Wal-Mart Mandates Secure, Internet-Based EDI For Suppliers

By Richard Karpinski

Wal-Mart is known for a lot of things: deep, deep discounts; re-shaping the retail landscape via its stores and warehouse clubs; the homespun legend of Sam Walton; and more.

But in IT circles, the retail giant is best known for its ahead-of-the-curve adoption of new technologies to automate its business and cut costs, as well its ability to "force" its suppliers on board -- or else. Few suppliers can afford to not do e-business the Wal-Mart way.

This past week, Wal-Mart made a little-noted disclosure that could nonetheless have a huge impact on its bottom line -- and on e-business in general. It said has begun rolling out a new EDI platform from vendor iSoft Corp. that will eventually drive its tens of thousands of suppliers to do EDI transactions with Wal-Mart via the Internet -- rather than over more expensive value-added networks (VANs). In a related note, vendor IPNet Solutions rolled out its own AS2 solution for Wal-Mart suppliers last week.

Wal-Mart and its vendors will be leveraging the relatively new AS2 standard, which adds significant security and scalability to Internet-based EDI. It is testing AS2-based EDI with its largest suppliers today and is beginning to reach out to small and medium suppliers this month.

Analysts cite the retail giant's move as a major landmark that could have major e-business repercussions.

"Wal-Mart is the first company I'm aware of to absolutely mandate AS2," said Ken Vollmer, analyst with Giga Information Group.

"I think it's going to have a fairly dramatic effect on the industry," said Christian Putnam, CEO of vendor iSoft.

The biggest benefits, not surprisingly, should flow to Wal-Mart itself.

"It's a good deal for Wal-Mart," said Vollmer, noting that the retailer stands to save millions of dollars in VAN fees by moving traffic to the Internet. However, Vollmer cautions that while Internet-based EDI is by nature less expensive than VAN-delivered transactions, the cost of supporting and managing those transactions in-house can eat away at the savings. Wal-Mart may just be big and powerful enough to overcome such concerns, he said.

"They are big enough to tell people what to do if they want to do business with them," Vollmer said. "They can also afford the staff and the technical people to monitor the thousands of connections that will now be coming in."

For Wal-Mart, it's all about making better use of data to save the company, and the customer, money, said a company spokesman. "Any savings gets driven right to the bottom line," the spokesman said, adding that Wal-Mart is just gearing up to roll this new program out to its suppliers, and will work closely with them to make it a success. "We look to take out any cost we can."

Wal-Mart has more than 14,000 suppliers who process more than $217 billion worth of transactions via EDI annually. The AS2 standard grows out of work in the Internet Engineering Task Force to build a more reliable and secure way of moving messages -- not just EDI transaction sets but any sort of message -- via the Internet. It includes built-in support for public key encryption (PKI), which secures every transaction sent over the network, not just the communications channel itself.

Vendor iSoft's Commerce Suite Software takes advantage of the AS2 standard to provide trading community management, public key infrastructure technology, and IP-based secure communication infrastructure. Data transmitted over public and private global networks using AS2 will be digitally signed, secure and non-repudiated.

One of the selling points of iSoft's software is that it can let Wal-Mart set up what amounts to an EDI server farm and manage incoming EDI messages in "a load-balancing type of configuration," said iSoft CEO Putnam.

"The reason this technology hasn't been more widely adopted is that there hasn't been a solution that can handle large volumes [of EDI traffic]," Putnam said. "You have to have a server product capable of running over multiple servers and able to handle gigabytes or even terabytes of traffic."

In addition to providing the software that Wal-Mart will run its data centers to be able to receive AS2-formatted transactions, iSoft also will serve as Wal-Mart's vendor of choice for suppliers. As part of that deal it will offer suppliers an AS2-ready EDI solution at a price that starts with no license fee and just a $300 annual support fee -- a major discount, according to Vollmer. That said, suppliers can use any AS2-certified vendor, and many will choose to work with their current vendors on new AS2 solutions, Vollmer said.

Indeed, suppliers have some tough choices to make in going to AS2. If Wal-Mart is their only partner exchanging AS2 transactions, it may not be affordable or practical to build an Internet-based link just to that one supplier, Vollmer said. In that case, the supplier may want to continue to push its Wal-Mart EDI traffic to an Internet VAN, which would then push it through an AS2 gateway to meet Wal-Mart's AS2 requirements. That wouldn't be the perfect solution, but might be a pragmatic approach for suppliers dealing with the transition, Vollmer said.