Wal-Mart Dictates Technological Terms

By Larry Barrett Print this article Print

Wal-Mart is forcing its suppliers to follow its lead. UPS is forcing its rivals to react. How do you protect yourself if you're not the technical leader in your industry?

It would be as if the guy who runs the town's biggest market started telling farmers which roads they had to take to get to him. PDF Download

Like the farmers, suppliers accustomed to developing their information-technology strategies around what they think is the best way to run their business are coming up against a harsh new reality, one in which key customers are setting the agenda and deciding what systems the suppliers ought to use.

From discount retailer Wal-Mart to the United Parcel Service transport company, businesses that are technology leaders are forcing their suppliers, and in some cases their head-on competitors, to follow their lead. How can you be sure that the changes being imposed on you by this power shift are good?

Take Wal-Mart stores. Last month, the $218-billion discount retailer announced in a memo to each of its 14,000-plus suppliers that if they wanted to continue doing business with the world's largest retailer, they would have to do it on Wal-Mart's technical terms.

The company said it would now require its vendors to use new data transmission proto- cols known as EDI-INT (Electronic Data Interchange-Internet Integration) and AS2 (Applicability Statement 2) for all purchase orders, billings, invoices and pricing correspondence. The protocols allow data to be exchanged directly between partners via the Internet rather than routed through an e-mail server.

Do It Best, a building materials, lumber and hardware consortium with 5,500 member retailers including Home Depot, Lowe's Company and Dixie Line Lumber, is also requiring that each of its suppliers conduct business via Internet EDI within a year.

"This is the story of EDI," says Frank Kenney, an analyst at technol-ogy market research firm Gartner Inc. "When a huge company like Wal-Mart says it's no longer going to take fax orders or invoices, you have to do what they want or else you risk losing your biggest customer. That's the clout that Wal-Mart has."

Wal-Mart says it no longer wants its suppliers to use traditional EDI technology and expensive value-added networks (VANs) provided by the likes of IBM, GXS and EDS to guarantee the security of business-to-business communications over the Internet. Until the AS2 protocol was developed, business partners needed VANs, which use the communication services of other commercial carriers to securely transmit data between two or more partners, to guarantee the secure exchange of information.

The AS2 standard, on the other hand, allows business transactions to take place securely in standard Web communi- cations. AS2 places a document in an envelope and encrypts it with digital certification—whether it's a simple Excel spreadsheet, say, or a document written in XML, a language designed to improve the functionality of the Web by providing more flexible and adaptable information identification. When the document arrives at its destination, the software on a user's desktop decodes the document.

This article was originally published on 2002-11-01
Senior Writer
Larry, of San Carlos, Calif., was a senior writer and editor at CNet, writing analysis, breaking news and opinion stories. He was technology reporter at the San Jose Business Journal from 1996-1997. He graduated with a B.A. from San Jose State University where he was also executive editor of the daily student newspaper.
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