XML Volumes Increase Dramatically, but EDI Dominates Networked Supply Chain

Although no analyst would contest that XML has become a critical networked supply-chain standard, there is a widely mistaken perception that XML will replace EDI, the primary way companies exchange information today.

XML is indeed a critically important technology and the Yankee Group expects 2004 will be the breakout year for B2B XML because of falling costs and the adoption of standards such as AS2 and UCCnet. However, XML adoption will grow in tandem with EDI and the transaction volume on both networks will rapidly increase.

EDI transaction volumes increased by 18 percent in 2003. XML transaction volumes increased approximately 160 percent in the same period. However, XML growth comes from a much smaller base, and is approximately only 5 percent of overall B2B data flows.

Even the amount of information being exchanged through portal technologies outpaces that of XML, increasing at two to four times the rate of XML data exchange. Although the adoption of XML is imminent, its transaction volume won’t outpace EDI’s anytime soon.

The Yankee Group asked IT professionals within 110 leading companies with more than $1 billion in annual revenue to rate the value technologies like XML, EDI, and Web Services will add to their businesses in 2003 (see Exhibit 1). XML received a 3.54 rating, slightly above neutral. On the other hand, industry standard specific XML (such as RosettaNet, CIDX, UCCnet) received a 3.96, or positive value. Therefore, XML perceived value is higher when there is an industry initiative around adopting XML. One of the reasons XML adoption is slow is that it is an immature standard. Where there is maturity is in industry flavors of XML like RosettaNet and UCCnet where these standards have achieved some level of success and adoption by industry leaders. Otherwise, enterprise IT decision makers are lukewarm about its prospects, as plain XML was behind EDI.

Trend Drivers
So why is B2B data exchange at the forefront of technology spending? How should companies leverage their existing B2B infrastructures or expand them?

Demand for all of the B2B technologies listed in Exhibit 1 will rapidly increase because of changing IT priorities. Today’s leading companies are shifting priorities to drive electronic supply-chain investments at the edge of the enterprise rather than focus on core or internal functions like HR or finance. These edge applications support partner communications and improve supply and demand management (order management portals, EDI, PLM, CPFR, SRM, collaborative logistics, etc.). Collaborative edge technologies can reduce supply chain costs by as much as 50 percent. Given this opportunity, many enterprises are investing in externally focused technologies to improve effectiveness.

According to the Yankee Group’s 2003 Edge of the Enterprise end-user survey, 71 percent of companies (from a 78 end-user sample) increased spending on applications that improve interactions with customers, suppliers, and service providers during 2003, compared to 2002. Spending on edge-of-the-enterprise technology increased (from a limited base) by more than 75 percent in 2003 compared to 2002.

Because companies are more anxious to increase the flow of electronic information through their partner networks, they are investing in B2B technologies. In the Yankee Group’s 2003 B2B Decision Maker Survey, 96 percent of respondents indicated electronic communication with supply chains was a top corporate priority. Sixty-six percent said the need to improve electronic communication with partners is urgent. More than half of the companies interviewed (56 percent) expected their 2003 electronic supply chain budget to increase. On average, the Yankee Group expects electronic supply chain spending to increase by 12 percent during 2003.

Enterprise Recommendations

• Look for opportunities to expand your organization’s EDI network. One of the reasons XML adoption hasn’t skyrocketed is that XML capital and labor expenses are higher than EDI’s. Companies require software to do XML translation while they can just throw more people at EDI. Look for ways to expand your EDI network. Companies can for instance, add new transaction sets such as advanced shipping notices (ASNs). Alternatively, they can find opportunities to increase the number of partners they use EDI with, increasing data exchange beyond the typical top 20 percent of partners in the network.
• If investing in XML, define a migration strategy that minimizes dual infrastructure TCO. Real-time XML data exchange is attractive because the savings can be impressive—faster transaction throughput, improved customer and supplier data quality, elimination of manual processes, and reduced supply chain costs savings. But the costs are high; Intel spent millions on its RosettaNet initiative including an EAI platform, EAI implementation, RosettaNet mapping, partner management, and partner training or on boarding. Companies should clearly define how they will leverage a mix of the old and new, EDI and XML, to minimize the risk of building and maintaining two infrastructures in parallel to do the same thing.

• Provide guidance to companies for cost-effectively reacting to industry standard mandates. Manufacturers in high-tech, CPG, and chemicals industries need assistance migrating to industry standards, especially second-tier suppliers. Sterling Commerce, GXS, webMethods, TIBCO, Vitria, EXTOL, and Inovis should articulate and deliver the TCO advantages their RosettaNet or UCCnet offerings provide the rest of the technology value chain.
• Offer a range of options to support companies that are unwilling or unable to build additional B2B infrastructure and expertise. Most companies are not in the business of building and maintaining sophisticated supply chain communication networks. Vendors need to offer outsourcing, hosting, and business process management services as alternatives to tradition VAN and EDI translator offerings. Mixed service and software offerings will allow companies to meet Edge of the Enterprise business objectives without breaking the bank.