies that have not had any previous experience with the Internet.

Popping up all over

Sony Corp. exchanged its procurement data through the Internet for three months on an experimental basis with one of its part suppliers in Malaysia. The e-mail-type Internet EDI system was chosen at the time mainly due to a lack of other options. In the experiment, Sony sent out data on Mondays and Tuesdays, and the Malaysian firm sent back their data on Wednesdays and Thursdays. Some 20 pieces of data were exchanged per day during the period. The total cost for the Malaysian company was about ą6 million; the cost for Sony was about ą11 million. According to Masaaki Naito, Deputy General Manager of EIAJ (Electronic Industries Association of Japan), Sony is now looking at adopting either Internet EDI or XML EDI for practical use.

NEC Corp. has been employing legacy EDI for the past decade. Among its 3,000 suppliers (including parts and materials makers), about 900 firms are using legacy EDI. As part of its effort to expand the use of EDI, NEC has begun using Internet EDI. About 200 of NEC's suppliers have moved to Internet EDI. NEC has said they are scheduled to introduce Internet EDI to all of their major clients by this September. NEC estimates they will save ┼Ŕ60 million in purchasing costs per year by introducing the system.

But NEC is not planning to replace their entire legacy EDI network with the new Internet EDI. Rather, the firm will let each client choose the type of EDI they wish to use. "Internet EDI is easy to introduce and has smaller communication fees. But from a security standpoint, legacy EDI is for superior to Internet EDI. And as many of our customers are accustomed to using legacy EDI, they╣re not eager to switch to a new system," Shimo explained. NEC decided to use EDI more aggressively as part of its total production renovation effort aimed at both slashing a variety of costs, as well as shortening business lead-time.

Mitsui & Co. is using Internet EDI for its solution provider business. A year ago, Mitsui won a distribution project from an electronic machinery manufacturer based in Japan. The manufacturer imports parts from 20 Indonesian companies, which together ship parts to the electronic company 8,000 times a month. Controlling all of the delivery schedules had become a major headache for the firm, spurring their decision to outsource the process. Today, the electronic firm sends a manufacturing plan to Mitsui╣s EDI center every three weeks through the Internet. Based on the manufacturing plan, an employee at Mitsui╣s Singapore branch works out a procurement plan, and then orders the necessary parts and materials from the Indonesian parts firms through the Internet. Ordered parts are stored at Southern Cross Carriers (Pte) Ltd., a Mitsui subsidiary in Singapore. Carefully watching the production status, Mitsui delivers these parts to the Japanese firm every two to three days . The Japanese firm was able to cut its distribution cost by 30%, Mitsui said.

Yukihiko Shoji, manager of the Network Planing Department of Mitsui, says, "Businesses using legacy EDI have lost their marketability. The Internet is opening up new opportunities, new services we can bring to our clients. Internet EDI is a great example of that." Already Mitsui won 10 similar distribution projects around the world, all using Internet EDI.

Daiei Inc. introduced legacy EDI into its physical distribution system as part of its effort to improve the efficiency of business negotiations, and began implementing Internet EDI in the overall negotiation process between buyers and manufacturers. The firm is planning to introduce Internet EDI in its transactions with 800 trading counterpart companies by the end of this year.

Toshio Sakai, leader of the re-engineering project for Daiei, said that by introducing Internet EDI, Daiei could save up to ┼Ŕ1 billion. The Distribution Systems Research Institute, an organization under MITI, last April (1998) standardized EDI for distribution business on communication protocol, the browser, the graphic specifications, and the workflow. Daiei's system is following that standard.

NTT Data Corp. is doing a demonstration experiment using XML EDI, with the aim of implementing the technology into the firm╣s procurement system. XML (Extensible Markup Language) is a subset of SGML (Standard Generalized Markup Language). Acquiring its extensible characteristics, XML EDI can be processed by machines (Internet EDI cannot), and can display the data in a Web browser.

Hurry Up and Wait

An issue with XML EDI is that it is still in the discussion phase and no one is actually using it. Currently, browsers such as Netscape Communicator or Internet Explorer cannot deal with XML data. In a demonstration experiment, Dell Computer sent some data to NTT in the XML format. Since current browsers can╣t display the data, NTT is processing it in a different program. NTT Data is presently developing a new system (software) which will process XML data without a Web browser.

Hidekazu Enjo, senior manager of Advanced Information Network Services Sector of NTT Data, said a variety of data interchange systems - including conventional telephone and fax - may remain for the next five years. But afterwards, the myriad flavors should be pared down. "A big prerequisite for introducing Internet EDI is that the counterpart companies have at least a PC and Internet access. Today, the penetration rate of PCs and the Internet is not high enough in Japan," he said. "But hey, we will have some big business opportunities in the future [in the area of Internet EDI]."

For more on EDI, see the July 1997 issue of Computing Japan.

Internet EDI looks set for strong growth worldwide, including Japan, but there are some hurdles.

Higher Security

Internet EDI has many advantages: easy to implement, inexpensive, and easy to operate. On the other hand, it suffers from security weaknesses. To strengthen security, a variety of measures such as firewalls, IP Version 6 (IPv6), SSL, tunneling and RPF (Router Packet Filtering) functions have been developed and are being more widely used. For instance, NEC is using SSL for Internet EDI and VPN (virtual private network) for File Transmission EDI. Daiei is planning to use OBN to improve security, while Sony, in the MITI/APEC experiment, was using S/MIME.

Certificate Authority (CA) and Electronic Notarizing Agency

CA is a third party that issues a certificate of authentication and proves the validity of registered public keys. By using CA, both parties using the Internet EDI can confirm that each of them are the intended parties. In Japan, the number of CAs is still limited. In the Internet EDI era, there will likely be an electronic notarizing agency, which notarizes that an electronic contact was properly executed by the said parties, write-up the certificate electronically, store the electronic data, and prove their existence. The Ministry of Justice is reportedly working on this.

Standardization

Internet EDI currently has no standard, although Internet EDI is said to provide advantages because it breaks the standards for EDI. But the necessity to standardize Internet EDI has become a hot topic lately. At present, JECALS (Japan Electronic Commerce At Light Speed), which is under the jurisdiction of the Japan Information Processing Development Center, is gearing up an effort to standardize EDI systems, including Internet EDI, interoperability between legacy EDI and Internet EDI, as well as XML EDI.

Internet EDI vs. XML

CNJ expects that XML EDI will become the optimal solution, but many companies are taking a wait-and-see attitude. NEC╣s Shimo said that his firm is studying the technology, but it is still far from practical use. Hisanao Sugamata, senior researcher of JECALS, predicts a much faster track. He says that XML EDI will be standardized by the end of 1999, and will be widely used for the coming few years until it is replaced with the next generation system, dubbed Object Oriented EDI.





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